What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-09 compared with 2022-11-04 · 337 added, 512 removed, 928 unchanged (48% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

2023 December 31,

4 unchanged sentences

Accounts receivable, net 967 963

Loans and interest receivable, net of allowances of $ 478 and $ 491 as of September 30, 2022 and December 31, 2021, respectively

Loans and interest receivable, net of allowances of $ 638 and $ 598 as of March 31, 2023 and December 31, 2022, respectively

Funds receivable and customer accounts 35,276 36,357

20 unchanged sentences

4,000 shares authorized;

1,147 and 1,168 shares outstanding as of September 30, 2022 and December 31, 2021, respectively

1,122 and 1,136 shares outstanding as of March 31, 2023 and December 31, 2022, respectively

Preferred stock, $ 0.0001 par value;

100 shares authorized, unissued

Treasury stock at cost, 161 and 132 shares as of September 30, 2022 and December 31, 2021, respectively

Treasury stock at cost, 192 and 173 shares as of March 31, 2023 and December 31, 2022, respectively

( 17,522 ) ( 16,079 )

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

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

2022 2021 2022 2021

Three Months Ended March 31,

(In millions, except per share data)

23 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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

2022 2021 2022 2021

Three Months Ended March 31,

(In millions)

4 unchanged sentences

Tax expense on net investment hedges CTA gains, net ( 6 ) ( 5 )

Unrealized gains on cash flow hedges, net 138 204 348 434

Tax expense on unrealized gains on cash flow hedges, net ( 7 ) ( 7 ) ( 18 ) ( 10 )

Unrealized losses on investments, net ( 157 ) — ( 614 ) ( 17 )

Tax benefit on unrealized losses on investments, net 41 — 146 4

Unrealized losses on cash flow hedges, net ( 111 ) ( 3 )

Tax benefit on unrealized losses on cash flow hedges, net 6 —

Unrealized gains (losses) on investments, net 175 ( 293 )

Tax (expense) benefit on unrealized gains (losses) on investments, net ( 41 ) 67

Other comprehensive income (loss), net of tax 30 ( 308 )

12 unchanged sentences

Unrealized losses on cash flow hedges, net — — — ( 111 ) — ( 111 )

Unrealized losses on investments, net — — — ( 293 ) — ( 293 )

Tax benefit on unrealized losses on investments, net — — — 67 — 67

Tax benefit on unrealized losses on cash flow hedges, net — — — 6 — 6

Unrealized gains on investments, net — — — 175 — 175

Tax expense on unrealized gains on investments, net — — — ( 41 ) — ( 41 )

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 5 — ( 157 ) — — ( 157 )

Common stock repurchased ( 19 ) ( 1,432 ) — — — ( 1,432 )

Excise tax on common stock repurchased — ( 11 ) — — — ( 11 )

Stock-based compensation — — 359 — — 359

Other — — 1 — — 1

Balances at March 31, 2023 1,122 $ ( 17,522 ) $ 18,529 $ ( 898 ) $ 19,749 $ 19,858

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

Net income — — — — 1,330 1,330

Foreign CTA — — — ( 206 ) — ( 206 )

Net investment hedge CTA gains, net — — — 97 — 97

Tax expense on net investment hedges CTA gains, net — — — ( 23 ) — ( 23 )

Unrealized gains on cash flow hedges, net — — — 138 — 138

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

Unrealized losses on investments, net — — — ( 157 ) — ( 157 )

Tax benefit on unrealized losses on investments, net — — — 41 — 41

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 1 — ( 14 ) — — ( 14 )

Common stock repurchased ( 10 ) ( 939 ) — — — ( 939 )

Stock-based compensation — — 237 — — 237

Balances at September 30, 2022 1,147 $ ( 15,069 ) $ 17,981 $ ( 681 ) $ 18,033 $ 20,264

PayPal Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

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

Comprehensive Income (Loss) Retained Earnings Noncontrolling Interest Total

Comprehensive Income (Loss) Retained Earnings Total

(In millions)

2 unchanged sentences

Foreign CTA — — — ( 95 ) — ( 95 )

Unrealized gains on cash flow hedges, net — — — 198 — — 198

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

Net investment hedges CTA gains, net — — — 21 — 21

Tax expense on net investment hedges CTA gains, net — — — ( 5 ) — ( 5 )

Unrealized losses on cash flow hedges, net — — — ( 3 ) — ( 3 )

Unrealized losses on investments, net — — — ( 293 ) — ( 293 )

3 unchanged sentences

Stock-based compensation — — 447 — — 447

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

Other — — 1 — — 1

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

Net income — — — — 1,184 — 1,184

Foreign CTA — — — 31 — — 31

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

Unrealized losses 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

Net income — — — — 1,087 1,087

Foreign CTA — — — ( 29 ) — — ( 29 )

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

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

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

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

Stock-based compensation — — 317 — — — 317

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

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

(In millions)

Cash flows from operating activities:

Net income $ 1,498 $ 3,368

Adjustments to reconcile net income to net cash provided by operating activities:

Net income (loss) $ 795 $ 509

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Transaction and credit losses 442 369

3 unchanged sentences

Net (gains) losses on strategic investments ( 48 ) ( 14 )

Other ( 92 ) 65

Changes in assets and liabilities:

11 unchanged sentences

Maturities and sales of investments 5,445 8,751

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

Funds receivable 1,076 ( 239 )

Collateral posted related to derivative instruments, net ( 22 ) ( 1 )

Other investing activities 8 —

Net cash used in investing activities ( 3,286 ) ( 2,356 )

Net cash provided by (used in) investing activities 34 ( 752 )

Cash flows from financing activities:

5 unchanged sentences

Funds payable and amounts due to customers ( 1,020 ) 863

Collateral received related to derivative instruments, net ( 129 ) 26

Other financing activities — 1

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—(continued)

Nine Months Ended September 30,

Three Months Ended March 31,

(In millions)

17 unchanged sentences

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

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

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

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

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

We monitor these areas closely and are focused on designing compliant solutions for our customers.

9 unchanged sentences

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

As of December 31, 2021, we had consolidated two VIEs that provided financing for and held loans receivable of Paidy, Inc.

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 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.

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 September 30, 2022.

See “Note 12—Debt” for additional information.

As of September 30, 2022 and December 31, 2021, the carrying value of our investments in nonconsolidated VIEs was $ 116 million and $ 74 million, respectively, and is included in long-term investments on our condensed consolidated balance sheets as non-marketable equity securities applying the equity method of accounting.

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 September 30, 2022 and December 31, 2021, respectively.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of March 31, 2023 and December 31, 2022, no VIEs qualified for consolidation as the structures of these entities do not provide us with the ability to direct activities that would significantly impact their economic performance.

As of March 31, 2023 and December 31, 2022, the carrying value of our investments in nonconsolidated VIEs was $ 135 million and $ 128 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 $ 233 million and $ 232 million as of March 31, 2023 and December 31, 2022, respectively.

These condensed consolidated financial statements and accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”) filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) on February 10, 2023.

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 and nine months ended September 30, 2022.

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, 2023.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Reclassifications

Beginning with the fourth quarter of 2022, we reclassified certain cash flows related to our collateral security arrangements for derivative instruments from cash flows from operating activities to cash flows from investing activities and cash flows from financing activities within the condensed consolidated statements of cash flows.

