PayPal Holdings, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of disclosure controls and procedures . Based on the evaluation of our disclosure controls and procedures (as defined in the Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), our principal executive officer and our principal financial officer have concluded that as of December 31, 2023, the end of the period covered by this report, our disclosure controls and procedures were effective. Management’s report on internal control over financial reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our management, including our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation under the framework in Internal Control - Integrated Framework , our management concluded that our internal control over financial reporting was effective as of December 31, 2023. 55 Table of Contents The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in Item 15(a) of this Form 10-K. Changes in internal controls over financial reporting. There were no changes in our internal controls over financial reporting as defined in Exchange Act Rule 13a-15(f) that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION RULE 10B5-1 TRADING PLANS An equity trading plan is a written document that preestablishes the amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of the Company’s stock, including sales of shares acquired under the Company’s employee and director equity plans. On December 7, 2023 , Jonathan Auerbach entered into an equity trading plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act. Mr. Auerbach was serving as an executive officer of the Company at the time the trading plan was adopted . The trading plan has a duration of March 7, 2024 to September 10, 2024 with approximately 85,839 shares (vested and net shares expected to vest over the duration of the trading plan) subject to sale under the plan. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Incorporated by reference from our Proxy Statement for our 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2023. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference from our Proxy Statement for our 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2023 (excluding the information under the subheading “Pay Versus Performance”). ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Incorporated by reference from our Proxy Statement for our 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2023. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Incorporated by reference from our Proxy Statement for our 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2023. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Incorporated by reference from our Proxy Statement for our 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2023. 56 Table of Contents PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this report: 1. Consolidated Financial Statements Page Number Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) 58 Consolidated Balance Sheets 60 Consolidated Statements of Income (Loss) 61 Consolidated Statements of Comprehensive Income (Loss) 62 Consolidated Statements of Stockholders’ Equity 63 Consolidated Statements of Cash Flows 64 Notes to Consolidated Financial Statements 66 2. Financial Statement Schedule Schedule II—Valuation and Qualifying Accounts 122 All other schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. 3. Exhibits Required by Item 601 of Regulation S-K 123 The information required by this Item is set forth in the Index of Exhibits that precedes the signature page of this Annual Report. 57 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of PayPal Holdings, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of PayPal Holdings, Inc. and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of income (loss), of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. 58 Table of Contents Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Allowance for Loans Receivable As described in Notes 1 and 11 to the consolidated financial statements, as of December 31, 2023, the Company recorded total loans and interest receivable of $5,433 million, net of an allowance of $540 million. The allowance for loans receivable is primarily based on expectations of credit losses based on historical lifetime loss data as well as macroeconomic forecasts applied to the portfolio. The loss models incorporate various portfolio attributes, as well as macroeconomic factors such as forecasted trends in unemployment, retail e-commerce sales, and household disposable income. The forecasted macroeconomic factors are sourced externally, using a single scenario to reflect the economic conditions applicable to a particular period. Management also includes qualitative adjustments that incorporate incremental information not captured in the expected credit loss models. The principal considerations for our determination that performing procedures relating to the allowance for loans receivable is a critical audit matter are (i) the high degree of auditor subjectivity and effort in performing procedures and evaluating audit evidence relating to certain models which apply macroeconomic forecasts to estimate expected credit losses; and (ii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the allowance for loans receivable, including controls over certain models which apply macroeconomic forecasts to estimate expected credit losses. These procedures also included, among others, the involvement of professionals with specialized skill and knowledge to assist in testing management’s process for estimating the allowance for loans receivable. Testing management’s process included (i) evaluating the appropriateness of the methodology and certain models; (ii) testing the completeness and accuracy of certain data used in the estimate; and (iii) evaluating the reasonableness of management’s application of macroeconomic forecasts to estimate expected credit losses. /s/ PricewaterhouseCoopers LLP San Jose, California February 7, 2024 We have served as the Company’s auditor since 2000. 59 Table of Contents PayPal Holdings, Inc. CONSOLIDATED BALANCE SHEETS As of December 31, 2023 2022 (In millions, except par value) ASSETS Current assets: Cash and cash equivalents $ 9,081 $ 7,776 Short-term investments 4,979 3,092 Accounts receivable, net 1,069 963 Loans and interest receivable, held for sale 563 — Loans and interest receivable, net of allowances of $ 540 and $ 598 as of December 31, 2023 and 2022, respectively 5,433 7,431 Funds receivable and customer accounts 38,935 36,264 Prepaid expenses and other current assets 2,509 1,898 Total current assets 62,569 57,424 Long-term investments 3,273 5,018 Property and equipment, net 1,488 1,730 Goodwill 11,026 11,209 Intangible assets, net 537 788 Other assets 3,273 2,455 Total assets $ 82,166 $ 78,624 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 139 $ 126 Funds payable and amounts due to customers 41,935 40,014 Accrued expenses and other current liabilities 6,392 4,868 Total current liabilities 48,466 45,008 Other long-term liabilities 2,973 2,925 Long-term debt 9,676 10,417 Total liabilities 61,115 58,350 Commitments and contingencies (Note 13) Equity: Common stock, $ 0.0001 par value; 4,000 shares authorized; 1,072 and 1,136 shares outstanding as of December 31, 2023 and 2022, respectively — — Preferred stock, $ 0.0001 par value; 100 shares authorized, unissued — — Treasury stock at cost, 245 and 173 shares as of December 31, 2023 and 2022, respectively ( 21,045 ) ( 16,079 ) Additional paid-in-capital 19,642 18,327 Retained earnings 23,200 18,954 Accumulated other comprehensive income (loss) ( 746 ) ( 928 ) Total equity 21,051 20,274 Total liabilities and equity $ 82,166 $ 78,624 The accompanying notes are an integral part of these consolidated financial statements. 60 Table of Contents PayPal Holdings, Inc. CONSOLIDATED STATEMENTS OF INCOME (LOSS) Year Ended December 31, 2023 2022 2021 (In millions, except for per share amounts) Net revenues $ 29,771 $ 27,518 $ 25,371 Operating expenses: Transaction expense 14,385 12,173 10,315 Transaction and credit losses 1,682 1,572 1,060 Customer support and operations 1,919 2,120 2,075 Sales and marketing 1,809 2,257 2,445 Technology and development 2,973 3,253 3,038 General and administrative 2,059 2,099 2,114 Restructuring and other ( 84 ) 207 62 Total operating expenses 24,743 23,681 21,109 Operating income 5,028 3,837 4,262 Other income (expense), net 383 ( 471 ) ( 163 ) Income before income taxes 5,411 3,366 4,099 Income tax expense (benefit) 1,165 947 ( 70 ) Net income (loss) $ 4,246 $ 2,419 $ 4,169 Net income (loss) per share: Basic $ 3.85 $ 2.10 $ 3.55 Diluted $ 3.84 $ 2.09 $ 3.52 Weighted average shares: Basic 1,103 1,154 1,174 Diluted 1,107 1,158 1,186 The accompanying notes are an integral part of these consolidated financial statements. 61 Table of Contents PayPal Holdings, Inc. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Year Ended December 31, 2023 2022 2021 (In millions) Net income (loss) $ 4,246 $ 2,419 $ 4,169 Other comprehensive income (loss), net of reclassification adjustments: Foreign currency translation adjustments (“CTA”) ( 156 ) ( 305 ) ( 72 ) Net investment hedges CTA gains (losses), net 192 ( 25 ) — Tax (expense) benefit on net investment hedges CTA gains (losses), net ( 44 ) 6 — Unrealized (losses) gains on cash flow hedges, net ( 167 ) ( 88 ) 522 Tax benefit (expense) on unrealized (losses) gains on cash flow hedges, net 8 4 ( 26 ) Unrealized gains (losses) on available-for-sale debt securities, net 457 ( 504 ) ( 98 ) Tax (expense) benefit on unrealized gains (losses) on available-for-sale debt securities, net ( 108 ) 120 22 Other comprehensive income (loss), net of tax 182 ( 792 ) 348 Comprehensive income (loss) $ 4,428 $ 1,627 $ 4,517 The accompanying notes are an integral part of these consolidated financial statements. 62 Table of Contents PayPal Holdings, Inc. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Common Stock Shares Treasury Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Noncontrolling Interest Total Equity (In millions) Balances at December 31, 2020 1,172 $ ( 8,507 ) $ 16,644 $ ( 484 ) $ 12,366 $ 44 $ 20,063 Net income — — — — 4,169 — 4,169 Foreign CTA — — — ( 72 ) — — ( 72 ) Unrealized gains on cash flow hedges, net — — — 522 — — 522 Tax expense on unrealized gains on cash flow hedges, net — — — ( 26 ) — — ( 26 ) Unrealized losses on available-for-sale debt securities, net — — — ( 98 ) — — ( 98 ) Tax benefit on unrealized losses on available-for-sale debt securities, net — — — 22 — — 22 Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 11 — ( 881 ) — — — ( 881 ) Common stock repurchased ( 15 ) ( 3,373 ) — — — — ( 3,373 ) Stock-based compensation — — 1,445 — — — 1,445 Change in noncontrolling interest — — — — ( 44 ) ( 44 ) Balances at December 31, 2021 1,168 $ ( 11,880 ) $ 17,208 $ ( 136 ) $ 16,535 $ — $ 21,727 Net income — — — — 2,419 — 2,419 Foreign CTA — — — ( 305 ) — — ( 305 ) Net investment hedge CTA losses, net — — — ( 25 ) — — ( 25 ) Tax benefit on net investment hedges CTA losses, net — — — 6 — — 6 Unrealized losses on cash flow hedges, net — — — ( 88 ) — — ( 88 ) Tax benefit on unrealized losses on cash flow hedges, net — — — 4 — — 4 Unrealized losses on available-for-sale debt securities, net — — — ( 504 ) — — ( 504 ) Tax benefit on unrealized losses on available-for-sale debt securities, net — — — 120 — — 120 Common stock and stock-based awards issued, net of shares withheld for employee taxes 9 — ( 195 ) — — — ( 195 ) Common stock repurchased ( 41 ) ( 4,199 ) — — — — ( 4,199 ) Stock-based compensation — — 1,313 — — — 1,313 Other — — 1 — — — 1 Balances at December 31, 2022 1,136 $ ( 16,079 ) $ 18,327 $ ( 928 ) $ 18,954 $ — $ 20,274 Net income — — — — 4,246 — 4,246 Foreign CTA — — — ( 156 ) — — ( 156 ) Net investment hedge CTA gains, net — — — 192 — — 192 Tax expense on net investment hedges CTA gains, net — — — ( 44 ) — — ( 44 ) Unrealized losses on cash flow hedges, net — — — ( 167 ) — — ( 167 ) Tax benefit on unrealized losses on cash flow hedges, net — — — 8 — — 8 Unrealized gains on available-for-sale debt securities, net — — — 457 — — 457 Tax expense on unrealized gains on available-for-sale debt securities, net — — — ( 108 ) — — ( 108 ) Common stock and stock-based awards issued, net of shares withheld for employee taxes 9 — ( 130 ) — — — ( 130 ) Common stock repurchased ( 74 ) ( 5,046 ) — — — — ( 5,046 ) Treasury stock reissuance 1 80 — — — — 80 Stock-based compensation — — 1,445 — — — 1,445 Balances at December 31, 2023 1,072 $ ( 21,045 ) $ 19,642 $ ( 746 ) $ 23,200 $ — $ 21,051 The accompanying notes are an integral part of these consolidated financial statements. 63 Table of Contents PayPal Holdings, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2023 2022 2021 (In millions) Cash flows from operating activities: Net income (loss) $ 4,246 $ 2,419 $ 4,169 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Transaction and credit losses 1,682 1,572 1,060 Depreciation and amortization 1,072 1,317 1,265 Stock-based compensation 1,475 1,261 1,376 Deferred income taxes ( 668 ) ( 811 ) ( 482 ) Net (gains) losses on strategic investments ( 201 ) 304 ( 46 ) Gain on divestiture of business, excluding transaction costs ( 356 ) — — Accretion of discounts on investments, net of amortization of premiums ( 367 ) ( 70 ) 73 Adjustments to loans and interest receivable, held for sale 53 — — Other ( 104 ) 275 27 Originations of loans receivable, held for sale ( 11,470 ) — — Proceeds from repayments and sales of loans receivable, originally classified as held for sale 10,795 — — Changes in assets and liabilities: Accounts receivable ( 114 ) ( 163 ) ( 222 ) Transaction loss allowance for cash losses, net ( 1,188 ) ( 1,230 ) ( 1,178 ) Other current assets and non-current assets 203 118 ( 486 ) Accounts payable 7 ( 35 ) ( 31 ) Other current liabilities and non-current liabilities ( 222 ) 856 272 Net cash provided by operating activities 4,843 5,813 5,797 Cash flows from investing activities: Purchases of property and equipment ( 623 ) ( 706 ) ( 908 ) Proceeds from sales of property and equipment 45 5 5 Purchases and originations of loans receivable ( 25,198 ) ( 28,170 ) ( 13,420 ) Proceeds from repayments and sales of loans receivable, originally classified as held for investment 26,660 24,903 11,826 Purchases of investments ( 21,980 ) ( 20,219 ) ( 40,116 ) Maturities and sales of investments 24,295 23,411 39,698 Acquisitions, net of cash and restricted cash acquired — — ( 2,763 ) Proceeds from divestiture of business, net of cash divested 466 — — Funds receivable ( 2,943 ) ( 2,720 ) 193 Collateral posted related to derivative instruments, net ( 56 ) ( 19 ) 336 Other investing activities 86 187 — Net cash provided by (used in) investing activities 752 ( 3,328 ) ( 5,149 ) Cash flows from financing activities: Proceeds from issuance of common stock 127 143 162 Purchases of treasury stock ( 5,002 ) ( 4,199 ) ( 3,373 ) Tax withholdings related to net share settlements of equity awards ( 257 ) ( 336 ) ( 1,036 ) Borrowings under financing arrangements 1,528 3,475 272 Repayments under financing arrangements ( 1,053 ) ( 1,686 ) ( 361 ) Funds payable and amounts due to customers 1,861 1,405 3,572 Collateral received related to derivative instruments, net ( 197 ) ( 6 ) 207 Other financing activities — 1 — 64 Table of Contents PayPal Holdings, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued) Year Ended December 31, 2023 2022 2021 (In millions) Net cash used in financing activities ( 2,993 ) ( 1,203 ) ( 557 ) Effect of exchange rate changes on cash, cash equivalents, and restricted cash 76 ( 155 ) ( 102 ) Net change in cash, cash equivalents, and restricted cash 2,678 1,127 ( 11 ) Cash, cash equivalents, and restricted cash at beginning of period 19,156 18,029 18,040 Cash, cash equivalents, and restricted cash at end of period $ 21,834 $ 19,156 $ 18,029 Supplemental cash flow disclosures: Cash paid for interest $ 331 $ 280 $ 231 Cash paid for income taxes, net $ 2,118 $ 878 $ 474 The table below reconciles cash, cash equivalents, and restricted cash as reported in the consolidated balance sheets to the total of the same amounts shown in the consolidated statements of cash flows: Cash and cash equivalents $ 9,081 $ 7,776 $ 5,197 Short-term and long-term investments 3 17 109 Funds receivable and customer accounts 12,750 11,363 12,723 Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 21,834 $ 19,156 $ 18,029 The accompanying notes are an integral part of these consolidated financial statements. 65 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1— OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES OVERVIEW AND ORGANIZATION PayPal Holdings, Inc. (“PayPal,” the “Company,” “we,” “us,” or “our”) was incorporated in Delaware in January 2015 and is a leading technology platform that enables digital payments and simplifies commerce experiences on behalf of merchants and consumers worldwide. PayPal is committed to democratizing financial services to help improve the financial health of individuals and to increase economic opportunity for entrepreneurs and businesses of all sizes around the world. Our goal is to enable our merchants and consumers to manage and move their money anywhere in the world in the markets we serve, anytime, on any platform, and using any device when sending payments or getting paid, including person-to-person payments. We operate globally and in a rapidly evolving regulatory environment characterized by a heightened focus by regulators globally on all aspects of the payments industry, including countering terrorist financing, anti-money laundering, privacy, cybersecurity, and consumer protection. The laws and regulations applicable to us, including those enacted prior to the advent of digital payments, 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. SIGNIFICANT ACCOUNTING POLICIES Basis of presentation and principles of consolidation The accompanying consolidated financial statements include the financial statements of PayPal and our wholly- and majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Investments in entities where we have the ability to exercise significant influence, but not control, over the investee are accounted for using the equity method of accounting. For such investments, our share of the investee’s results of operations is included in other income (expense), net on our consolidated statements of income (loss). Investments in entities where we do not have the ability to exercise significant influence over the investee are accounted for at fair value or cost minus impairment, if any, adjusted for changes resulting from observable price changes, which are included in other income (expense), net on our consolidated statements of income (loss). Our investment balance is included in long-term investments on our consolidated balance sheets. We determine at the inception of each investment, and re-evaluate if certain events occur, whether an entity in which we have made an investment is considered a variable interest entity (“VIE”). If we determine an investment is in a VIE, we then assess if we are the primary beneficiary, which would require consolidation. As of December 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 December 31, 2023 and December 31, 2022, the carrying value of our investments in nonconsolidated VIEs was $ 175 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 consolidated balance sheets. Our maximum exposure to loss related to our nonconsolidated VIEs, which represents funded commitments and any future funding commitments, was $ 246 million and $ 232 million as of December 31, 2023 and 2022, respectively. Certain amounts for prior years have been reclassified to conform to the financial statement presentation as of and for the year ended December 31, 2023. 66 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Use of estimates The preparation of consolidated financial statements in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to provisions for transaction and credit losses, income taxes, loss contingencies, revenue recognition, and the evaluation of strategic investments for impairment. We base our estimates on historical experience and various other assumptions which we believe to be reasonable under the circumstances. Actual results could materially differ from these estimates. Cash and cash equivalents Cash and cash equivalents are short-term, highly liquid investments with original maturities of three months or less when purchased and are comprised of primarily bank deposits, government and agency securities, and commercial paper. Investments Short-term investments include time deposits and available-for-sale debt securities with original maturities of greater than three months but less than one year when purchased or maturities of one year or less on the reporting date. Long-term investments include time deposits and available-for-sale debt securities with maturities exceeding one year on the reporting date, as well as our strategic investments. Our available-for-sale debt securities are reported at fair value using the specific identification method. Unrealized gains and losses are reported as a component of other comprehensive income (loss), net of related estimated tax provisions or benefits. We elect to account for available-for-sale debt securities denominated in currencies other than the functional currency of our subsidiaries, underlying funds receivable and customer accounts, short-term investments, and long-term investments, under the fair value option as further discussed in “Note 9—Fair Value Measurement of Assets and Liabilities.” The changes in fair value related to initial measurement and subsequent changes in fair value are included as a component of other income (expense), net on our consolidated statements of income (loss). Our strategic investments consist of marketable equity securities, which are publicly traded, and non-marketable equity securities, which are primarily investments in privately held companies. Marketable equity securities have readily determinable fair values with changes in fair value recorded in other income (expense), net. Non-marketable equity securities include investments that do not have a readily determinable fair value, as well as equity method investments. The investments that do not have readily determinable fair value are measured at cost minus impairment, if any, and are adjusted for changes resulting from observable price changes in orderly transactions for an identical or similar investment in the same issuer (the “Measurement Alternative”). Non-marketable equity securities also include our investments where we have the ability to exercise significant influence, but not control, over the investee and account for these securities using the equity method of accounting. All gains and losses on these investments, realized and unrealized, and our share of earnings or losses from investments accounted for using the equity method are recognized in other income (expense), net on our consolidated statements of income (loss). We assess whether an impairment loss on our non-marketable, Measurement Alternative investments has occurred based on qualitative factors such as the companies’ financial condition and business outlook, industry performance, regulatory, economic or technological environment, and other relevant events and factors affecting the company. We assess whether an other-than-temporary impairment loss on our equity method investments has occurred due to declines in fair value or other market conditions. If any impairment is identified for non-marketable equity securities or impairment is considered other-than-temporary for our equity method investments, we write down the investment to its fair value and record the corresponding charge through other income (expense), net on our consolidated statements of income (loss). 67 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Our available-for-sale debt securities in an unrealized loss position are written down to fair value through a charge to other income (expense), net on our consolidated statements of income (loss) if we intend to sell the security or it is more likely than not we will be required to sell the security before recovery of its amortized cost basis. For the remaining available-for-sale debt securities in an unrealized loss position, if we identify that the decline in fair value has resulted from credit losses, taking into consideration changes to the rating of the security by rating agencies, implied yields versus benchmark yields, and the extent to which fair value is less than amortized cost, among other factors, we estimate the present value of cash flows expected to be collected. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any portion of impairment not related to credit losses is recognized in other comprehensive income (loss). Accounts receivable, net Accounts receivable is primarily related to revenue earned from customers and is reduced by an allowance for credit losses. For the years ended December 31, 2023 and 2022, the allowance for credit losses was not significant. Accounts receivable deemed uncollectible are charged against the allowance for credit losses when identified. Loans and interest receivable, held for sale In June 2023, we entered into a multi-year agreement with a global investment firm to sell up to € 40 billion of United Kingdom (“U.K.”) and other European buy now, pay later loan receivables, consisting of eligible loans and interest receivable and a forward-flow arrangement for the sale of future originations of eligible loans over a 24 -month commitment period (together, “eligible consumer installment receivables”). Following the sale, the global investment firm becomes the owner of the eligible consumer installment receivables sold and we no longer hold an ownership interest in these receivables. These sales of eligible consumer installment receivables to the global investment firm are accounted for as a true sale based on our determination that these receivables met all the necessary criteria for such accounting including legal isolation for transferred assets, ability of the transferee to pledge or exchange the transferred assets without constraint, and the transfer of control, and thus, we no longer record these receivables on our consolidated financial statements. We also concluded that our continuing involvement in the arrangement does not invalidate this determination. We maintain the servicing rights for the entire pool of the consumer installment receivables sold and receive a market-based service fee for servicing the assets sold. Prior to the decision to sell, this portfolio was reported at outstanding principal balances, including unamortized deferred origination costs and estimated collectible interest and fees, net of allowances for credit losses. At the time of reclassification of eligible consumer installment receivables to loans and interest receivable, held for sale in May 2023, any previously recorded allowance for credit losses for loans and interest receivable outstanding was reversed, resulting in a decrease in transaction and credit losses on our consolidated statements of income (loss) for the year ended December 31, 2023. Loans and interest receivable, held for sale as of December 31, 2023 represents installment consumer receivables that we originated and intend to sell to the global investment firm. Loans and interest receivable, held for sale are recorded at the lower of cost or fair value, determined on an aggregate basis, with valuation changes and any associated charge-offs recorded in restructuring and other on our consolidated statements of income (loss). Interest income on interest bearing held-for-sale loans is accrued and recognized based on the contractual rate of interest. If PayPal no longer has intent to sell loans and interest receivable, held for sale, such loans would be reclassified to loans and interest receivable, held for investment. When a loan is reclassified to held for investment, any amounts previously recorded in order to measure the loan at the lower of cost or fair value are reversed on our consolidated statements of income (loss) (recognized within restructuring and other) and the loan is recorded consistent with loans originated as held for investment. Loans and interest receivable, net Loans and interest receivable, net represents merchant receivables originated under our PayPal Working Capital (“PPWC”) product and PayPal Business Loan (“PPBL”) product and consumer loans originated under our PayPal Credit and installment credit products. PayPal Credit consists of revolving credit products. 68 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) In the U.S., PPWC, PPBL, and consumer interest-bearing installment products are provided under a program agreement we have with an independent chartered financial institution (“partner institution”). The partner institution extends credit to merchants for the PPWC and PPBL products and to consumers for interest-bearing installment products and we purchase the related receivables originated by the partner institution. For our merchant finance products outside the U.S., we extend working capital advances and loans in the U.K. and rest of Europe through our U.K. subsidiary and Luxembourg banking subsidiary, respectively, and working capital loans in Australia through an Australian subsidiary. In the U.S., we extend certain short-term, interest-free, installment loans to consumers through a U.S. subsidiary. For our international consumer credit products, we extend credit in the U.K and the rest of Europe through our U.K. subsidiary and Luxembourg banking subsidiary, respectively, and in Australia and Japan, through local subsidiaries. As part of our arrangement with the partner institution in the U.S., we sell back a participation interest in the pool of receivables for the PPWC, PPBL, and consumer interest-bearing installment products. The partner institution has no recourse against us related to their participation interests for failure of debtors to pay when due. The participation interests held by the partner institution have the same priority to the interests held by us and are subject to the same credit, prepayment, and interest rate risk associated with this pool of receivables. All risks of loss are shared pro rata based on participation interests held among all participating stakeholders. We account for the asset transfer as a sale and derecognize the portion of the participation interests for which control has been surrendered. For this arrangement, gains or losses on the sale of the participation interests are not material as the carrying amount of the participation interest sold approximates the fair value at time of transfer. Loans, advances, and interest and fees receivable are reported at their outstanding balances, net of any participation interests sold and unamortized deferred origination costs. We maintain the servicing rights for the entire pool of consumer and merchant receivables outstanding and receive a market-based service fee for servicing the assets underlying the participation interest sold. We offer both revolving and installment credit products to our consumers. The terms of our consumer relationships require us to submit monthly bills to the consumer detailing loan repayment requirements. The terms also allow us to charge the consumer interest and fees in certain circumstances. Due to the relatively small dollar amount of individual loans and interest receivable, we do not require collateral on these balances. 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. Refer to “Note 11—Loans and Interest Receivable” for further information related to loan modifications. Another partner institution is the exclusive issuer of the PayPal Credit consumer financing program in the U.S. We do not hold an ownership interest in the receivables generated through the program and therefore, do not record these receivables on our consolidated financial statements. PayPal earns a revenue share on the portfolio of consumer receivables owned by the partner institution, which is recorded in revenues from other value added services on our consolidated statements of income (loss). Allowance for loans and interest receivable The allowance for loans and interest receivable represents our estimate of current expected credit losses inherent in our portfolio of loans and interest receivables. Increases to the allowance for loans receivable are reflected as a component of transaction and credit losses on our consolidated statements of income (loss). Increases to the allowance for interest and fees receivable are reflected as a reduction of net revenues on our consolidated statements of income (loss), or as a reduction of deferred revenue when interest and fees are billed at the inception of a loan or advance. The evaluation process to assess the adequacy of allowances is subject to numerous estimates and judgments. 