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

The current period presentation classifies all changes in collateral posted and collateral received related to derivative instruments on our condensed consolidated statements of cash flows as cash flows from investing activities and cash flows from financing activities, respectively.

We believe that the current period presentation provides a more meaningful representation of the nature of the cash flows and allows for greater transparency as the cash flows related to the derivatives impact operating cash flows upon settlement exclusive of the offsetting cash flows from collateral.

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

Three Months Ended March 31, 2022

(In millions)

As Previously Reported (1)

Adjustments Reclassified

Net cash provided by (used in):

Operating activities (2)

$ 1,242 $ ( 25 ) $ 1,217

Investing activities (3)

( 751 ) ( 1 ) ( 752 )

Financing activities (4)

( 695 ) 26 ( 669 )

Effect of exchange rates on cash, cash equivalents, and restricted cash 18 — 18

Net decrease in cash, cash equivalents, and restricted cash $ ( 186 ) $ — $ ( 186 )

(1) As reported in our Form 10-Q for the quarter ended March 31, 2022 filed with the SEC on April 28, 2022.

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

(3) Financial statement line impacted in investing activities was “Collateral posted related to derivative instruments, net.”

(4) Financial statement line impacted in financing activities was “Collateral received related to derivative instruments, net.”

Use of estimates

1 unchanged sentence

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

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

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

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

Actual results could differ materially from these estimates.

Recent accounting guidance

Actual results could materially differ from these estimates.

Recently adopted accounting guidance

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):

Financial Instruments – Credit Losses .

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 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.

The amended guidance is effective for fiscal years beginning after December 15, 2022 and is required to be applied prospectively, except for the recognition and measurement of TDRs, which can be applied on a modified retrospective basis.

We have concluded that our financial statements will not be materially impacted upon adoption.

We will adopt the guidance on January 1, 2023 on a prospective basis and expand certain disclosures as required.

In 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

This amended guidance provides transition relief for the accounting impact of reference rate reform.

For a limited period, this guidance provides optional expedients and exceptions for applying GAAP to certain contract modifications, hedging relationships, and other transactions affected by a reference rate expected to be discontinued due to reference rate reform.

The amended guidance is effective through December 31, 2022.

Our exposure to London Interbank Offered Rate 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.

This amended guidance eliminated the accounting designation of a loan modification as a TDR and the measurement guidance for TDRs.

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

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

The amended guidance was effective for fiscal years beginning after December 15, 2022 and was required to be applied prospectively, except for the recognition and measurement of TDRs, which could be applied on a modified retrospective basis.

We adopted this guidance effective January 1, 2023 on a prospective basis.

Our financial statements were not materially impacted upon adoption.

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

PayPal Holdings, Inc.

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.

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.

7 unchanged sentences

We determine operating segments based on how our chief operating decision maker (“CODM”) manages the business, makes operating decisions around the allocation of resources, and evaluates operating performance.

Our CODM is our Chief Executive Officer, who reviews our operating results on a consolidated basis.

Our CODM is our Chief Executive Officer, who regularly reviews our operating results on a consolidated basis.

We operate as one segment and have one reportable segment.

1 unchanged sentence

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 September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

(In millions)

1 unchanged sentence

$ 4,147 $ 3,671

United Kingdom (“U.K.”) 490 529 1,552 1,741

Other countries (1)

2,378 2,177 7,071 6,901

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 $ 391 million and $ 168 million for the three months ended September 30, 2022 and 2021, respectively, and $ 874 million and $ 289 million for the nine months ended September 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 .

(2) Total net revenues include $ 451 million and $ 187 million for the three months ended March 31, 2023 and 2022, 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.

Net revenues are attributed to the country in which the party paying our fee is located.

NOTE 3— NET INCOME (LOSS) PER SHARE

4 unchanged sentences

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.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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

2022 2021 2022 2021

Three Months Ended March 31,

(In millions, except per share amounts)

7 unchanged sentences

Common stock equivalents excluded from income (loss) per diluted share because their effect would have been anti-dilutive or potentially dilutive 14 6

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 and nine months ended September 30, 2022.

ACQUISITIONS COMPLETED IN 2021

We completed the acquisition of Paidy in October 2021 by acquiring all outstanding shares for total consideration of approximately $ 2.7 billion, consisting of approximately $ 2.6 billion in cash, and approximately $ 161 million in assumed restricted stock and restricted stock units, subject to vesting conditions.

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

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

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

(In millions)

Goodwill $ 1,897

Customer lists and user base 512

Marketing related 83

Developed technology 47

Total intangibles $ 642

Loans and interest receivable, net 197

Cash and cash equivalents 102

Other net assets 87

Short-term and long-term debt ( 188 )

Deferred tax liabilities, net ( 166 )

Total purchase price $ 2,571

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

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

We expect to collect substantially all of these receivables.

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

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

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

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

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Other acquisitions

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

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

The allocation of purchase consideration resulted in approximately $ 90 million of technology, customer, and marketing related intangible assets with estimated useful lives ranging from approximately one to seven years , net assets of $ 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 (loss).

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

There were no acquisitions accounted for as business combinations or divestitures completed in the three months ended March 31, 2023 and 2022.

NOTE 5— GOODWILL AND INTANGIBLE ASSETS

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

2021 Goodwill Acquired Adjustments September 30,

The following table presents goodwill balances and adjustments to those balances during the three months ended March 31, 2023:

2022 Goodwill Acquired Adjustments March 31,

(In millions)

Total goodwill $ 11,209 $ — $ ( 14 ) $ 11,195

The adjustments to goodwill during the nine months ended September 30, 2022 pertained to foreign currency translation adjustments.

The adjustments to goodwill during the three months ended March 31, 2023 pertained to foreign currency translation adjustments.

INTANGIBLE ASSETS

The components of identifiable intangible assets were as follows:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Gross Carrying Amount Accumulated Amortization

9 unchanged sentences

Intangible assets, net $ 3,508 $ ( 2,778 ) $ 730 $ 3,596 $ ( 2,808 ) $ 788

Amortization expense for intangible assets was $ 118 million and $ 110 million for the three months ended September 30, 2022 and 2021, respectively.

Amortization expense for intangible assets was $ 356 million and $ 326 million for the nine months ended September 30, 2022 and 2021, respectively.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

In the three months ended March 31, 2023, we retired approximately $ 84 million of fully amortized intangible assets, of which $ 65 million and $ 19 million were included in customer lists and user base and developed technology, respectively.

Amortization expense for intangible assets was $ 57 million and $ 118 million for the three months ended March 31, 2023 and 2022, respectively.

Expected future intangible asset amortization as of March 31, 2023 was as follows (in millions):

Fiscal years:

9 unchanged sentences

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

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

As of March 31, 2023, we had no finance leases.

The components of lease expense were as follows:

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

2022 2021 2022 2021

Three Months Ended March 31,

(In millions)

3 unchanged sentences

Lease expense, net $ 39 $ 40

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Supplemental cash flow information related to leases was as follows:

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

2022 2021 2022 2021

Three Months Ended March 31,

(In millions)

3 unchanged sentences

Other non-cash ROU lease asset activity $ ( 21 ) $ ( 10 )

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Supplemental balance sheet information related to leases was as follows:

September 30,

2023 December 31,

7 unchanged sentences

Weighted-average discount rate — operating leases

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

Future minimum lease payments for our operating leases as of March 31, 2023 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 and nine months ended September 30, 2022, we incurred asset impairment charges of $ 29 million and $ 64 million, respectively, within restructuring and other charges on our condensed consolidated statements of income (loss).