69 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The allowance for merchant loans, advances, and interest and fees receivable is primarily based on expectations of credit losses based on historical lifetime loss data as well as macroeconomic forecasts applied to the portfolio. The merchant loss models incorporate various portfolio attributes including geographic region, first borrowing versus repeat borrowing, delinquency, internally developed risk ratings, and vintage, as well as macroeconomic factors such as forecasted trends in unemployment rates and retail e-commerce sales. The forecasted macroeconomic factors are sourced externally, using a single scenario that we believe is most appropriate to the economic conditions applicable to a particular period. The reasonable and supportable forecast period for merchant products that we have included in our projected loss rates for 2023 and 2022, which approximates the estimated life of the loans, is approximately 2.5 to 3.5 years. Projected loss rates, inclusive of historical loss data and macroeconomic factors, are derived based on and applied to the principal amount of our merchant receivables. We also include qualitative adjustments that incorporate incremental information not captured in the quantitative estimates of our current expected credit losses. The allowance for current expected credit losses on interest and fees receivable is determined primarily by applying loss curves to each portfolio by geography, delinquency, and period of origination, among other factors. The allowance for consumer loans and interest receivable not classified as held for sale is primarily based on expectations of credit losses based on historical lifetime loss data. The allowance for loans and interest receivable for our revolving credit product also incorporates macroeconomic forecasts applied to the portfolio. In the second quarter of 2023, our expected credit loss models for our revolving consumer receivables were updated. These changes did not have a material impact on our provision recorded in the year ended December 31, 2023. The consumer loss models incorporate various portfolio attributes including geographic region, loan term, delinquency, credit rating, vintage, and for the revolving credit portfolio macroeconomic factors such as forecasted trends in household disposable income and retail e-commerce sales (and through the first quarter of 2023, unemployment rates). The forecasted macroeconomic factors are sourced externally, using a single scenario that we believe is most appropriate to the economic conditions applicable to a particular period. The reasonable and supportable forecast period for revolving products and installment products (not classified as held for sale) that we have included in our projected loss rates for 2023, which approximates the estimated life of the loans, is approximately 5 years and 7 months to 3.5 years, respectively. In 2022, the reasonable and supportable forecast periods were consistent with 2023 except for revolving products, which had a reasonable and supportable forecast period of 2 years. Projected loss rates, inclusive of historical loss data and, for the revolving credit portfolio macroeconomic factors, are derived based on and applied to the principal amount of our consumer receivables. We also include qualitative adjustments that incorporate incremental information not captured in the quantitative estimates of our current expected credit losses, such as expectations of macroeconomic conditions not captured in the loss models for our installment products (not classified as held for sale). The allowance for current expected credit losses on interest and fees receivable is determined primarily by applying loss curves to each portfolio by geography, delinquency, and period of origination, among other factors. In connection with the sale of our eligible consumer installment receivables, and the reclassification of that portfolio as held for sale, we reversed the previously recorded allowances for credit losses associated with those loans and interest receivable balances. Charge-offs and any adjustments to the fair value of loans and interest receivable, held for sale, are recorded in restructuring and other on our consolidated statement of income (loss). Customer accounts We hold all customer balances, both in the U.S. and internationally, as direct claims against us which are reflected on our consolidated balance sheets as a liability classified as amounts due to customers. Certain jurisdictions where PayPal operates require us to hold eligible liquid assets, as defined by applicable regulatory requirements and commercial law in these jurisdictions, equal to at least 100 % of the aggregate amount of all customer balances. Therefore, we restrict the use of the assets underlying the customer balances to meet these regulatory requirements and separately classify the assets as customer accounts on our consolidated balance sheets. We classify the assets underlying the customer balances as current based on their purpose and availability to fulfill our direct obligation under amounts due to customers. Customer funds for which PayPal is an agent and custodian on behalf of our customers are not reflected on our consolidated balance sheets. These funds include U.S. dollar funds which are deposited at one or more third-party financial institutions insured by the Federal Deposit Insurance Corporation (“FDIC”) and are eligible for FDIC pass-through insurance (subject to applicable limits). 70 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The Luxembourg Commission de Surveillance du Secteur Financier (the “CSSF”) agreed that PayPal’s management may designate up to 50 % of European customer balances held in our Luxembourg banking subsidiary to fund European, U.K., and U.S. credit activities. As of December 31, 2023 and 2022, the total amount approved by management to be designated to fund credit activities was $ 3.0 billion and $ 3.8 billion, respectively, and represented approximately 39 % and 37 % of European customer balances made available for our corporate use as of those respective dates, as determined by applying financial regulations maintained by the CSSF. At the time PayPal’s management designates the European customer balances held in our Luxembourg banking subsidiary to be used to extend credit, the balances are classified as cash and cash equivalents and no longer classified as customer accounts on our consolidated balance sheets. The remaining assets underlying the customer balances remain separately classified as customer accounts on our consolidated balance sheets. We identify these customer accounts separately from corporate funds and maintain them in interest and non-interest bearing bank deposits, time deposits, and available-for-sale debt securities. Customer balances deposited with our partners on a short-term basis in advance of customer transactions and used to fulfill our direct obligation under amounts due to customers are classified as cash and cash equivalents within our customer accounts classification on our consolidated balance sheets. See “Note 8—Cash and Cash Equivalents, Funds Receivable and Customer Accounts, and Investments” for additional information related to customer accounts. We present changes in funds receivable and customer accounts as cash flows from investing activities on our consolidated statements of cash flows based on the nature of the activity underlying our customer accounts. Under applicable accounting standards, we are an agent when facilitating cryptocurrency transactions on behalf of our customers. Cryptocurrencies held on behalf of our customers are not PayPal’s assets and therefore, are not reflected as cryptocurrency assets on our consolidated balance sheets; however, we recognize a crypto asset safeguarding liability with a corresponding safeguarding asset to reflect our obligation to safeguard the cryptocurrencies held on behalf of our customers. Funds receivable and funds payable Funds receivable and funds payable arise due to the time required to initiate collection from and clear transactions through external payment networks. When customers fund their PayPal account using their bank account, credit card, debit card, or withdraw funds from their PayPal account to their bank account or through a debit card transaction, there is a clearing period before the cash is received or settled, usually one to three business days for U.S. transactions and generally up to five business days for international transactions. In addition, a portion of our customers’ funds are settled directly to their bank account. These funds are also classified as funds receivable and funds payable and arise due to the time required to initiate collection from and clear transactions through external payment networks. Property and equipment Property and equipment consists primarily of computer equipment, software and website development costs, land and buildings, leasehold improvements, and furniture and fixtures. Property and equipment are stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets; generally, one to four years for computer equipment and software, including capitalized software and website development costs, three years for furniture and fixtures, up to 30 years for buildings and building improvements, and the shorter of five years or the non-cancelable term of the lease for leasehold improvements. Direct costs incurred to develop software for internal use and website development costs, including those costs incurred in expanding and enhancing our payments platform, are capitalized and amortized generally over an estimated useful life of three years and are recorded as amortization within the financial statement captions aligned with the internal organizations that are the primary beneficiaries of such assets. We capitalized $ 445 million and $ 511 million of internally developed software and website development costs for the years ended December 31, 2023 and 2022, respectively. Amortization expense for these capitalized costs was $ 482 million, $ 426 million, and $ 366 million for the years ended December 31, 2023, 2022, and 2021, respectively. Costs related to the maintenance of internal use software and website development costs are expensed as incurred. 71 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Leases We determine whether an arrangement is a lease for accounting purposes at contract inception. Operating leases are recorded as right-of-use (“ROU”) assets, which are included in other assets, and lease liabilities, which are included in accrued expenses and other current liabilities and other long-term liabilities on our consolidated balance sheets. For sale-leaseback transactions, we evaluate the sale and the lease arrangement based on our conclusion as to whether control of the underlying asset has been transferred, and recognize the sale-leaseback as either a sale transaction or under the financing method. The financing method requires the asset to remain on our consolidated balance sheets throughout the term of the lease and the proceeds to be recognized as a financing obligation. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Our leases do not provide an implicit rate and therefore we use an incremental borrowing rate for specific terms on a collateralized basis using information available on the commencement date in determining the present value of lease payments. The ROU asset calculation includes lease payments to be made and excludes lease incentives. The ROU asset and lease liability may include amounts attributed to options to extend or terminate the lease when it is reasonably certain we will exercise that option. When we reach a decision to exercise a lease renewal or termination option, we recognize the associated impact to the ROU asset and lease liability. Lease expense for operating leases is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components. We have elected to apply the practical expedient and account for the lease and non-lease components as a single lease component for all leases, where applicable. In addition, we have elected to apply the practical expedients related to lease classification, hindsight, and land easement. We apply a single portfolio approach to account for the ROU assets and lease liabilities. We evaluate ROU assets related to leases for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount of an ROU asset may not be recoverable. When a decision has been made to exit a lease prior to the contractual term or to sublease that space, we evaluate the asset for impairment and recognize the associated impact to the ROU asset and related expense, if applicable. The evaluation is performed at the asset group level initially and when appropriate, at the lowest level of identifiable cash flows, which is at the individual lease level. Undiscounted cash flows expected to be generated by the related ROU assets are estimated over the ROU assets’ useful lives. If the evaluation indicates that the carrying amount of the ROU assets may not be recoverable, any potential impairment is measured based upon the fair value of the related ROU asset or asset group as determined by appropriate valuation techniques. Goodwill and intangible assets Goodwill is tested for impairment, at a minimum, on an annual basis at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit’s carrying value is compared to its fair value. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. The fair value of the reporting unit may be estimated using income and market approaches. The discounted cash flow method, a form of the income approach, uses expected future operating results and a market participant discount rate. The market approach uses comparable company prices and other relevant information generated by market transactions (either publicly traded entities or mergers and acquisitions) to develop pricing metrics to be applied to historical and expected future operating results of the reporting unit. Failure to achieve these expected results, changes in the discount rate, or market pricing metrics may cause a future impairment of goodwill at the reporting unit level. We conducted our annual impairment test of goodwill as of August 31, 2023 and 2022. We determined that no adjustment to the carrying value of goodwill of our reporting unit was required. As of December 31, 2023, we determined that no events occurred, or circumstances changed from August 31, 2023 through December 31, 2023 that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Intangible assets consist of acquired customer list and user base intangible assets, marketing related intangibles, developed technology, and other intangible assets. Intangible assets are amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from three to seven years . No significant residual value is estimated for intangible assets. 72 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) We evaluate long-lived assets (including intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. An asset is considered impaired if its carrying amount exceeds the future undiscounted cash flow the asset is expected to generate. Allowance for transaction losses We are exposed to transaction losses due to credit card and other payment misuse as well as nonperformance from sellers who accept payments through PayPal. We establish an allowance for estimated losses arising from completing customer transactions, such as chargebacks for unauthorized credit card use and merchant-related chargebacks due to non-delivery or unsatisfactory delivery of purchased items, purchase protection program claims, and account takeovers. This allowance represents an accumulation of the estimated amounts of probable transaction losses as of the reporting date. The allowance is monitored regularly and is updated based on actual loss data. The allowance is based on known facts and circumstances, internal factors including experience with similar cases, historical trends involving loss payment patterns, and the mix of transaction and loss types, as applicable. Additions to the allowance are reflected as a component of transaction and credit losses on our consolidated statements of income (loss). The allowance for transaction losses is included in accrued expenses and other current liabilities on our consolidated balance sheets. Allowance for negative customer balances Negative customer balances occur primarily when there are insufficient funds in a customer’s PayPal account to cover charges applied for bank returns and reversals, debit card transactions, and merchant-related chargebacks due to non-delivery or unsatisfactory delivery of purchased items, which are generally within the scope of our protection programs. Negative customer balances can be cured by the customer by adding funds to their account, receiving payments, or through back-up funding sources. We also utilize third-party collection agencies. For negative customer balances that are not expected to be cured or otherwise collected, we provide an allowance for expected losses. The allowance represents expected losses based on historical trends involving collection and write-off patterns, internal factors including our experience with similar cases, other known facts and circumstances, and reasonable and supportable macroeconomic forecasts, as applicable. Loss rates are derived using historical loss data for each delinquency bucket using a roll rate model that captures the losses and the likelihood that a negative customer balance will be written off as the delinquency age of such balance increases. The loss rates are then applied to the outstanding negative customer balances. Once the quantitative calculation is performed, we review the adequacy of the allowance and determine if qualitative adjustments need to be considered. We write-off negative customer balances in the month in which the balance becomes outstanding for 120 days. Write-offs that are recovered are recorded as a reduction to our allowance for negative customer balances. Negative customer balances are included in other current assets, net of the allowance on our consolidated balance sheets. Adjustments to the allowance for negative customer balances are recorded as a component of transaction and credit losses on our consolidated statements of income (loss). Derivative instruments See “Note 10—Derivative Instruments” for information related to the derivative instruments. Fair value measurements We measure certain financial assets and liabilities at fair value on a recurring basis and certain financial and non-financial assets and liabilities at fair value on a non-recurring basis when a change in fair value or impairment is evidenced. Fair value is defined as the price received to sell an asset or paid to transfer a liability in the principal market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value is estimated by maximizing the use of observable inputs and minimizing the use of unobservable inputs. The categorization within the following three-level fair value hierarchy for our recurring and non-recurring fair value measurements is based upon the lowest level of input that is available and significant to the fair value measurement: • Level 1 - Observable inputs, such as unadjusted quoted prices in active markets for identical assets or liabilities. • Level 2 - Observable inputs other than Level 1 quoted prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be market-corroborated. • Level 3 - Unobservable inputs that cannot be directly corroborated by observable market data and that typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. 73 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) See “Note 9—Fair Value Measurement of Assets and Liabilities” for additional information related to our fair value measurements. Crypto asset safeguarding liability and corresponding safeguarding asset See “Note 7—Other Financial Statement Details” for information related to our crypto asset safeguarding liability and corresponding safeguarding asset. Concentrations of risk Our cash, cash equivalents, short-term investments, accounts receivable, loans and interest receivable, net, funds receivable and customer accounts, long-term investments, and long-term notes receivable, are potentially subject to concentration of credit risk. Cash, cash equivalents, and customer accounts are placed with financial institutions that management believes are of high credit quality. In addition, funds receivable are generated primarily with financial institutions which management believes are of high credit quality. We invest our cash, cash equivalents, and customer accounts primarily in highly liquid, highly rated instruments which are uninsured. We have corporate deposit balances with financial services institutions which exceed the FDIC insurance limit of $250,000. As part of our cash management process, we perform periodic evaluations of the relative credit standing of these financial institutions. Our accounts receivable are derived from revenue earned from customers located in the U.S. and internationally. Our loans and interest receivable are derived from merchant and consumer financing activities for customers located in the U.S. and internationally. Our long-term notes receivable is derived from deferred proceeds associated with the sale of our U.S. consumer credit receivables portfolio to a partner institution in 2018. Transaction expense is derived from fees paid to payment processors and other financial institutions, located in the U.S. and internationally, when we draw funds from a customer’s credit or debit card, bank account, or other funding source they have stored in their digital wallet. As of December 31, 2023 and 2022, one customer accounted for 15 % and 20 % of net accounts receivables, respectively. No customer accounted for more than 10% of net loans receivable as of December 31, 2023 and 2022. At December 31, 2023 and 2022, one partner institution accounted for our long-term notes receivable balance, which represented 16 % and 18 % of other assets, respectively. During the years ended December 31, 2023, 2022, and 2021, no customer accounted for more than 10% of net revenues. During the years ended December 31, 2023 and 2022, one payment processor accounted for 60 % and 63 % of transaction expense, respectively. During the year ended December 31, 2021, two payment processors accounted for 70 % of transaction expense. Revenue recognition See “Note 2—Revenue” for information related to our revenue recognition. Advertising expense We expense the cost of producing advertisements at the time production occurs and expense the cost of communicating advertisements in the period during which the advertising space or airtime is used as sales and marketing expense. Online advertising expenses are recognized based on the terms of the individual agreements, which are generally based on the number of impressions delivered over the total number of contracted impressions, on a pay-per-click basis, or on a straight-line basis over the term of the contract. Advertising expense totaled $ 364 million, $ 518 million, and $ 740 million for the years ended December 31, 2023, 2022, and 2021, respectively. Defined contribution savings plans We have a defined contribution savings plan in the U.S. which qualifies under Section 401(k) of the Internal Revenue Code (“Code”). Our non-U.S. employees are covered by other savings plans. Expenses related to our defined contribution savings plans are recorded when services are rendered by our employees. 74 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Stock-based compensation We determine compensation expense associated with restricted stock units, performance based restricted stock units, and restricted stock awards based on the estimated fair value of our common stock on the date of grant. We determine compensation expense associated with stock options based on the estimated grant date fair value method using the Black-Scholes valuation model. We generally recognize compensation expense using a straight-line amortization method over the respective vesting period for awards that are ultimately expected to vest. Accordingly, stock-based compensation expense for the years ended December 31, 2023, 2022, and 2021 has been reduced for estimated forfeitures. When estimating forfeitures, we consider voluntary termination behavior of our employees as well as trends of actual forfeitures. Foreign currency Many of our foreign subsidiaries have designated the local currency of their respective countries as their functional currency. Assets and liabilities of our non-U.S. dollar functional currency subsidiaries are translated into U.S. dollars at exchange rates prevailing at the balance sheet dates. Revenues and expenses of our non-U.S. dollar functional currency subsidiaries are translated into U.S. dollars using daily exchange rates. Gains and losses resulting from these translations are recorded as a component of accumulated other comprehensive income (loss) (“AOCI”). Gains and losses from the remeasurement of foreign currency transactions into the functional currency are recognized as other income (expense), net on our consolidated statements of income (loss). Income taxes We account for income taxes using an asset and liability approach which requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements or tax returns. The measurement of current and deferred tax assets and liabilities is based on provisions of enacted tax laws; the effects of future changes in tax laws or rates are not anticipated. If necessary, the measurement of deferred tax assets is reduced by the amount of any tax benefits that are not expected to be realized based on available evidence. We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense. We account for Global Intangible Low-Taxed Income as a current-period expense when incurred. Other income (expense), net Other income (expense), net includes: • interest income, which consists of interest earned on corporate cash and cash equivalents and short-term and long-term investments, • interest expense, which consists of interest expense, fees, and amortization of debt discount on our long-term debt (including current portion) and credit facilities, • realized and unrealized gains (losses) on strategic investments, and • other, which primarily includes foreign currency exchange gains and losses due to remeasurement of certain foreign currency denominated monetary assets and liabilities, forward points on derivative contracts designated as net investment hedges, and fair value changes on the derivative contracts not designated as hedging instruments. Recent accounting guidance In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures . The amended guidance requires incremental reportable segment disclosures, primarily about significant segment expenses. The amendments also require entities with a single reportable segment to provide all disclosures required by these amendments, and all existing segment disclosures. The amendments will be applied retrospectively to all prior periods presented in the financial statements and is effective for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024, with early adoption permitted. We are evaluating the impact this amended guidance may have on the footnotes to our consolidated financial statements. 75 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) In December 2023, the FASB issued ASU 2023-08, Intangibles – Goodwill and Other – Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets . This amended guidance requires fair value measurement of certain crypto assets each reporting period with the changes in fair value reflected in net income. The amendments also require disclosures of the name, fair value, units held, and cost bases for each significant crypto asset held and annual reconciliations of crypto asset holdings. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2024, with early adoption permitted. We are required to apply these amendments as a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance is adopted. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements based on our current crypto asset holdings and fair value. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . The amended guidance enhances income tax disclosures primarily related to the effective tax rate reconciliation and income taxes paid information. This guidance requires disclosure of specific categories in the effective tax rate reconciliation and further information on reconciling items meeting a quantitative threshold. In addition, the amended guidance requires disaggregating income taxes paid (net of refunds received) by federal, state, and foreign taxes. It also requires disaggregating individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received). The amended guidance is effective for fiscal years beginning after December 15, 2024. The guidance can be applied either prospectively or retrospectively. We are evaluating the impact this amended guidance may have on the footnotes to our consolidated financial statements. Recently adopted accounting guidance In March 2022, the FASB issued ASU 2022-02, Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures (Topic 326): Financial Instruments – Credit Losses . 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.” There are other new accounting pronouncements issued by the FASB that we have adopted or will adopt, as applicable. We do not believe any of these new accounting pronouncements have had, or will have, a material impact on our consolidated financial statements or disclosures. NOTE 2— REVENUE We enable our customers to send and receive payments. We earn revenue primarily by completing payment transactions for our customers on our payments platform and from other value added services. Our revenues are classified into two categories: transaction revenues and revenues from other value added services. TRANSACTION REVENUES We earn transaction revenues primarily from fees paid by our customers to receive payments on our platform. These fees may have a fixed and variable component. The variable component is generally a percentage of the value of the payment amount and is known at the time the transaction is processed. For a portion of our transactions, the variable component of the fee is eligible for reimbursement when the underlying transaction is approved for a refund. We estimate the amount of fee refunds that will be processed each quarter and record a provision against our transaction revenues. The volume of activity processed on our payments platform, which results in transaction revenue, is referred to as Total Payment Volume (“TPV”). We generate additional revenues from merchants and consumers: on transactions where we perform currency conversion, when we enable cross-border transactions (i.e., transactions where the merchant and consumer are in different countries), to facilitate the instant transfer of funds for our customers from their PayPal or Venmo account to their bank account or debit card, to facilitate the purchase and sale of cryptocurrencies, as contractual compensation from sellers that violate our contractual terms (for example, through fraud or counterfeiting), and other miscellaneous fees. Our transaction revenues are also reduced by certain incentives provided to our customers. 