The impairments in three and nine months ended September 30, 2022 included a reduction to our ROU lease assets in the amount of $ 11 million and $ 36 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 nine months ended September 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 in the three and nine months ended September 30, 2021 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 September 30, 2022, we have an additional operating lease for real estate, which will commence in the fourth quarter of 2022 or later with minimum lease payments aggregating to $ 3 million and a lease term of eight years .

In the three months ended March 31, 2023 and 2022, we incurred asset impairment charges of $ 39 million and $ 16 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 $ 21 million and $ 10 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 March 31, 2023, we entered into additional operating leases primarily for real estate, which will commence in the second quarter of 2023 or later, with minimum lease payments aggregating to $ 13 million and lease terms ranging from four to six years .

PayPal Holdings, Inc.

7 unchanged sentences

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 that 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.

As of March 31, 2023, we utilize one third-party custodian;

as such, there is concentration risk in the event the custodian is not able to perform in accordance with our agreement.

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

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.

As of September 30, 2022, the Company has not incurred any safeguarding loss events, and therefore, the crypto asset safeguarding liability and corresponding safeguarding asset were recorded at the same value.

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 September 30, 2022 (in millions):

The corresponding safeguarding asset may be adjusted for loss events, as applicable.

As of March 31, 2023, the Company has not incurred any safeguarding loss events, and therefore, the crypto asset safeguarding liability and corresponding safeguarding asset were recorded at the same value.

2023 December 31, 2022

(In millions)

Bitcoin $ 499 $ 291

Ethereum 362 250

Crypto asset safeguarding liability $ 943 $ 604

1 unchanged sentence

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

Unrealized Gains 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 March 31, 2023:

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

Foreign Currency

Translation Adjustment (“CTA”)

Net Investment Hedges CTA Gains

Estimated Tax Benefit Total

Net Investment Hedges CTA Gains (Losses)

Estimated Tax (Expense) Benefit Total

(In millions)

1 unchanged sentence

Other comprehensive income (loss) before reclassifications ( 35 ) 150 ( 20 ) 27 ( 41 ) 81

Amount of gain reclassified from accumulated other comprehensive income (loss) (“AOCI”) 156 — — — — 156

Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) (“AOCI”) 76 ( 25 ) — — — 51

Net current period other comprehensive income (loss) ( 111 ) 175 ( 20 ) 27 ( 41 ) 30

2 unchanged sentences

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 September 30, 2021:

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

Net Investment Hedges CTA Gains

Estimated Tax (Expense) Benefit Total

(In millions)

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

Other comprehensive income (loss) before reclassifications 160 — ( 29 ) — ( 7 ) 124

Amount of loss reclassified from AOCI ( 44 ) — — — — ( 44 )

Net current period other comprehensive income (loss) 204 — ( 29 ) — ( 7 ) 168

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

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the nine months ended September 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 658 ( 614 ) ( 601 ) 253 69 ( 235 )

Amount of gain reclassified from AOCI 310 — — — — 310

Net current period other comprehensive income (loss) 348 ( 614 ) ( 601 ) 253 69 ( 545 )

Ending balance $ 547 $ ( 701 ) $ ( 871 ) $ 277 $ 67 $ ( 681 )

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

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 Gains (Losses) on Investments

Net Investment Hedges CTA Gains

Net Investment Hedges CTA Gains (Losses)

Estimated Tax (Expense) Benefit Total

2 unchanged sentences

Other comprehensive income (loss) before reclassifications 44 ( 293 ) ( 95 ) 21 62 ( 261 )

Amount of loss reclassified from AOCI ( 192 ) — — — — ( 192 )

Amount of gain reclassified from AOCI 47 — — — — 47

Net current period other comprehensive income (loss) ( 3 ) ( 293 ) ( 95 ) 21 62 ( 308 )

Ending balance $ 196 $ ( 380 ) $ ( 365 ) $ 45 $ 60 $ ( 444 )

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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

Affected Line Item in the Statement of Income (Loss)

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

2022 2021 2022 2021

Affected Line Item in the Statements of Income (Loss)

Three Months Ended March 31,

(In millions)

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

Gains on cash flow hedges — foreign currency exchange contracts

$ 76 $ 47 Net revenues

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

Losses on investments ( 23 ) — Net revenues

Losses on investments ( 2 ) — Other income (expense), net

51 47 Income before income taxes

3 unchanged sentences

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

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

2022 2021 2022 2021

Three Months Ended March 31,

(In millions)

7 unchanged sentences

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 September 30, 2022 and December 31, 2021:

September 30,

The following table summarizes the assets underlying our funds receivable and customer accounts, short-term investments, and long-term investments as of March 31, 2023 and December 31, 2022:

2023 December 31,

16 unchanged sentences

Total long-term investments $ 4,632 $ 5,018

As of September 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:

September 30, 2022 (1)

As of March 31, 2023 and December 31, 2022, 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, 2023 (1)

Losses Estimated

34 unchanged sentences

Municipal securities 410 — ( 3 ) 407

Commercial paper 3,702 1 ( 14 ) 3,689

Short-term investments:

3 unchanged sentences

Asset-backed securities 415 — ( 9 ) 406

Commercial paper 324 — — 324

Long-term investments:

8 unchanged sentences

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

Gross amortized cost and estimated fair value balances exclude accrued interest receivable on available-for-sale debt securities, which totaled $ 80 million and $ 65 million at March 31, 2023 and December 31, 2022, respectively, and were included in other current assets on our condensed consolidated balance sheets.

PayPal Holdings, Inc.

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 $ 61 million and $ 36 million at September 30, 2022 and December 31, 2021, respectively, and were included in other current assets on our condensed consolidated balance sheets.

As of September 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:

September 30, 2022 (1)

As of March 31, 2023 and December 31, 2022, 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:

March 31, 2023 (1)

Less than 12 months 12 months or longer Total

37 unchanged sentences

Municipal securities 264 ( 3 ) 50 — 314 ( 3 )

Commercial paper 3,079 ( 14 ) — — 3,079 ( 14 )

Short-term investments:

3 unchanged sentences

Asset-backed securities 175 ( 2 ) 217 ( 7 ) 392 ( 9 )

Commercial paper 224 — — — 224 —

Long-term investments:

8 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 and nine months ended September 30, 2022 and 2021.

During the three months ended March 31, 2023, we received $ 1.1 billion in proceeds from the sale of available-for-sale debt securities incurring gross realized losses of $ 25 million, which were determined using the specific identification method.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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:

September 30, 2022

March 31, 2023

Amortized Cost Fair Value

8 unchanged sentences

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 (loss).

Marketable equity securities totaled $ 361 million and $ 1.9 billion as of September 30, 2022 and December 31, 2021, respectively, including the impact of the sale of marketable equity securities during the three months ended September 30, 2022.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Marketable equity securities totaled $ 398 million and $ 323 million as of March 31, 2023 and December 31, 2022, respectively.

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

As of September 30, 2022 and December 31, 2021, we had non-marketable equity securities of $ 122 million and $ 79 million, respectively, where we have the ability to exercise significant influence, but not control, over the investee.