76 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Our contracts with our customers are usually open-ended and can be terminated by either party without a termination penalty after the notice period has lapsed. Therefore, our contracts are defined at the transaction level and do not extend beyond the service already provided. Our contracts generally renew automatically without any significant material rights. Some of our contracts include tiered pricing, which are based primarily on volume. The fee charged per transaction is adjusted up or down if the volume processed for a specified period is different from prior period defined volumes. We have concluded that this volume-based pricing approach does not constitute a future material right since the discount is within a range typically offered to a class of customers with similar volume. We do not have any capitalized contract costs and we do not carry any material contract balances. Our primary service comprises a single performance obligation to complete payments on our payments platform for our customers. Using our risk assessment tools, we perform a transaction risk assessment on individual transactions to determine whether a transaction should be authorized for completion on our payments platform. When we authorize a transaction, we become obligated to our customer to complete the payment transaction. We recognize fees charged to our customers primarily on a gross basis as transaction revenue when we are the principal in respect of completing a payment transaction. As a principal to the transaction, we control the service of completing payments on our payments platform. We bear primary responsibility for the fulfillment of the payment service, contract directly with our customers, control the product specifications, and define the value proposal from our services. Further, we have full discretion in determining the fee charged to our customers, which is independent of the costs we incur in instances where we may utilize payment processors or other financial institutions to perform services on our behalf. We therefore bear full margin risk when completing a payment transaction. These fees paid to payment processors and other financial institutions are recognized as transaction expense. We are also responsible for providing customer support. To promote engagement and acquire new users on our platform, we may provide incentives to merchants and consumers in various forms including discounts on fees, rebates, rewards, and coupons. Evaluating whether an incentive is a payment to a customer requires judgment. Incentives that are determined to be consideration payable to a customer or paid on behalf of a customer are recognized as a reduction of revenue. Incentives based on performance targets are recorded as a reduction to revenue when earned, based on management's estimate of each customer's future performance and incentives not based on performance targets are amortized as a reduction of revenue ratably over the contractual term. Certain incentives paid to users that are not our customers are classified as sales and marketing expense. We provide merchants and consumers with protection programs for certain transactions completed on our payments platform. These programs are intended to protect both merchants and consumers from loss primarily due to fraud and counterparty performance. These protection programs do not provide a separate service to our customers and we estimate and record associated costs in transaction and credit losses during the period the payment transaction is completed. REVENUES FROM OTHER VALUE ADDED SERVICES We earn revenues from other value added services, which are comprised primarily of revenue earned through partnerships, referral fees, subscription fees, gateway fees, and other services that we provide to our merchants and consumers. These contracts typically have one performance obligation which is provided and recognized over the term of the contract. The transaction price is generally fixed and known at the end of each reporting period; however, for some agreements, it may be necessary to estimate the transaction price using the expected value method. Revenue earned from other value added services is recorded on a net basis when we are considered the agent with respect to processing transactions. We also earn revenues from interest and fees earned on our portfolio of loans receivable, and interest earned on certain assets underlying customer balances. Interest and fees earned on the portfolio of loans receivable are computed and recognized based on the effective interest method and are presented net of any required reserves and amortization of deferred origination costs. 77 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) DISAGGREGATION OF REVENUE We determine operating segments based on how our chief operating decision maker (“CODM”) manages the business, makes operating decisions around the allocation of resources, and evaluates operating performance. Our CODM is our Chief Executive Officer, who regularly reviews our operating results on a consolidated basis. We operate as one segment and have one reportable segment. Based on the information provided to and reviewed by our CODM, we believe that the nature, amount, timing, and uncertainty of our revenue and cash flows and how they are affected by economic factors are most appropriately depicted through our primary geographical markets and types of revenue categories (transaction revenues and revenues from other value added services). Revenues recorded within these categories are earned from similar products and services for which the nature of associated fees and the related revenue recognition models are substantially similar. The following table presents our revenue disaggregated by primary geographical market and category: Year Ended December 31, 2023 2022 2021 (In millions) Primary geographical markets U.S. $ 17,253 $ 15,807 $ 13,712 Other countries (1) 12,518 11,711 11,659 Total net revenues (2) $ 29,771 $ 27,518 $ 25,371 Revenue category Transaction revenues $ 26,857 $ 25,206 $ 23,402 Revenues from other value added services 2,914 2,312 1,969 Total net revenues (2) $ 29,771 $ 27,518 $ 25,371 (1) No single country included in the other countries category generated more than 10% of total net revenues. (2) Total net revenues include $ 1.8 billion, $ 1.3 billion, and $ 425 million for the years ended December 31, 2023, 2022, and 2021, respectively, which do not represent revenues recognized in the scope of Accounting Standards Codification Topic 606, Revenue from contracts with customers. Such revenues relate to interest and fees earned on loans and interest receivable, including loans and interest receivable held for sale, 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 party paying our fee is located. NOTE 3— NET INCOME (LOSS) PER SHARE Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding for the period. The dilutive effect of outstanding equity incentive awards is reflected in diluted net income (loss) per share by application of the treasury stock method. The calculation of diluted net income (loss) per share excludes all anti-dilutive common shares. During periods when we report net loss, diluted net loss per share is the same as basic net loss per share because the effects of potentially dilutive items would decrease the net loss per share. 78 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The following table sets forth the computation of basic and diluted net income (loss) per share for the periods indicated: Year Ended December 31, 2023 2022 2021 (In millions, except per share amounts) Numerator: Net income (loss) $ 4,246 $ 2,419 $ 4,169 Denominator: Weighted average shares of common stock — basic 1,103 1,154 1,174 Dilutive effect of equity incentive awards 4 4 12 Weighted average shares of common stock — diluted 1,107 1,158 1,186 Net income (loss) per share: Basic $ 3.85 $ 2.10 $ 3.55 Diluted $ 3.84 $ 2.09 $ 3.52 Common stock equivalents excluded from net income (loss) per diluted share because their effect would have been anti-dilutive or potentially dilutive 21 13 2 NOTE 4— BUSINESS COMBINATIONS AND DIVESTITURES There were no acquisitions accounted for as business combinations completed in 2023 or 2022. There were no divestitures completed in 2022 or 2021. DIVESTITURES COMPLETED IN 2023 On November 1, 2023, we completed the sale of Happy Returns to United Parcel Services, Inc. for approximately $ 466 million in cash, net of cash divested, and derecognized the assets held for sale, consisting primarily of $ 81 million of goodwill and $ 13 million of net intangible assets. The sale of Happy Returns will help enable us to focus on our core business and priorities. A pre-tax gain of $ 339 million, net of transaction costs, was included in restructuring and other in the consolidated statements of income (loss) for the year ended December 31, 2023. ACQUISITIONS COMPLETED IN 2021 During the year ended December 31, 2021, we completed five acquisitions reflecting 100 % of the equity interests of the acquired companies, for an aggregate purchase price of $ 3.1 billion. Paidy We completed the acquisition of Paidy in October 2021 by acquiring all outstanding shares for total consideration of approximately $ 2.7 billion, consisting of approximately $ 2.6 billion in cash and approximately $ 161 million in assumed restricted stock and restricted stock units, subject to vesting conditions. Paidy is a two-sided payments platform that primarily provides buy now, pay later solutions (installment credit offerings) in Japan. With the acquisition of Paidy, we expanded our capabilities and relevance in Japan. 79 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The following table summarizes the final allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed: (In millions) Goodwill $ 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. 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. Goodwill was not deductible for income tax purposes. 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. 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 on our 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. 80 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) NOTE 5— GOODWILL AND INTANGIBLE ASSETS GOODWILL The following table presents goodwill balances and adjustments to those balances during the years ended December 31, 2023 and 2022: December 31, 2021 Goodwill Acquired Adjustments December 31, 2022 Goodwill Acquired Adjustments December 31, 2023 (In millions) Total goodwill $ 11,454 — ( 245 ) $ 11,209 — ( 183 ) $ 11,026 The adjustments to goodwill during 2023 pertained to foreign currency translation adjustments and a reduction in goodwill associated with the divestiture of Happy Returns. For additional information, see “Note 4—Business Combinations and Divestitures.” The adjustments to goodwill during 2022 pertained primarily to foreign currency translation adjustments. INTANGIBLE ASSETS The components of identifiable intangible assets were as follows: December 31, 2023 December 31, 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Useful Life (Years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Useful Life (Years) (In millions, except years) Intangible assets: Customer lists and user base $ 1,546 $ ( 1,140 ) $ 406 7 $ 1,664 $ ( 1,092 ) $ 572 7 Marketing related 387 ( 350 ) 37 5 395 ( 339 ) 56 5 Developed technology 1,013 ( 999 ) 14 3 1,099 ( 1,048 ) 51 3 All other 433 ( 353 ) 80 7 438 ( 329 ) 109 7 Intangible assets, net $ 3,379 $ ( 2,842 ) $ 537 $ 3,596 $ ( 2,808 ) $ 788 In the year ended December 31, 2023, we recorded a reduction of approximately $ 36 million of gross intangible assets, with a net carrying amount of $ 13 million, associated with the divestiture of Happy Returns as described in “Note 4—Business Combinations and Divestitures.” In the year ended December 31, 2023, we retired approximately $ 141 million of fully amortized intangible assets, consisting primarily of $ 79 million in customer lists and user base and $ 62 million in developed technology. Amortization expense for intangible assets was $ 226 million, $ 471 million, and $ 443 million for the years ended December 31, 2023, 2022, and 2021, respectively. Expected future intangible asset amortization as of December 31, 2023 was as follows: Fiscal years: (In millions) 2024 $ 184 2025 153 2026 95 2027 59 2028 46 $ 537 81 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) NOTE 6— LEASES PayPal enters into various leases, which are primarily real estate operating leases. We use these properties for executive and administrative offices, data centers, product development offices, and customer services and operations centers. While a majority of our lease agreements do not contain an explicit interest rate, certain of our lease agreements are subject to changes based on the Consumer Price Index or another referenced index. In the event of changes to the relevant index, lease liabilities are not remeasured and instead are treated as variable lease payments and recognized in the period in which the obligation for those payments is incurred. The short-term lease exemption has been adopted for all leases with a duration of less than 12 months. PayPal’s lease portfolio includes a small number of subleases. A sublease situation can arise when currently leased real estate space is available and is surplus to operational requirements. As of December 31, 2023, we had no finance leases. The components of lease expense were as follows: Year Ended December 31, 2023 2022 2021 (In millions) Lease expense Operating lease expense $ 156 $ 171 $ 170 Sublease income ( 9 ) ( 8 ) ( 8 ) Lease expense, net $ 147 $ 163 $ 162 Supplemental cash flow information related to leases was as follows: Year Ended December 31, 2023 2022 2021 (In millions) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 174 $ 172 $ 167 ROU lease assets obtained in exchange for new operating lease liabilities $ ( 1 ) $ 131 $ 124 Other non-cash ROU lease asset activity (1) $ ( 40 ) $ ( 52 ) $ ( 21 ) (1) ROU lease asset impairment. Refer to “Note 17—Restructuring and Other” for further details. Supplemental balance sheet information related to leases was as follows: As of December 31, 2023 2022 (In millions, except weighted-average figures) Operating ROU lease assets $ 390 $ 574 Current operating lease liabilities 144 151 Operating lease liabilities 416 569 Total operating lease liabilities $ 560 $ 720 Weighted-average remaining lease term — operating leases 5.0 years 5.7 years Weighted-average discount rate — operating leases 4 % 3 % 82 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Future minimum lease payments for our operating leases as of December 31, 2023 were as follows: Operating Leases Fiscal years: (In millions) 2024 $ 161 2025 122 2026 108 2027 87 2028 57 Thereafter 80 Total $ 615 Less: present value discount ( 55 ) Lease liability $ 560 Operating lease amounts include minimum lease payments under our non-cancelable operating leases primarily for office and data center facilities. The amounts presented are consistent with contractual terms and are not expected to differ significantly from actual results under our existing leases. We recognize rent expense under such agreements on a straight-line basis. Rent expense for the years ended December 31, 2023, 2022, and 2021 totaled $ 183 million, $ 202 million, and $ 192 million, respectively. As of December 31, 2023, we have additional operating leases, primarily for data centers, which will commence in the first quarter of 2024 or later with minimum lease payments aggregating to $ 242 million and lease terms ranging from five to eight years . NOTE 7— OTHER FINANCIAL STATEMENT DETAILS CRYPTO ASSET SAFEGUARDING LIABILITY AND CORRESPONDING SAFEGUARDING ASSET We allow our customers in certain markets to buy, hold, sell, convert, receive, and send certain cryptocurrencies as well as use the proceeds from sales of cryptocurrencies to pay for purchases at checkout. These cryptocurrencies consist of Bitcoin, Ethereum, Bitcoin Cash, Litecoin, and PayPal USD stablecoin (collectively, “our customers’ crypto assets”). We engage third parties, which are licensed trust companies, to provide certain custodial services, including holding our customers’ cryptographic key information, securing our customers’ crypto assets, and protecting them from loss or theft, including indemnification against certain types of losses such as theft. Our third-party custodians hold the crypto assets in a custodial account in PayPal’s name for the benefit of PayPal’s customers. We maintain the internal recordkeeping of our customers’ crypto assets, including the amount and type of crypto asset owned by each of our customers in that custodial account. As of December 31, 2023, we utilize two third-party custodians; as such, there is concentration risk in the event these custodians are 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 consolidated balance sheets. We also recognize a corresponding safeguarding asset which is recorded in prepaid expenses and other current assets on our consolidated balance sheets. The crypto asset safeguarding liability and corresponding safeguarding asset are measured and recorded at fair value on a recurring basis using quoted prices for the underlying crypto assets on the active exchange that we have identified as the principal market at the balance sheet date. The corresponding safeguarding asset may be adjusted for loss events, as applicable. As of December 31, 2023 and 2022, the Company had not incurred any safeguarding loss events, and therefore, the crypto asset safeguarding liability and corresponding safeguarding asset were recorded at the same value. 83 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 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 December 31, 2023 and 2022: As of December 31, 2023 2022 (In millions) Bitcoin $ 741 $ 291 Ethereum 412 250 Other 88 63 Crypto asset safeguarding liability $ 1,241 $ 604 Crypto asset safeguarding asset $ 1,241 $ 604 PROPERTY AND EQUIPMENT, NET As of December 31, 2023 2022 (In millions) Property and equipment, net: Computer equipment and software $ 3,377 $ 3,380 Internal use software and website development costs 4,257 3,814 Land and buildings 333 388 Leasehold improvements 317 364 Furniture and fixtures 118 141 Development in progress and other 34 25 Total property and equipment, gross 8,436 8,112 Accumulated depreciation and amortization ( 6,948 ) ( 6,382 ) Total property and equipment, net $ 1,488 $ 1,730 Depreciation and amortization expense was $ 846 million, $ 846 million, and $ 822 million for the years ended December 31, 2023, 2022, and 2021, respectively. Net changes in accounts payable on our consolidated statements of cash flows includes non-cash investing activities associated with property and equipment; the impact of which was an increase of $ 7 million in 2023 and a decrease of $ 36 million and $ 27 million in 2022 and 2021, respectively. Geographical information The following table summarizes long-lived assets based on geography, which consist of property and equipment, net and operating lease ROU assets: As of December 31, 2023 2022 (In millions) Long-lived assets: U.S. $ 1,629 $ 1,910 Other countries 249 394 Total long-lived assets $ 1,878 $ 2,304 Long-lived assets attributed to the U.S. and other countries are based upon the country in which the asset is located or owned. 84 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the year ended December 31, 2023: Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Gains (Losses) on Available-for-sale Debt Securities Foreign Currency Translation Adjustment ( “ CTA ”) Net Investment Hedges CTA Gains (Losses) Estimated Tax (Expense) Benefit Total (In millions) Beginning balance $ 111 $ ( 591 ) $ ( 575 ) $ ( 1 ) $ 128 $ ( 928 ) Other comprehensive income (loss) before reclassifications ( 56 ) 434 ( 156 ) 192 ( 144 ) 270 Less: Amount of gain (loss) reclassified from AOCI 111 ( 23 ) — — — 88 Net current period other comprehensive income (loss) ( 167 ) 457 ( 156 ) 192 ( 144 ) 182 Ending balance $ ( 56 ) $ ( 134 ) $ ( 731 ) $ 191 $ ( 16 ) $ ( 746 ) The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the year ended December 31, 2022: Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Gains (Losses) on Available-for-sale Debt Securities Foreign CTA Net Investment Hedges CTA Gains (Losses) Estimated Tax (Expense) Benefit Total (In millions) Beginning balance $ 199 $ ( 87 ) $ ( 270 ) $ 24 $ ( 2 ) $ ( 136 ) Other comprehensive income (loss) before reclassifications 374 ( 499 ) ( 305 ) ( 25 ) 130 ( 325 ) Less: Amount of gain reclassified from AOCI 462 5 — — — 467 Net current period other comprehensive income (loss) ( 88 ) ( 504 ) ( 305 ) ( 25 ) 130 ( 792 ) Ending balance $ 111 $ ( 591 ) $ ( 575 ) $ ( 1 ) $ 128 $ ( 928 ) The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the year ended December 31, 2021: Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Gains (Losses) on Available-for-sale Debt Securities Foreign CTA Net Investment Hedges CTA Gains (Losses) Estimated Tax (Expense) Benefit Total (In millions) Beginning balance $ ( 323 ) $ 11 $ ( 198 ) $ 24 $ 2 $ ( 484 ) Other comprehensive income (loss) before reclassifications 332 ( 98 ) ( 72 ) — ( 4 ) 158 Less: Amount of loss reclassified from AOCI ( 190 ) — — — — ( 190 ) Net current period other comprehensive income (loss) 522 ( 98 ) ( 72 ) — ( 4 ) 348 Ending balance $ 199 $ ( 87 ) $ ( 270 ) $ 24 $ ( 2 ) $ ( 136 ) 85 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The following table provides details about reclassifications out of AOCI for the periods presented below: Details about AOCI Components Amount of Gains (Losses) Reclassified from AOCI Affected Line Item in the Statements of Income (Loss) Year Ended December 31, 2023 2022 2021 (In millions) Gains (losses) on cash flow hedges — foreign currency exchange contracts $ 111 $ 462 $ ( 190 ) Net revenues Losses on available-for-sale debt securities ( 21 ) — — Net revenues Losses (gains) on available-for-sale debt securities ( 2 ) 5 — Other income (expense), net 88 467 ( 190 ) Income before income taxes — — — Income tax expense (benefit) Total reclassifications for the period $ 88 $ 467 $ ( 190 ) Net income (loss) OTHER INCOME (EXPENSE), NET The following table reconciles the components of other income (expense), net for the periods presented below: Year Ended December 31, 2023 2022 2021 (In millions) Interest income $ 480 $ 174 $ 57 Interest expense ( 347 ) ( 304 ) ( 232 ) Net gains (losses) on strategic investments 201 ( 304 ) 46 Other 49 ( 37 ) ( 34 ) Other income (expense), net $ 383 $ ( 471 ) $ ( 163 ) Refer to “Note 1 — Overview and Summary of Significant Accounting Policies” for details on the composition of these balances. 86 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) NOTE 8— CASH AND CASH EQUIVALENTS, FUNDS RECEIVABLE AND CUSTOMER ACCOUNTS, AND INVESTMENTS The following table summarizes the assets underlying our cash and cash equivalents, funds receivable and customer accounts, short-term investments, and long-term investments as of December 31, 2023 and 2022: December 31, 2023 December 31, 2022 (In millions) Cash and cash equivalents (1) $ 9,081 $ 7,776 Funds receivable and customer accounts: Cash and cash equivalents (2) $ 12,750 $ 11,363 Time deposits 82 95 Available-for-sale debt securities 15,708 17,349 Funds receivable 10,395 7,457 Total funds receivable and customer accounts $ 38,935 $ 36,264 Short-term investments: Time deposits $ 128 $ 482 Available-for-sale debt securities 4,848 2,593 Restricted cash 3 17 Total short-term investments $ 4,979 $ 3,092 Long-term investments: Time deposits $ 45 $ 55 Available-for-sale debt securities 1,391 2,817 Strategic investments 1,837 2,146 Total long-term investments $ 3,273 $ 5,018 (1) Includes $ 777 million and $ 780 million of available-for-sale debt securities with original maturities of three months or less as of December 31, 2023 and 2022, respectively. (2) Includes $ 399 million and $ 192 million of available-for-sale debt securities with original maturities of three months or less as of December 31, 2023 and 2022, respectively. 87 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) As of December 31, 2023 and 2022, the estimated fair value of our available-for-sale debt securities included within cash and cash equivalents, funds receivable and customer accounts, short-term investments, and long-term investments was as follows: December 31, 2023 (1) Gross Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value (In millions) Cash and cash equivalents: U.S. government and agency securities $ 428 $ — $ — $ 428 Commercial paper 349 — — 349 Funds receivable and customer accounts: U.S. government and agency securities 8,549 8 ( 79 ) 8,478 Foreign government and agency securities 620 — ( 8 ) 612 Corporate debt securities 1,507 — ( 18 ) 1,489 Asset-backed securities 1,421 4 ( 2 ) 1,423 Municipal securities 639 1 ( 2 ) 638 Commercial paper 2,846 4 ( 1 ) 2,849 Short-term investments: U.S. government and agency securities 632 — ( 9 ) 623 Foreign government and agency securities 353 — ( 6 ) 347 Corporate debt securities 1,494 1 ( 13 ) 1,482 Asset-backed securities 719 3 ( 4 ) 718 Commercial paper 1,678 1 ( 1 ) 1,678 Long-term investments: U.S. government and agency securities 188 — ( 8 ) 180 Foreign government and agency securities 33 — ( 1 ) 32 Corporate debt securities 424 — ( 6 ) 418 Asset-backed securities 759 2 — 761 Total available-for-sale debt securities (2) $ 22,639 $ 24 $ ( 158 ) $ 22,505 (1) “—” Denotes gross unrealized gain or unrealized loss of less than $1 million in a given position. (2) Excludes foreign currency denominated available-for-sale debt securities accounted for under the fair value option. Refer to “Note 9 — Fair Value Measurement of Assets and Liabilities.” 88 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) December 31, 2022 (1) Gross Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value (In millions) Cash and cash equivalents: U.S. government and agency securities $ 140 $ — $ — $ 140 Corporate debt securities 100 — — 100 Commercial paper 540 — — 540 Funds receivable and customer accounts: U.S. government and agency securities 8,837 — ( 252 ) 8,585 Foreign government and agency securities 1,508 — ( 44 ) 1,464 Corporate debt securities 1,637 — ( 82 ) 1,555 Asset-backed securities 1,324 — ( 26 ) 1,298 Municipal securities 411 — ( 3 ) 408 Commercial paper 3,702 1 ( 14 ) 3,689 Short-term investments: U.S. government and agency securities 815 — ( 3 ) 812 Foreign government and agency securities 435 — ( 11 ) 424 Corporate debt securities 641 — ( 14 ) 627 Asset-backed securities 415 — ( 9 ) 406 Commercial paper 324 — — 324 Long-term investments: U.S. government and agency securities 493 — ( 36 ) 457 Foreign government and agency securities 386 — ( 22 ) 364 Corporate debt securities 987 — ( 58 ) 929 Asset-backed securities 1,085 — ( 18 ) 1,067 Total available-for-sale debt securities (2) $ 23,780 $ 1 $ ( 592 ) $ 23,189 (1) “—” Denotes gross unrealized gain or unrealized loss of less than $1 million in a given position. (2) Excludes foreign currency denominated available-for-sale debt securities accounted for under the fair value option. Refer to “Note 9 — Fair Value Measurement of Assets and Liabilities.” Gross amortized cost and estimated fair value balances exclude accrued interest receivable on available-for-sale debt securities, which totaled $ 101 million and $ 65 million at December 31, 2023 and 2022, respectively, and were included in other current assets on our consolidated balance sheets. 89 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) As of December 31, 2023 and 2022, the gross unrealized losses and estimated fair value of our available-for-sale debt securities included within cash and cash equivalents, 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: December 31, 2023 (1) Less than 12 months 12 months or longer Total Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses (In millions) Cash and cash equivalents: Commercial paper $ 349 $ — $ — $ — $ 349 $ — Funds receivable and customer accounts: U.S. government and agency securities 2,626 ( 8 ) 3,917 ( 71 ) 6,543 ( 79 ) Foreign government and agency securities 36 — 451 ( 8 ) 487 ( 8 ) Corporate debt securities 100 — 1,364 ( 18 ) 1,464 ( 18 ) Asset-backed securities 253 — 473 ( 2 ) 726 ( 2 ) Municipal securities 196 ( 1 ) 156 ( 1 ) 352 ( 2 ) Commercial paper 1,088 ( 1 ) — — 1,088 ( 1 ) Short-term investments: U.S. government and agency securities — — 296 ( 9 ) 296 ( 9 ) Foreign government and agency securities — — 347 ( 6 ) 347 ( 6 ) Corporate debt securities 194 — 797 ( 13 ) 991 ( 13 ) Asset-backed securities 131 — 144 ( 4 ) 275 ( 4 ) Commercial paper 737 ( 1 ) — — 737 ( 1 ) Long-term investments: U.S. government and agency securities — — 180 ( 8 ) 180 ( 8 ) Foreign government and agency securities — — 32 ( 1 ) 32 ( 1 ) Corporate debt securities 120 — 120 ( 6 ) 240 ( 6 ) Asset-backed securities 109 — 195 — 304 — Total available-for-sale debt securities $ 5,939 $ ( 11 ) $ 8,472 $ ( 147 ) $ 14,411 $ ( 158 ) (1) “—” Denotes gross unrealized loss or fair value of less than $1 million in a given position. 90 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) December 31, 2022 (1) Less than 12 months 12 months or longer Total Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses (In millions) Cash and cash equivalents: Commercial paper $ 519 $ — $ — $ — $ 519 $ — Funds receivable and customer accounts: U.S. government and agency securities 3,730 ( 89 ) 4,246 ( 163 ) 7,976 ( 252 ) Foreign government and agency securities 439 ( 10 ) 997 ( 34 ) 1,436 ( 44 ) Corporate debt securities 9 ( 1 ) 1,545 ( 81 ) 1,554 ( 82 ) Asset-backed securities 773 ( 12 ) 508 ( 14 ) 1,281 ( 26 ) Municipal securities 264 ( 3 ) 50 — 314 ( 3 ) Commercial paper 3,079 ( 14 ) — — 3,079 ( 14 ) Short-term investments: U.S. government and agency securities 345 — 73 ( 3 ) 418 ( 3 ) Foreign government and agency securities 61 — 362 ( 11 ) 423 ( 11 ) Corporate debt securities 97 ( 2 ) 465 ( 12 ) 562 ( 14 ) Asset-backed securities 175 ( 2 ) 217 ( 7 ) 392 ( 9 ) Commercial paper 224 — — — 224 — Long-term investments: U.S. government and agency securities — — 457 ( 36 ) 457 ( 36 ) Foreign government and agency securities 31 ( 2 ) 333 ( 20 ) 364 ( 22 ) Corporate debt securities 85 ( 6 ) 834 ( 52 ) 919 ( 58 ) Asset-backed securities 872 ( 9 ) 195 ( 9 ) 1,067 ( 18 ) Total available-for-sale debt securities $ 10,703 $ ( 150 ) $ 10,282 $ ( 442 ) $ 20,985 $ ( 592 ) (1) “—” Denotes gross unrealized loss or fair value of less than $1 million in a given position. Unrealized losses have not been recognized into income as we neither intend to sell, nor anticipate that it is more likely than not that we will be required to sell, the securities before recovery of their amortized cost basis. The decline in fair value is due primarily to changes in market interest rates, rather than credit losses. We will continue to monitor the performance of the investment portfolio and assess whether impairment due to expected credit losses has occurred. During the year ended December 31, 2023, we received $ 4.5 billion in proceeds from the sale of available-for-sale debt securities and incurred gross realized losses of $ 26 million and de minimis gross realized gains, which were determined using the specific identification method. Amounts reclassified to earnings from unrealized gains and losses were not material for the year ended December 31, 2022 and 2021. Our available-for-sale debt securities included within cash and cash equivalents, funds receivable and customer accounts, short-term investments, and long-term investments classified by date of contractual maturity were as follows: December 31, 2023 Amortized Cost Fair Value (In millions) One year or less $ 14,971 $ 14,862 After one year through five years 5,454 5,426 After five years through ten years 2,178 2,181 After ten years 36 36 Total $ 22,639 $ 22,505 Actual maturities may differ from contractual maturities as certain securities may be prepaid. 