As of March 31, 2023 and December 31, 2022, we had non-marketable equity securities of $ 142 million and $ 136 million, respectively, where we have the ability to exercise significant influence, but not control, over the investee.

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

1 unchanged sentence

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

The carrying value of our non-marketable equity securities totaled $ 1.9 billion and $ 1.3 billion as of September 30, 2022 and December 31, 2021, respectively.

The carrying value of our non-marketable equity securities totaled $ 1.8 billion for both March 31, 2023 and December 31, 2022.

Measurement Alternative adjustments

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

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

2022 2021 2022 2021

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, 2023 and 2022 were as follows:

Three Months Ended March 31,

(In millions)

3 unchanged sentences

Gross unrealized gains 22 197

Gross unrealized losses and impairments ( 45 ) —

Carrying amount, end of period $ 1,680 $ 1,469

(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, held at September 30, 2022 and December 31, 2021, respectively:

September 30,

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes the cumulative gross unrealized gains and cumulative gross unrealized losses and impairment related to non-marketable equity securities accounted for under the Measurement Alternative, held at March 31, 2023 and December 31, 2022, respectively:

2023 December 31,

3 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 September 30, 2022 and 2021, respectively:

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

2022 2021 2022 2021

Three Months Ended March 31,

(In millions)

4 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 September 30, 2022 and December 31, 2021:

September 30, 2022 Quoted Prices in

The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022:

March 31, 2023 Quoted Prices in

Active Markets for

13 unchanged sentences

Funds receivable and customer accounts (3) :

Cash and cash equivalents 400 — 400

government and agency securities 9,493 — 9,493

37 unchanged sentences

Asset-backed securities 406 — 406

Commercial paper 324 — 324

Total short-term investments 2,593 — 2,593

6 unchanged sentences

Municipal securities 407 — 407

Commercial paper 3,689 — 3,689

Total funds receivable and customer accounts 17,541 — 17,541

Derivatives 244 — 244

Crypto asset safeguarding asset 604 — 604

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

7 unchanged sentences

Derivatives $ 298 $ — $ 298

Crypto asset safeguarding liability 604 — 604

Total financial liabilities $ 902 $ — $ 902

(1) Excludes cash of $ 6.8 billion not measured and recorded at fair value.

6 unchanged sentences

All other financial assets and liabilities are valued using quoted prices for identical instruments in less active markets, readily available pricing sources for comparable instruments, or models using market observable inputs (Level 2).

A majority of our derivative instruments are valued using pricing models that take into account the contract terms as well as multiple inputs where applicable, such as currency rates, interest rate yield curves, option volatility, and equity prices.

Our derivative instruments are primarily short-term in nature, generally one month to one year in duration.

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of September 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).

Our derivative instruments are primarily short-term in nature, generally one month to one year in duration.

As of March 31, 2023 and December 31, 2022, we did not have any assets or liabilities requiring measurement at fair value on a recurring basis with significant unobservable inputs 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 (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 September 30, 2022 and December 31, 2021:

September 30,

The following table summarizes the estimated fair value of our available-for-sale debt securities under the fair value option as of March 31, 2023 and December 31, 2022:

2023 December 31,

1 unchanged sentence

Funds receivable and customer accounts $ 501 $ 481

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 and nine months ended September 30, 2022 and 2021:

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

2022 2021 2022 2021

Three Months Ended March 31,

(In millions)

Funds receivable and customer accounts $ 7 $ ( 34 )

Short-term investments $ — $ ( 18 ) $ — $ ( 25 )

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

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

September 30,

The following tables summarize our assets held as of March 31, 2023 and December 31, 2022 for which a non-recurring fair value measurement was recorded during the three months ended March 31, 2023 and the year ended December 31, 2022, respectively:

2023 Significant Other

Observable Inputs

Significant Other Unobservable Inputs (Level 3)

(In millions)

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

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

$ 138 $ 100 $ 38

1 unchanged sentence

Total $ 185 $ 147 $ 38

(1) Excludes non-marketable equity investments of $ 711 million accounted for under the Measurement Alternative for which no observable price changes occurred during the nine months ended September 30, 2022.

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

(1) Excludes non-marketable equity securities of $ 1.5 billion accounted for under the Measurement Alternative for which no observable price changes occurred during the three months ended March 31, 2023.

(2) Consists of ROU lease assets recorded at fair value pursuant to impairment charges that occurred during the three months ended March 31, 2023.

See “Note 6—Leases” for additional information.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 2022 Significant Other

Observable Inputs

Significant Other Unobservable Inputs (Level 3)

(In millions)

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

$ 1,122 $ 724 $ 398

Other assets (2)

Total $ 1,287 $ 889 $ 398

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

(1) Excludes non-marketable equity securities of $ 565 million accounted for under the Measurement Alternative for which no observable price changes occurred during the year ended December 31, 2022.

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

See “Note 6—Leases” for additional information.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

We measure the non-marketable equity securities 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.

Non-marketable equity securities that have been remeasured during the period based on observable price changes are classified within Level 2 in the fair value hierarchy because we estimate the fair value based on valuation methods which only include significant inputs that are observable, such as the observable transaction price at the transaction date.

The fair value of non-marketable equity securities are classified within Level 3 when we estimate fair value using significant unobservable inputs such as when we remeasure due to impairment and use discount rates, forecasted cash flows, and market data of comparable companies, among others.

We evaluate ROU assets related to leases for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount of an ROU asset may not be recoverable.

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, and the impaired asset is classified within Level 2 in the fair value hierarchy.

FINANCIAL ASSETS AND LIABILITIES NOT MEASURED AND RECORDED AT FAIR VALUE

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

Our notes receivable had a carrying value of approximately $ 404 million and fair value of approximately $ 337 million as of September 30, 2022.

Our notes receivable had a carrying value of approximately $ 444 million and fair value of approximately $ 351 million as of March 31, 2023.

Our notes receivable had a carrying value of approximately $ 441 million and fair value of approximately $ 396 million as of December 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 $ 9.2 billion as of September 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.

Our 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 $ 9.5 billion for both March 31, 2023 and December 31, 2022.

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

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

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

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

6 unchanged sentences

We do not use any derivative instruments for trading or speculative purposes.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Cash flow hedges

10 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.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of September 30, 2022, we estimated that $ 504 million of net derivative gains related to our cash flow hedges included in AOCI are expected to be reclassified into earnings within the next 12 months.

During the three and nine months ended September 30, 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.

As of March 31, 2023, we estimated that net derivative gains related to our cash flow hedges included in AOCI, which are expected to be reclassified into earnings within the next 12 months, were de minimis.

During the three months ended March 31, 2023 and 2022, we did not discontinue any cash flow hedges because it was probable that the original forecasted transaction would not occur and as such, did not reclassify any gains or losses to earnings prior to the occurrence of the hedged transaction.

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

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

Net investment hedge

Net investment hedges

We use forward foreign currency exchange contracts to reduce the foreign currency exchange risk related to our investment in certain foreign subsidiaries.

These derivatives are designated as net investment hedges and accordingly, the gain and loss on the portion of the derivative included in the assessment of hedge effectiveness is recorded in AOCI as part of foreign currency translation.

These derivatives are designated as net investment hedges and accordingly, the gains and losses on the portion of the derivatives included in the assessment of hedge effectiveness is recorded in AOCI as part of foreign currency translation.

We exclude forward points from the assessment of hedge effectiveness and recognize them in other income (expense), net on a straight-line basis over the life of the hedge.

1 unchanged sentence

The cash flows associated with derivatives designated as a net investment hedge are classified in cash flows from investing activities on our condensed consolidated statements of cash flows.

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

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

Foreign currency exchange contracts not designated as hedging instruments

6 unchanged sentences

FAIR VALUE OF DERIVATIVE CONTRACTS

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

Balance Sheet Location September 30,

The fair value of our outstanding derivative instruments as of March 31, 2023 and December 31, 2022 was as follows:

Balance Sheet Location March 31,

2023 December 31,

7 unchanged sentences

Foreign currency exchange contracts designated as hedging instruments Other current liabilities $ 78 $ 68

Foreign currency exchange contracts designated as hedging instruments Other long-term liabilities 111 133

Foreign currency exchange contracts not designated as hedging instruments Other current liabilities 78 97

3 unchanged sentences

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 $ 74 million as of September 30, 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 $ 62 million as of March 31, 2023 and $ 70 million as of December 31, 2022.

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:

September 30,

2023 December 31,

8 unchanged sentences

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 September 30,

Three Months Ended March 31,

(In millions)

1 unchanged sentence

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 $ 7,040 $ 75 $ 6,483 $ ( 82 )

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

Amount of gains (losses) on foreign currency exchange contracts reclassified from AOCI 156 — ( 44 ) —

Gains on derivatives in cash flow hedging relationship:

Amount of gains on foreign currency exchange contracts reclassified from AOCI 76 — 47 —

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 on foreign currency exchange contracts — 52 — 111

Amount of losses on equity derivative contracts (1)

— ( 174 ) — —

Total gains (losses) $ 156 $ ( 95 ) $ ( 44 ) $ 111

(1) During the three months ended September 30, 2022, equity derivative contracts were entered into and matured which related to the sale of marketable equity securities related to a strategic investment.

Nine Months Ended September 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 $ 20,135 $ ( 337 ) $ 18,453 $ 181

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

Amount of gains (losses) on foreign exchange contracts reclassified from AOCI 310 — ( 192 ) —

Gains on derivatives in net investment hedging relationship:

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

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

Amount of gains on foreign exchange contracts — 160 — 109

Amount of losses on equity derivative contracts (1)

— ( 174 ) — —

Losses on derivatives not designated as hedging instruments:

Amount of losses on foreign currency exchange contracts — ( 75 ) — ( 39 )

Total gains (losses) $ 76 $ ( 45 ) $ 47 $ ( 30 )

(1) During the nine months ended September 30, 2022, equity derivative contracts were entered into and matured which related to the sale of marketable equity securities related to a strategic investment.

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 (loss):

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

2022 2021 2022 2021

Three Months Ended March 31,

(In millions)

Unrealized gains on foreign exchange contracts designated as cash flow hedges $ 294 $ 160 $ 658 $ 242

Unrealized (losses) gains on foreign exchange contracts designated as cash flow hedges $ ( 35 ) $ 44

Unrealized gains on foreign exchange contracts designated as net investment hedges 27 21

Total unrealized gains recognized from derivative contracts designated as hedging instruments in the condensed consolidated statements of comprehensive income (loss) $ 391 $ 160 $ 911 $ 242

Total unrealized (losses) gains recognized from derivative contracts designated as hedging instruments in the condensed consolidated statements of comprehensive income (loss) $ ( 8 ) $ 65

NOTIONAL AMOUNTS OF DERIVATIVE CONTRACTS

3 unchanged sentences

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

September 30,

2023 December 31,

3 unchanged sentences

Total $ 17,614 $ 18,989

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 11— LOANS AND INTEREST RECEIVABLE

1 unchanged sentence

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

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

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

Our revolving credit product consists of PayPal Credit in the United Kingdom (“U.K.”), which is made available to consumers as a funding source in their PayPal wallet once they are approved for credit.

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

We offer non interest-bearing installment credit products in these markets as well as interest-bearing installment credit products in the U.S.

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

Beginning in June 2022, we purchase receivables related to long-term installment loans extended to U.S.

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

During the nine months ended September 30, 2022, we purchased approximately $ 106 million in credit receivables.

As of September 30, 2022 and December 31, 2021, the outstanding balance of consumer receivables, which consisted of revolving and installment loans and interest receivable, was $ 4.4 billion and $ 3.8 billion, respectively, net of the participation interest sold to the independent chartered financial institution of $ 5 million and nil , respectively.

Beginning in June 2022, we have purchased receivables related to interest-bearing installment loans extended to U.S.

consumers by an independent chartered financial institution (“partner institution”) and are responsible for servicing functions related to that portfolio.

During the three months ended March 31, 2023, we purchased approximately $ 268 million in consumer receivables.

As of March 31, 2023 and December 31, 2022, the outstanding balance of consumer receivables, which consisted of revolving and installment loans and interest receivable, was $ 6.1 billion and $ 5.9 billion, respectively, net of the participation interest sold to the partner institution of $ 23 million and $ 17 million, respectively.

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

1 unchanged sentence

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 (or, for long-term installment loans in the U.S., to assist the independent chartered financial institution 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.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

We use delinquency status and trends to assist in making (or, for interest-bearing installment loans in the U.S., to assist the partner institution in making) new and ongoing credit decisions, to adjust our models, to plan our collection practices and strategies, and in determining our allowance for consumer loans and interest receivable.

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

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

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

September 30, 2022

March 31, 2023

(In millions, except percentages)

Installment Loans Amortized Cost Basis

Revolving Loans

Amortized Cost Basis 2022 2021 2020 2019 2018 Total Percent

Amortized Cost Basis Installment Loans Amortized Cost Basis

2023 2022 2021 2020 2019 Total Percent

Consumer loans and interest receivable:

Current $ 1,892 $ 2,948 $ 947 $ 82 $ — $ — $ 5,869 96.7 %

3 unchanged sentences

$ 1,967 $ 2,968 $ 1,045 $ 87 $ — $ — $ 6,067 100 %

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

Gross charge-offs for the three months ended March 31, 2023

$ 31 $ — $ 45 $ 2 $ — $ — $ 78

(1) Excludes receivables from other consumer credit products of $ 11 million at March 31, 2023.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 2022

(In millions, except percentages)

Installment Loans Amortized Cost Basis

Revolving Loans

Amortized Cost Basis 2021 2020 2019 2018 2017 Total Percent

Amortized Cost Basis Installment Loans Amortized Cost Basis

2022 2021 2020 2019 2018 Total Percent

Consumer loans and interest receivable:

Current $ 1,850 $ 3,726 $ 123 $ — $ — $ — $ 5,699 97.1 %

4 unchanged sentences

(1) Excludes receivables from other consumer credit products of $ 11 million at December 31, 2022.

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

September 30, 2022 September 30, 2021

The following table summarizes the activity in the allowance for consumer loans and interest receivable for the three months ended March 31, 2023 and 2022:

March 31, 2023 March 31, 2022

Consumer Loans Receivable Interest Receivable Total Allowance (1)

7 unchanged sentences

Ending balance $ 357 $ 24 $ 381 $ 241 $ 39 $ 280

(1) Excludes allowances from other consumer credit products of $ 2 million and $ 3 million at September 30, 2022 and 2021, respectively.

(1) Excludes allowances from other consumer credit products of nil and $ 3 million at March 31, 2023 and 2022, respectively.