91 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) STRATEGIC INVESTMENTS Our strategic investments include marketable equity securities, which are publicly traded, and non-marketable equity securities, which are primarily investments in privately held companies. Our marketable equity securities have readily determinable fair values and are recorded as long-term investments on our consolidated balance sheets at fair value with changes in fair value recorded in other income (expense), net on our consolidated statements of income (loss). Marketable equity securities totaled $ 24 million and $ 323 million as of December 31, 2023 and 2022, respectively, including the impact of the sale of marketable equity securities during the year ended December 31, 2023. Our non-marketable equity securities are recorded in long-term investments on our consolidated balance sheets. The carrying value of our non-marketable equity securities totaled $ 1.8 billion as of December 31, 2023 and 2022. As of December 31, 2023 and 2022, we had non-marketable equity securities of $ 182 million and $ 136 million, respectively, for which we have the ability to exercise significant influence, but not control, over the investee. We account for these equity securities using the equity method of accounting. The remaining non-marketable equity securities do not have a readily determinable fair value and we measure these equity investments at cost minus impairment, if any, and adjust for changes resulting from observable price changes in orderly transactions for an identical or similar investment in the same issuer. All gains and losses on these investments, realized and unrealized, and our share of earnings or losses from investments accounted for using the equity method are recognized in other income (expense), net on our consolidated statements of income (loss). Measurement Alternative adjustments The adjustments to the carrying value of our non-marketable equity securities accounted for under the Measurement Alternative in the years ended December 31, 2023 and 2022 were as follows: Year Ended December 31, 2023 2022 (In millions) Carrying amount, beginning of period $ 1,687 $ 1,268 Adjustments related to non-marketable equity securities: Net additions (1) 67 100 Gross unrealized gains 32 423 Gross unrealized losses and impairments ( 155 ) ( 104 ) Carrying amount, end of period $ 1,631 $ 1,687 (1) Net additions include purchases, reductions due to sales of securities, and reclassifications when the 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 December 31, 2023 and 2022, respectively: December 31, 2023 December 31, 2022 (In millions) Cumulative gross unrealized gains $ 1,168 $ 1,137 Cumulative gross unrealized losses and impairments $ ( 283 ) $ ( 131 ) Unrealized gains (losses) on strategic investments, excluding those accounted for using the equity method The following table summarizes the net unrealized gains (losses) on marketable and non-marketable equity securities, excluding those accounted for using the equity method, held at December 31, 2023 and 2022, respectively: Year Ended December 31, 2023 2022 (In millions) Net unrealized gains (losses) $ ( 128 ) $ 79 92 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) NOTE 9— FAIR VALUE MEASUREMENT OF ASSETS AND LIABILITIES FINANCIAL ASSETS AND LIABILITIES MEASURED AND RECORDED AT FAIR VALUE ON A RECURRING BASIS The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2023 and 2022: December 31, 2023 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) (In millions) Assets: Cash and cash equivalents (1) : U.S. government and agency securities $ 428 $ — $ 428 Commercial paper 349 — 349 Money market fund 160 — 160 Total cash and cash equivalents 937 — 937 Short-term investments (2) : U.S. government and agency securities 623 — 623 Foreign government and agency securities 347 — 347 Corporate debt securities 1,482 — 1,482 Asset-backed securities 718 — 718 Commercial paper 1,678 — 1,678 Total short-term investments 4,848 — 4,848 Funds receivable and customer accounts (3) : U.S. government and agency securities 8,478 — 8,478 Foreign government and agency securities 1,118 — 1,118 Corporate debt securities 1,601 — 1,601 Asset-backed securities 1,423 — 1,423 Municipal securities 638 — 638 Commercial paper 2,849 — 2,849 Total funds receivable and customer accounts 16,107 — 16,107 Derivatives (4) 141 — 141 Crypto asset safeguarding asset (4) 1,241 — 1,241 Long-term investments (2),(5) : U.S. government and agency securities 180 — 180 Foreign government and agency securities 32 — 32 Corporate debt securities 418 — 418 Asset-backed securities 761 — 761 Marketable equity securities 24 24 — Total long-term investments 1,415 24 1,391 Total financial assets $ 24,689 $ 24 $ 24,665 Liabilities: Derivatives (4) $ 131 $ — $ 131 Crypto asset safeguarding liability (4) 1,241 — 1,241 Total financial liabilities $ 1,372 $ — $ 1,372 (1) Excludes cash of $ 8.1 billion not measured and recorded at fair value. (2) Excludes restricted cash of $ 3 million and time deposits of $ 173 million not measured and recorded at fair value. (3) Excludes cash, time deposits, and funds receivable of $ 22.8 billion underlying funds receivable and customer accounts not measured and recorded at fair value. 93 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (4) Derivative assets and liabilities are included within “prepaid expenses and other current assets” and “other assets” and “accrued expenses and other current liabilities” and “other long-term liabilities,” respectively, on our consolidated balance sheets. Crypto safeguarding asset and associated liability are recorded within “prepaid expenses and other current assets” and “accrued expenses and other current liabilities,” respectively, on our consolidated balance sheets. (5) Excludes non-marketable equity securities of $ 1.8 billion measured using the Measurement Alternative or equity method accounting. December 31, 2022 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) (In millions) Assets: Cash and cash equivalents (1) : U.S. government and agency securities $ 140 $ — $ 140 Corporate debt securities 100 — 100 Commercial paper 540 — 540 Money market fund 152 — 152 Total cash and cash equivalents 932 — 932 Short-term investments (2) : U.S. government and agency securities 812 — 812 Foreign government and agency securities 424 — 424 Corporate debt securities 627 — 627 Asset-backed securities 406 — 406 Commercial paper 324 — 324 Total short-term investments 2,593 — 2,593 Funds receivable and customer accounts (3) : U.S. government and agency securities 8,585 — 8,585 Foreign government and agency securities 1,867 — 1,867 Corporate debt securities 1,694 — 1,694 Asset-backed securities 1,298 — 1,298 Municipal securities 408 — 408 Commercial paper 3,689 — 3,689 Total funds receivable and customer accounts 17,541 — 17,541 Derivatives (4) 244 — 244 Crypto asset safeguarding asset (4) 604 — 604 Long-term investments (2), (5) : U.S. government and agency securities 457 — 457 Foreign government and agency securities 364 — 364 Corporate debt securities 929 — 929 Asset-backed securities 1,067 — 1,067 Marketable equity securities 323 323 — Total long-term investments 3,140 323 2,817 Total financial assets $ 25,054 $ 323 $ 24,731 Liabilities: Derivatives (4) $ 298 $ — $ 298 Crypto asset safeguarding liability (4) 604 — 604 Total financial liabilities $ 902 $ — $ 902 (1) Excludes cash of $ 6.8 billion not measured and recorded at fair value. 94 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (2) Excludes restricted cash of $ 17 million and time deposits of $ 537 million not measured and recorded at fair value. (3) Excludes cash, time deposits, and funds receivable of $ 18.7 billion underlying funds receivable and customer accounts not measured and recorded at fair value. (4) Derivative assets and liabilities are included within “prepaid expenses and other current assets” and “other assets” and “accrued expenses and other current liabilities” and “other long-term liabilities,” respectively, on our consolidated balance sheets. Crypto safeguarding asset and associated liability are recorded within “prepaid expenses and other current assets” and “accrued expenses and other current liabilities,” respectively, on our consolidated balance sheets. (5) Excludes non-marketable equity securities of $ 1.8 billion measured using the Measurement Alternative or equity method accounting. Our marketable equity securities are valued using quoted prices for identical assets in active markets (Level 1). There are no active markets for our crypto asset safeguarding liability or the corresponding safeguarding asset. Accordingly, we have valued the asset and liability using quoted prices on the active exchange that we have identified as the principal market for the underlying crypto assets (Level 2). All other financial assets and liabilities are valued using quoted prices for identical instruments in less active markets, readily available pricing sources for comparable instruments, or models using market observable inputs (Level 2). 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. As of December 31, 2023 and 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 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 and amortized cost of our available-for-sale debt securities under the fair value option as of December 31, 2023 and 2022: December 31, 2023 December 31, 2022 Amortized Cost Fair Value Amortized Cost Fair Value (In millions) Funds receivable and customer accounts $ 625 $ 618 $ 553 $ 540 The following table summarizes the gains (losses) from fair value changes recognized in other income (expense), net related to the available-for-sale debt securities under the fair value option for the years ended December 31, 2023 and 2022 : Year Ended December 31, 2023 2022 (In millions) Funds receivable and customer accounts $ 13 $ ( 149 ) 95 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) ASSETS MEASURED AND RECORDED AT FAIR VALUE ON A NON-RECURRING BASIS The following tables summarize our assets held as of December 31, 2023 and 2022 for which a non-recurring fair value measurement was recorded during the years ended December 31, 2023 and 2022, respectively: December 31, 2023 Significant Other Observable Inputs (Level 2) Significant Other Unobservable Inputs (Level 3) (In millions) Loans and interest receivable, held for sale $ 563 $ — $ 563 Non-marketable equity securities measured using the Measurement Alternative (1) 440 131 309 Other assets (2) 112 112 — Total $ 1,115 $ 243 $ 872 (1) Excludes non-marketable equity securities of $ 1.2 billion accounted for under the Measurement Alternative for which no observable price changes occurred during the year ended December 31, 2023. (2) Consists of ROU lease assets recorded at fair value pursuant to impairment charges that occurred during the year ended December 31, 2023. See “Note 6—Leases” for additional information. December 31, 2022 Significant Other Observable Inputs (Level 2) Significant Other Unobservable Inputs (Level 3) (In millions) Non-marketable equity securities measured using the Measurement Alternative (1) $ 1,122 $ 724 $ 398 Other assets (2) 165 165 — Total $ 1,287 $ 889 $ 398 (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. The fair value of loans and interest receivables held for sale is classified within Level 3 as we estimate fair value using significant unobservable inputs. The significant unobservable input is the price at which the Company expects to sell the loans based upon our agreement with the global investment firm to purchase these loans. The price is determined based upon certain loan and risk classifications of the portfolio. The following table presents the valuation techniques covering the majority of Level 3 non-recurring fair value measurements and the most significant unobservable inputs used in those measurements as of December 31, 2023: Fair Value (In millions) Methodology Input Low (1) High (1) Weighted Average (1)(2) Loans and interest receivable, held for sale $ 563 Price-based Price $ 0.99 $ 0.99 $ 0.99 (1) Prices are measured in relation to $ 1.00 par. (2) Weighted average is calculated based on the fair value of the loans. 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. 96 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 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 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 $ 513 million and fair value of approximately $ 474 million as of December 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 term debt (including current portion) in the form of fixed rate notes had a carrying value of approximately $ 10.6 billion and fair value of approximately $ 10.0 billion as of December 31, 2023. 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 as of 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 term debt (including current portion) would be classified as Level 2; and the remaining financial instruments would be classified as Level 3 in the fair value hierarchy. NOTE 10— DERIVATIVE INSTRUMENTS SUMMARY OF DERIVATIVE INSTRUMENTS Our primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. Our derivatives expose us to credit risk to the extent that our counterparties may be unable to meet the terms of the arrangement. We seek to mitigate such risk by limiting our counterparties to, and by spreading the risk across, major financial institutions and by entering into collateral security arrangements. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored on an ongoing basis. We do not use any derivative instruments for trading or speculative purposes. Cash flow hedges We have significant international revenues and expenses denominated in foreign currencies, which subjects us to foreign currency exchange risk. We have a foreign currency exposure management program in which we designate certain foreign currency exchange contracts, generally with maturities of 12 months or less, to reduce the volatility of cash flows primarily related to forecasted revenues and expenses denominated in certain foreign currencies. The objective of these foreign currency exchange contracts is to help mitigate the risk that the U.S. dollar-equivalent cash flows are adversely affected by changes in the applicable U.S. dollar/foreign currency exchange rate. These derivative instruments are designated as cash flow hedges and accordingly, the derivative’s gain or loss is initially reported as a component of AOCI and subsequently reclassified into revenue or applicable expense line item in the consolidated statements of income (loss) in the same period the forecasted transaction affects earnings. We evaluate the effectiveness of our foreign currency exchange contracts on a quarterly basis by comparing the critical terms of the derivative instruments with the critical terms of the forecasted cash flows of the hedged item; if the critical terms are the same, we conclude the hedge will be perfectly effective. We do not exclude any component of the changes in fair value of the derivative instruments from the assessment of hedge effectiveness. We report cash flows arising from derivative instruments consistent with the classification of cash flows from the underlying hedged items that these derivatives are hedging. Accordingly, the cash flows associated with derivatives designated as cash flow hedges are classified in cash flows from operating activities on our consolidated statements of cash flows. As of December 31, 2023, we estimated that $ 57 million of net derivative losses related to our cash flow hedges included in AOCI are expected to be reclassified into earnings within the next 12 months. During the years ended December 31, 2023, 2022, and 2021, we did not discontinue any cash flow hedges because it was probable that the original forecasted transaction would not occur and as such, did not reclassify any gains or losses to earnings prior to the occurrence of the hedged transaction. If we elect to discontinue our cash flow hedges and it is probable that the original forecasted transaction will occur, we continue to report the derivative’s gain or loss in AOCI until the forecasted transaction affects earnings, at which point we also reclassify it into earnings. Gains and losses on derivatives held after we discontinue our cash flow hedges and on derivative instruments that are not designated as cash flow hedges are recorded in the same financial statement line item to which the derivative relates. 