(2) Includes amounts related to foreign currency remeasurement.

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

The provision for the three months ended March 31, 2023 was primarily attributable to growth 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 the financial health of our borrowers.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The increase in charge-offs for the nine months ended September 30, 2022 compared to the same period in the prior year was due to the expansion of our short-term installment products.

The increase in charge-offs for the three months ended March 31, 2023 compared to the same period in the prior year was due to the expansion of our installment credit 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).

1 unchanged sentence

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

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

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

consumer interest-bearing installment receivables, which are charged off 120 days past the contractual repayment date.

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

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.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

MERCHANT RECEIVABLES

1 unchanged sentence

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 nine months ended September 30, 2022 and 2021, we purchased approximately $ 2.3 billion and $ 1.3 billion in credit receivables, respectively.

As of September 30, 2022 and December 31, 2021, the total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was $ 2.0 billion and $ 1.4 billion, respectively, net of the participation interest sold to WebBank of $ 91 million and $ 63 million, respectively.

merchants by a partner institution and are responsible for servicing functions related to that portfolio.

During the three months ended March 31, 2023 and 2022, we purchased approximately $ 666 million and $ 605 million in merchant receivables, respectively.

As of both March 31, 2023 and December 31, 2022, the total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was $ 2.1 billion, net of the participation interest sold to the partner institution of $ 91 million and $ 97 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.

13 unchanged sentences

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

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

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

PayPal Holdings, Inc.

1 unchanged sentence

Merchant receivables delinquency and allowance

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

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

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

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

September 30, 2022

March 31, 2023

(In millions, except percentages)

2022 2021 2020 2019 Total Percent

Merchant loans, advances, and interest and fees receivable:

Current $ 788 $ 965 $ 12 $ 47 $ 34 $ 1,846 89.8 %

4 unchanged sentences

Total $ 797 $ 1,132 $ 26 $ 56 $ 44 $ 2,055 100 %

Gross charge-offs for the three months ended March 31, 2023

$ — $ 43 $ 6 $ 6 $ 2 $ 57

December 31, 2022

1 unchanged sentence

2021 2020 2019 2018 Total Percent

Merchant loans, advances, and interest and fees receivable:

Current $ 1,826 $ 20 $ 57 $ 42 $ 2 $ 1,947 90.7 %

3 unchanged sentences

180+ Days 1 2 2 3 — 8 0.4 %

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

(1) Balances include the impact of modification programs offered by the Company as a part of our novel coronavirus (“COVID-19”) pandemic 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 nine months ended September 30, 2022 and 2021:

September 30, 2022 September 30, 2021

Total $ 1,979 $ 42 $ 69 $ 54 $ 2 $ 2,146 100 %

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, 2023 and 2022:

March 31, 2023 March 31, 2022

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 $ 235 $ 22 $ 257 $ 185 $ 8 $ 193

The provision for the nine months ended September 30, 2022 was primarily attributable to originations in the 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 nine months ended September 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.

The provision for the three months ended March 31, 2023 was primarily attributable to originations in the merchant portfolio and a deterioration in credit quality of loans outstanding.

Qualitative adjustments were made to account for uncertainty around the financial health of our borrowers including the effectiveness of loan modification programs made available to merchants in previous years.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

In the third quarter of 2022, our expected credit loss models for the merchant receivables were updated.

The expected credit loss models utilize certain macroeconomic factors such as forecasted trends in unemployment and retail sales, and no longer consider benchmark credit card charge-off rates.

These changes did not have a material impact on our provision recorded in the period.

The increase in the charge-offs for the three months ended March 31, 2023 compared to the same period in the prior year was due to the expansion of acceptable risk parameters in 2022, which resulted in a deterioration of the overall credit quality of loans outstanding.

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

1 unchanged sentence

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 in 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.

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

The provision for credit losses on merchant loans and advances is recognized in transaction and credit losses on our condensed consolidated statements of income (loss), 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.

Troubled debt restructurings

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 would be unable to collect all amounts due.

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

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

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

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

These modifications had a de minimis impact on our condensed consolidated statements of income (loss) in the nine months ended September 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.

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

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

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

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

Three Months Ended September 30, 2021

Number of Accounts

(in thousands) (1)

Outstanding Balances (2)

(in millions)

Weighted Average Payment Term Extensions

Loans and interest receivable — $ 4 34

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

(2) Balances are as of modification date.

Nine Months Ended September 30, 2021

Number of Accounts

(in thousands) Outstanding Balances (1)

(in millions)

Weighted Average Payment Term Extensions

Loans and interest receivable 3 $ 43 36

(1) Balances are as of modification date.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 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 nine months ended September 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.

NOTE 12— DEBT

FIXED RATE NOTES

In May 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.

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

In May 2022, May 2020, and September 2019, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $ 3.0 billion, $ 4.0 billion and $ 5.0 billion, respectively.

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 September 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.

As of both March 31, 2023 and December 31, 2022, we had an outstanding aggregate principal amount of $ 10.4 billion related to the Notes.

The following table summarizes the Notes:

Maturities Effective Interest Rate September 30,

Maturities Effective Interest Rate March 31,

2023 December 31,

(in millions)

September 2019 debt issuance of $ 5.0 billion:

Fixed-rate 2.200 % notes

9/26/2022 2.39 % $ — $ 1,000

September 2019 debt issuance:

Fixed-rate 2.400 % notes

4 unchanged sentences

10/1/2029 2.96 % 1,500 1,500

May 2020 debt issuance of $ 4.0 billion:

May 2020 debt issuance:

Fixed-rate 1.350 % notes

6 unchanged sentences

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

May 2022 debt issuance of $ 3.0 billion:

May 2022 debt issuance:

Fixed-rate 3.900 % notes

8 unchanged sentences

Unamortized premium (discount) and issuance costs, net ( 72 ) ( 74 )

current portion of long-term debt (1)

current portion of term debt (1)

( 418 ) ( 418 )

Total carrying amount of long-term debt $ 9,924 $ 7,951

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

Total carrying amount of term debt $ 9,928 $ 9,926

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

The interest expense recorded for the Notes, including amortization of the debt discount, debt issuance costs, and debt extinguishment net gains, was $ 83 million and $ 206 million for the three and nine months ended September 30, 2022, respectively.

The interest expense recorded for the Notes, including amortization of the debt discount and debt issuance costs, was $ 56 million and $ 168 million for the three and nine months ended September 30, 2021, respectively.

The interest expense recorded for the Notes, including amortization of the debt discount, debt issuance costs, and debt extinguishment net gains, was $ 83 million and $ 56 million for the three months ended March 31, 2023 and 2022, 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.

In September 2022, the Paidy Credit Agreement was modified to increase the borrowing capacity by ¥ 30.0 billion for a total borrowing capacity of ¥ 90.0 billion (approximately $ 623 million as of September 30, 2022.) Borrowings under the Paidy Credit Agreement are for use by Paidy for working capital, capital expenditures, and other permitted purposes.

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.

The Paidy Credit Agreement contains customary representations, warranties, affirmative and negative covenants, including a financial covenant, events of default, and indemnification provisions in favor of the lenders.

The negative covenants include restrictions regarding the incurrence of liens and subsidiary indebtedness, in each case subject to certain exceptions.

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

In the nine months ended September 30, 2022, ¥ 45.8 billion (approximately $ 317 million) was drawn down under the Paidy Credit Agreement, which was recorded in long-term debt on our condensed consolidated balance sheet.

Accordingly, at September 30, 2022, ¥ 44.2 billion (approximately $ 306 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 nine months ended September 30, 2022, the total interest expense and fees we recorded related to the Paidy Credit Agreement were de minimis.

Prior credit agreement

In October 2021, we assumed a credit agreement through our acquisition of Paidy (the “Prior Credit Agreement”) which provided for a secured revolving credit facility of ¥ 22.8 billion (approximately $ 198 million at acquisition).

As of December 31, 2021, ¥ 11.3 billion (approximately $ 98 million) was outstanding under the Prior Credit Agreement, which was recorded in long-term debt on our consolidated balance sheet.

Accordingly, at December 31, 2021, ¥ 11.5 billion (approximately $ 100 million) of borrowing capacity was available for the purposes permitted by the Prior Credit Agreement, subject to customary conditions to borrowing.

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 nine months ended September 30, 2022.

In February 2022, we entered into a credit agreement (the “Paidy Credit Agreement”) with Paidy as co-borrower, which provided for an unsecured revolving credit facility of ¥ 60.0 billion, which was modified in September 2022 to increase the borrowing capacity by ¥ 30.0 billion for a total borrowing capacity of ¥ 90.0 billion (approximately $ 678 million as of March 31, 2023).

As of March 31, 2023 and December 31, 2022, ¥ 73.3 billion (approximately $ 553 million) and ¥ 64.3 billion (approximately $ 491 million), respectively, were outstanding under the Paidy Credit Agreement, which was recorded in long-term debt on our condensed consolidated balance sheet.

At March 31, 2023, ¥ 16.7 billion (approximately $ 125 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, 2023 and 2022, the total interest expense and fees we recorded related to the Paidy Credit Agreement were de minimis.

FUTURE PRINCIPAL PAYMENTS

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

As of March 31, 2023, the future principal payments associated with our term debt were as follows (in millions):

Remaining 2023 $ 418

2 unchanged sentences

Other than as provided above, there were no significant changes to the information disclosed in our 2022 Form 10-K.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 13— COMMITMENTS AND CONTINGENCIES

As of both September 30, 2022 and December 31, 2021, approximately $ 4.1 billion 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.

As of March 31, 2023 and December 31, 2022, approximately $ 5.3 billion and $ 4.9 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 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.

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

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, 2023.

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.

3 unchanged sentences

Regulatory proceedings

We are required to comply with U.S.

economic and trade sanctions administered by the U.S.

Department of the Treasury’s Office of Foreign Assets Control (“OFAC”).

In March 2015, we reached a settlement with OFAC regarding possible violations arising from our sanctions compliance practices between 2009 and 2013, prior to the implementation of our real-time transaction scanning program.

Subsequently, we have self-reported additional transactions that were inadvertently processed but subsequently identified as possible violations, and we have received new subpoenas from OFAC seeking additional information about certain of these transactions.

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

PayPal Australia Pty Limited (“PPAU”) self-reported a potential violation to the Australian Transaction Reports and Analysis Centre (“AUSTRAC”) on May 22, 2019.

This self-reported matter relates to PPAU incorrectly filing required international funds transfer instructions (“IFTIs”) over a period of time under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (“AML/CTF Act”).

This self-reported matter relates to PPAU incorrectly filing required international funds transfer instructions over a period of time under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (“AML/CTF Act”).

On September 23, 2019, PPAU received a notice from AUSTRAC requiring that PPAU appoint an external auditor (a partner of a firm which is not our independent auditor) to review certain aspects of PPAU’s compliance with its obligations under the AML/CTF Act.

The external auditor was appointed on November 1, 2019.

As required under the terms of AUSTRAC’s notice, as amended, PPAU issued to AUSTRAC the external auditor’s interim reports on December 31, 2019, March 13, 2020, May 6, 2020, and July 7, 2020 and a final report on August 31, 2020.

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

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

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

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

In the event an adverse outcome arises from any associated enforcement proceeding, or other further matter initiated by AUSTRAC, including in relation to AUSTRAC’s determination of reportable IFTIs, then this could result in enforceable undertakings, injunctions, damage awards, fines or penalties, or require us to change our business practices in a manner that could result in a material loss, require significant management time, result in the diversion of significant operational resources, or otherwise harm our business.

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

As a resolution of this investigation, on March 17, 2023, AUSTRAC’s Chief Executive Officer accepted an enforceable undertaking from PPAU in relation to the self-reported issues.

The enforceable undertaking does not include a monetary penalty.

The entry into and compliance with the enforceable undertaking will not require a change to our business practices in a manner that could result in a material loss, require significant management time, result in the diversion of significant operational resources, or otherwise adversely affect our business.

PPAU is required to deliver an Assurance Action Plan (“AAP”) under the enforceable undertaking to demonstrate that the governance and oversight arrangements following the remedial work completed by PPAU are sustainable and appropriate.

The enforceable undertaking requires PPAU to appoint an external auditor by June 30, 2023 to assess the appropriateness, sustainability and efficacy of the actions to be taken under the AAP.

The external auditor’s final report to PPAU and AUSTRAC is due on or before April 16, 2024.

The successful completion of the enforceable undertaking is subject to AUSTRAC’s ultimate review and decision based on the external auditor’s final report.

We cannot predict the outcome of the external auditor’s final report or AUSTRAC’s decision.

Any failure to comply with the enforceable undertaking could result in penalties or require us to change our business practices.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

We have received Civil Investigative Demands (“CIDs”) from the Consumer Financial Protection Bureau (“CFPB”) related to Venmo’s unauthorized funds transfers and collections processes, and related matters, including treatment of consumers who request payments but accidentally designate an unintended recipient.

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

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

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

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

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

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

4 unchanged sentences

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

In January 2023, we received notice of an administrative proceeding and a related request for information from the German Federal Cartel Office (“FCO”) related to terms in PayPal (Europe) S.à.r.l.

et Cie, S.C.A.’s contractual terms with merchants in Germany prohibiting surcharging and requiring parity presentation of PayPal relative to other payment methods.

We are cooperating with the FCO in connection with this proceeding.

Legal proceedings

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

PayPal Holdings, Inc., et al.

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

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

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

The Kang 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 Kang Securities Action asserts claims relating to our disclosure of a CID from the CFPB related to the marketing and use of PayPal Credit in connection with certain merchants that provide educational services and the SEC Debit Card Program Matter in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021.

The Kang 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 former Chief Financial Officer.

6 unchanged sentences

On September 16, 2022, Lead Plaintiff filed a Second Amended Complaint (the “SAC”), which asserts the same claims against the same Defendants based on the same alleged conduct as the prior complaint.

Defendants’ motion to dismiss the SAC is due on November 3, 2022, and briefing is ongoing.

Defendants moved to dismiss the SAC on November 3, 2022.

On April 27, 2023, the Court granted Defendants’ motion and dismissed the SAC in its entirety with prejudice.

Plaintiffs’ deadline to file a notice of appeal is May 30, 2023.

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.

13 unchanged sentences

22-cv-5864, was filed in the U.S.

District Court for the District of New Jersey (the “MJT Securities Action”).

The MJT Securities Action asserts claims relating to our public statements with respect to net new active accounts (“NNA”) results and guidance, and the detection of illegitimately created accounts.

The MJT Securities Action purports to be brought on behalf of purchasers of the Company’s stock between February 3, 2021 and February 1, 2022 (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 former 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, the Company’s incentive campaigns were susceptible to fraud and led to the creation of illegitimate accounts, which allegedly affected the Company’s NNA results and guidance.

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

Motions for investors seeking appointment as lead plaintiff are due on December 5, 2022.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

District Court for the District of New Jersey.

On January 11, 2023, the Court appointed Caisse de dépôt et placement du Québec as lead plaintiff and renamed the action In re PayPal Holdings, Inc.

Securities Litigation (“PPH Securities Action”).

On March 13, 2023, the lead plaintiff filed an amended and consolidated complaint.

The PPH Securities Action asserts claims relating to our public statements with respect to net new active accounts (“NNA”) results and guidance, and the detection of illegitimately created accounts.

The PPH Securities Action purports to be brought on behalf of purchasers of the Company’s stock between February 3, 2021 and February 1, 2022 (the “Class Period”), and asserts claims for alleged violations of Sections 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) against the Company, as well as its Chief Executive Officer, Chief Strategy, Growth and Data Officer, and former Chief Financial Officer (collectively, the “Individual Defendants,” and together with the Company, “Defendants”), and for alleged violations of Sections 20(a) and 20A of the Exchange Act against the Individual Defendants.

The complaint alleges that certain public statements made by Defendants 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, the Company’s incentive campaigns were susceptible to fraud and led to the creation of illegitimate accounts, which allegedly affected the Company’s NNA results and guidance.

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

On November 2, 2022, a putative shareholder derivative action captioned Shah v.

2 unchanged sentences

District Court for the District of Delaware (the “Shah Action”), purportedly on behalf of the Company.

The Shah Action is based on the same alleged facts and circumstances as the MJT Securities Action, and names certain of our officers, including our Chief Executive Officer and former Chief Financial Officer, and members of our Board of Directors, as defendants.

The Shah Action alleges claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unjust enrichment, waste of corporate assets, and violations of the Securities Exchange Act of 1934, and seeks to recover damages on behalf of the Company.

On April 4, 2023, a putative shareholder derivative action captioned Nelson v.

Daniel Schulman, et.

al., Case No.

23-cv-01913, was filed in the U.S.

District Court for the District of New Jersey (the “Nelson Action”) purportedly on behalf of the Company.

The Shah and Nelson Actions are based on the same alleged facts and circumstances as the PPH 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 Shah and Nelson Actions allege claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unjust enrichment, waste of corporate assets, gross mismanagement and violations of the Securities Exchange Act of 1934, and seek to recover damages on behalf of the Company.

The Shah and Nelson Actions have been stayed pending further developments in the PPH Securities Action.

General matters

4 unchanged sentences

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

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 or not acted in conformity with such prices, rules, policies, or agreements.

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) or regulators 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 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.

5 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.

7 unchanged sentences

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

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

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

We have agreed, under certain circumstances, to indemnify the chartered financial institution and its assignee of a portion of these loans in connection with the services provided for loans made under this program.

1 unchanged sentence

OFF-BALANCE SHEET ARRANGEMENTS

As of September 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.

As of March 31, 2023 and December 31, 2022, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

PROTECTION PROGRAMS

3 unchanged sentences

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

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 September 30, 2022 and December 31, 2021, the allowance for transaction losses was $ 71 million and $ 121 million, respectively.

The allowance for negative customer balances was $ 217 million and $ 234 million at September 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 nine months ended September 30, 2022 and 2021:

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

2022 2021 2022 2021

At March 31, 2023 and December 31, 2022, the allowance for transaction losses was $ 58 million and $ 66 million, respectively.

The allowance for negative customer balances was $ 260 million and $ 212 million at March 31, 2023 and December 31, 2022, 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, 2023 and 2022:

Three Months Ended March 31,

(in millions)

4 unchanged sentences

Ending balance $ 318 $ 319

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 14— STOCK REPURCHASE PROGRAMS

During the nine months ended September 30, 2022, we repurchased approximately 29 million shares of our common stock for approximately $ 3.2 billion at an average cost of $ 110.75 .

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

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 September 30, 2022, a total of approximately $ 1.9 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.

During the three months ended March 31, 2023, we repurchased approximately 19 million shares of our common stock for approximately $ 1.4 billion at an average price of $ 76.60 , excluding excise tax.

These shares were purchased in the open market under our stock repurchase programs authorized in July 2018 and June 2022.

As of March 31, 2023, a total of approximately $ 14.4 billion remained available for future repurchases of our common stock under our June 2022 stock repurchase program.

The Inflation Reduction Act of 2022 imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022.

Beginning in the first quarter of 2023, we reflected the applicable excise tax in treasury stock on our condensed consolidated balance sheet.

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 and nine months ended September 30, 2022 and 2021 was as follows:

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

2022 2021 2022 2021

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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, 2023 and 2022 was as follows:

Three Months Ended March 31,

(In millions)

4 unchanged sentences

Total stock-based compensation expense $ 357 $ 442

Capitalized as part of internal use software and website development costs $ 12 $ 17 $ 40 $ 51

Capitalized stock-based compensation expense $ 11 $ 16

NOTE 16— INCOME TAXES

Our effective tax rate for the three and nine months ended September 30, 2022 was 16 % and 34 %, respectively.

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

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

federal statutory rate of 21% in the current periods was primarily the result of foreign income taxed at different rates, and for the nine months ended September 30, 2022, tax expense related to the intra-group transfer of intellectual property.

Our effective tax rate for the three months ended March 31, 2023 and 2022 was 26 % and 19 %, respectively.

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

federal statutory rate of 21% for the three and nine months ended September 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.

federal statutory rate of 21% in both periods was primarily the result of foreign income taxed at different rates and discrete tax adjustments, including tax expense 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 reducing redundant operations and simplifying our organizational structure.

The associated restructuring charges during the three and nine months ended September 30, 2022 were $ 23 million and $ 114 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.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes the restructuring reserve activity during the nine months ended September 30, 2022:

During the first quarter of 2023, management initiated a global workforce reduction intended to focus resources on core strategic priorities, and improve our cost structure and operating efficiency.

The associated restructuring charges during the three months ended March 31, 2023 were $ 117 million.

We primarily incurred employee severance and benefits costs, substantially all of which have been accrued for as of March 31, 2023.

The following table summarizes the restructuring reserve activity during the three months ended March 31, 2023:

Employee Severance and Benefits and Other Associated Costs

2 unchanged sentences

Payments ( 45 )

Accrued liability as of September 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 and nine months ended September 30, 2021 were nil 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.

Accrued liability as of March 31, 2023

This effort focused on reducing 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 associated consulting costs under this strategic reduction.

The strategic actions associated with this plan were substantially completed by the fourth quarter of 2022.

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

We incurred asset impairment charges of $ 29 million and $ 64 million in the three and nine months ended September 30, 2022, respectively, and nil and $ 26 million in the three and nine months ended September 30, 2021, respectively, due to exiting of certain leased properties which resulted in a reduction of ROU lease assets and related leasehold improvements.

In the three months ended March 31, 2023 and 2022, we incurred asset impairment charges of $ 39 million and $ 16 million, 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.

We also incurred a loss of $ 8 million upon designation of an owned property as held for sale in the three months ended March 31, 2023.

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