97 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 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 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. The accumulated gains and losses associated with these instruments will remain in AOCI until the foreign subsidiaries are sold or substantially liquidated, at which point they will be reclassified into earnings. The cash flows associated with derivatives designated as a net investment hedge are classified in cash flows from investing activities on our consolidated statements of cash flows. We have no t reclassified any gains or losses related to net investment hedges from AOCI into earnings for any of the periods presented. Foreign currency exchange contracts not designated as hedging instruments We have a foreign currency exposure management program in which we use foreign currency exchange contracts to offset the foreign currency exchange risk of our assets and liabilities denominated in currencies other than the functional currency of our subsidiaries. These contracts are not designated as hedging instruments and reduce, but do not entirely eliminate, the impact of foreign currency exchange rate movements on our assets and liabilities. The gains and losses due to remeasurement of certain foreign currency denominated monetary assets and liabilities are recorded in other income (expense), net, which are offset by the gains and losses on these foreign currency exchange contracts. The cash flows associated with our non-designated derivatives used to hedge foreign currency denominated monetary assets and liabilities are classified in cash flows from operating activities on our consolidated statements of cash flows. FAIR VALUE OF DERIVATIVE CONTRACTS The fair value of our outstanding derivative instruments as of December 31, 2023 and 2022 was as follows: Balance Sheet Location As of December 31, 2023 2022 Derivative Assets: (In millions) Foreign currency exchange contracts designated as hedging instruments Other current assets $ 7 $ 167 Foreign currency exchange contracts designated as hedging instruments Other assets (non-current) 77 15 Foreign currency exchange contracts not designated as hedging instruments Other current assets 57 62 Total derivative assets $ 141 $ 244 Derivative Liabilities: Foreign currency exchange contracts designated as hedging instruments Other current liabilities $ 64 $ 68 Foreign currency exchange contracts designated as hedging instruments Other long-term liabilities — 133 Foreign currency exchange contracts not designated as hedging instruments Other current liabilities 67 97 Total derivative liabilities $ 131 $ 298 98 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) MASTER NETTING AGREEMENTS - RIGHTS OF SET-OFF Under master netting agreements with certain counterparties to our foreign currency exchange contracts, subject to applicable requirements, we are allowed to net settle transactions of the same type with a single net amount payable by one party to the other. However, we have elected to present the derivative assets and derivative liabilities on a gross basis on our consolidated balance sheets. Rights of set-off associated with our foreign currency exchange contracts represented a potential offset to both assets and liabilities of $ 38 million as of December 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: December 31, 2023 December 31, 2022 (In millions) Cash collateral posted (1) $ 80 $ 24 Cash collateral received (2) $ 6 $ 203 (1) Right to reclaim cash collateral related to our derivative liabilities recognized in other current assets on our consolidated balance sheets. (2) Obligation to return counterparty cash collateral related to our derivative assets recognized in other current liabilities on our consolidated balance sheets. EFFECT OF DERIVATIVE CONTRACTS ON CONSOLIDATED FINANCIAL STATEMENTS The following table provides the location in the consolidated statements of income (loss) and amount of recognized gains or losses related to our derivative instruments: Year Ended December 31, 2023 2022 2021 (In millions) Net revenues Other income (expense), net Net revenues Other income (expense), net Net revenues Other income (expense), net Total amounts presented in the consolidated statements of income (loss) in which the effects of cash flow hedges and net investment hedges are recorded $ 29,771 $ 383 $ 27,518 $ ( 471 ) $ 25,371 $ ( 163 ) Gains (losses) on derivatives in cash flow hedging relationship: Amount of gains (losses) on foreign exchange contracts reclassified from AOCI 111 — 462 — ( 190 ) — Gains on derivatives in net investment hedging relationship: Amount of gains on foreign exchange contracts excluded from the assessment of effectiveness — 100 — 84 — — Gains (losses) on derivatives not designated as hedging instruments: Amount of (losses) gains on foreign exchange contracts — ( 263 ) — 118 — 144 Amount of gains (losses) on equity derivative contracts (1) — 44 — ( 174 ) — — Total gains (losses) $ 111 $ ( 119 ) $ 462 $ 28 $ ( 190 ) $ 144 (1) During the years ended December 31, 2023 and 2022, equity derivative contracts were entered into and matured in association with the sale of marketable equity securities related to strategic investments. The cash flows associated with the equity derivative contracts were classified in cash flows from investing activities on our consolidated statements of cash flows. 99 Table of Contents PayPal Holdings, Inc. NOTES TO 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): Year Ended December 31, 2023 2022 2021 (In millions) Unrealized (losses) gains on foreign exchange contracts designated as cash flow hedges $ ( 56 ) $ 374 $ 332 Unrealized gains (losses) on foreign exchange contracts designated as net investment hedges 192 ( 25 ) — Total net unrealized gains recognized from derivative contracts designated as hedging instruments in the consolidated statements of comprehensive income (loss) $ 136 $ 349 $ 332 NOTIONAL AMOUNTS OF DERIVATIVE CONTRACTS Derivative transactions are measured in terms of the notional amount; however, this amount is not recorded on the balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the derivative instruments. The notional amount is generally not exchanged, but is used only as the underlying basis on which the value of foreign currency exchange payments under these contracts is determined. The following table provides the notional amounts of our outstanding derivatives: Year Ended December 31, 2023 2022 (In millions) Foreign exchange contracts designated as hedging instruments $ 6,767 $ 7,149 Foreign exchange contracts not designated as hedging instruments 14,025 11,840 Total $ 20,792 $ 18,989 NOTE 11— LOANS AND INTEREST RECEIVABLE LOANS AND INTEREST RECEIVABLE, HELD FOR SALE In June 2023, we entered into a multi-year agreement with a global investment firm to sell up to € 40 billion of our eligible consumer installment receivables portfolio, including a forward-flow arrangement for the sale of future originations. Loans and interest receivable, held for sale are recorded at the lower of cost or fair value, determined on an aggregate basis, with valuation changes and any associated charge-offs recorded in restructuring and other on our consolidated statements of income (loss). See “Note 1—Overview and Summary of Significant Accounting Policies” for additional information. During the year ended December 31, 2023, we reclassified approximately $ 1.2 billion of eligible consumer installment receivables from loans and interest receivable, net to loans and interest receivable, held for sale. As of December 31, 2023, the total outstanding balance in our held for sale portfolio was $ 563 million. During the year ended December 31, 2023, we sold $ 5.5 billion of loans and interest receivable in connection with this agreement. 100 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) LOANS AND INTEREST RECEIVABLE, NET Consumer receivables We offer revolving and installment credit products as a funding option for consumers in certain checkout transactions on our payments platform. Our revolving credit product consists of PayPal Credit in the U.K., 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. and Germany. We purchase receivables related to interest-bearing installment loans extended to U.S. consumers by a partner institution and are responsible for the servicing functions related to that portfolio. During the years ended December 31, 2023 and 2022, we purchased approximately $ 670 million and $ 381 million, respectively, in consumer receivables. As of December 31, 2023 and 2022, the outstanding balance of consumer receivables, which consisted of revolving and installment loans and interest receivable, was $ 4.8 billion and $ 5.9 billion, respectively, net of the participation interest sold to the partner institution of $ 14 million and $ 17 million, respectively. See “Note 1—Overview and Summary of Significant Accounting Policies” for additional information on this participation arrangement. We closely monitor the credit quality of our consumer receivables to evaluate and manage our related exposure to credit risk. Credit risk management begins with initial underwriting and continues through the full repayment of a loan. To assess a consumer who requests a loan, we use, among other indicators, internally developed risk models using detailed information from external sources, such as credit bureaus where available, and internal 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 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. Consumer receivables delinquency and allowance 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. December 31, 2023 (In millions, except percentages) Revolving Loans Amortized Cost Basis Installment Loans Amortized Cost Basis 2023 2022 2021 2020 2019 Total Percent Consumer loans and interest receivable: Current $ 2,225 $ 2,045 $ 289 $ — $ — $ — $ 4,559 95.4 % 30 - 59 Days 27 34 4 1 — — 66 1.4 % 60 - 89 Days 20 26 4 — — — 50 1.0 % 90 - 179 Days 41 55 8 1 — — 105 2.2 % Total $ 2,313 $ 2,160 $ 305 $ 2 $ — $ — $ 4,780 100 % Gross charge-offs for the year ended December 31, 2023 $ 125 $ 101 $ 140 $ 5 $ — $ — $ 371 101 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) December 31, 2022 (In millions, except percentages) Revolving Loans 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 % 30 - 59 Days 23 26 2 — — — 51 0.9 % 60 - 89 Days 15 20 2 — — — 37 0.6 % 90 - 179 Days 34 47 4 — — — 85 1.4 % Total (1) $ 1,922 $ 3,819 $ 131 $ — $ — $ — $ 5,872 100 % (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 years ended December 31, 2023 and 2022: December 31, 2023 December 31, 2022 Consumer Loans Receivable Interest Receivable Total Allowance (1) Consumer Loans Receivable Interest Receivable Total Allowance (2) (In millions) Beginning balance $ 322 $ 25 $ 347 $ 243 $ 43 $ 286 Changes in allowance due to reclassification of loans and interest receivable to or from held for sale ( 12 ) — ( 12 ) — — — Provisions 342 26 368 292 15 307 Charge-offs ( 342 ) ( 29 ) ( 371 ) ( 216 ) ( 29 ) ( 245 ) Recoveries 41 — 41 21 — 21 Other (3) 6 1 7 ( 18 ) ( 4 ) ( 22 ) Ending balance $ 357 $ 23 $ 380 $ 322 $ 25 $ 347 (1) Beginning balances, provisions and charge-offs include amounts related to loans and interest receivable prior to their reclassification to loan and interest receivable, held for sale. (2) Excludes allowances from other consumer credit products of $ 3 million at December 31, 2022. (3) Includes amounts related to foreign currency remeasurement. The provision for the year ended December 31, 2023 for our consumer receivable portfolio was primarily attributable to growth in installment loans in the U.S. and Japan and U.K. revolving loans as well as a deterioration in credit quality of installment loans in the U.S. 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. The increase in charge-offs for the year ended December 31, 2023 compared to the same period in the prior year was due to the expansion of our installment products, growth of revolving credit products, and credit deterioration of our U.S. interest-bearing 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 consolidated statements of income (loss). The provision for interest receivable for interest earned on our consumer receivable portfolio is recognized in revenues from other value added services as a reduction to revenue. Loans receivable continue to accrue interest until they are charged off. 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. 102 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Merchant receivables We offer access to merchant finance products for certain small and medium-sized businesses through our PPWC and PPBL products, which we collectively refer to as our merchant finance offerings. We purchase receivables related to credit extended to U.S. merchants by a partner institution and are responsible for the servicing functions related to that portfolio. During the years ended December 31, 2023 and 2022, we purchased approximately $ 1.7 billion and $ 3.2 billion in merchant receivables, respectively. As of December 31, 2023 and 2022, the total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was $ 1.2 billion and $ 2.1 billion, respectively, net of the participation interest sold to the partner institution of $ 44 million and $ 97 million, respectively. See “Note 1—Overview and Summary of Significant Accounting Policies” for additional information on this participation arrangement. Through our PPWC product, merchants can borrow a certain percentage of their annual payment volume processed by PayPal and are charged a fixed fee for the loan or advance based on the overall credit assessment of the merchant. Loans and advances are repaid through a fixed percentage of the merchant’s future payment volume that PayPal processes. Through our PPBL product, we provide merchants access to short-term business financing for a fixed fee based on an evaluation of the applying business as well as the business owner. PPBL repayments are collected through periodic payments until the balance has been satisfied. The interest or fee is fixed at the time the loan or advance is extended and is recognized as deferred revenue in accrued expenses and other current liabilities on our consolidated balance sheets. The fixed interest or fee is amortized into revenues from other value added services based on the amount repaid over the repayment period. We estimate the repayment period for PPWC based on the merchant’s payment processing history with PayPal. For PPWC, there is a general requirement that at least 10 % of the original amount of the loan or advance plus the fixed fee must be repaid every 90 days. We calculate the repayment rate of the merchant’s future payment volume so that repayment of the loan or advance and fixed fee is expected to generally occur within 9 to 12 months from the date of the loan or advance. On a monthly basis, we recalculate the repayment period based on the repayment activity on the receivable. As such, actual repayment periods are dependent on actual merchant payment processing volumes. For PPBL, we receive fixed periodic payments over the contractual term of the loan, which generally ranges from 3 to 12 months. We actively monitor receivables with repayment periods greater than the original expected or contractual repayment period, as well as the credit quality of our merchant loans and advances that we extend or purchase, so that we can evaluate, quantify, and manage our credit risk exposure. To assess a merchant seeking a loan or advance, we use, among other indicators, risk models developed internally which utilize information obtained from multiple internal and external data sources to predict the likelihood of timely and satisfactory repayment by the merchant of the loan or advance amount and the related interest or fee. Primary drivers of the models include the merchant’s annual payment volume, payment processing history with PayPal, prior repayment history with PayPal’s credit products where available, information sourced from consumer and business credit bureau reports, and other information obtained during the application process. We use delinquency status and trends to assist in making (or, in the U.S., to assist 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. 103 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Merchant receivables delinquency and allowance 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. December 31, 2023 (In millions, except percentages) 2023 2022 2021 2020 2019 Total Percent Merchant loans, advances, and interest and fees receivable: Current $ 925 $ 74 $ 3 $ 22 $ 14 $ 1,038 87.0 % 30 - 59 Days 37 16 2 2 1 58 4.9 % 60 - 89 Days 16 12 1 1 1 31 2.5 % 90 - 179 Days 27 28 1 1 1 58 4.9 % 180+ Days 2 4 1 — 1 8 0.7 % Total $ 1,007 $ 134 $ 8 $ 26 $ 18 $ 1,193 100 % Gross charge-offs for the year ended December 31, 2023 $ 38 $ 228 $ 14 $ 16 $ 4 $ 300 December 31, 2022 (In millions, except percentages) 2022 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 % 30 - 59 Days 63 7 3 4 — 77 3.6 % 60 - 89 Days 34 4 4 2 — 44 2.0 % 90 - 179 Days 55 9 3 3 — 70 3.3 % 180+ Days 1 2 2 3 — 8 0.4 % 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 years ended December 31, 2023 and 2022: December 31, 2023 December 31, 2022 Merchant Loans and Advances Interest and Fees Receivable Total Allowance Merchant Loans and Advances Interest and Fees Receivable Total Allowance (In millions) Beginning balance $ 230 $ 18 $ 248 $ 192 $ 9 $ 201 Provisions 162 23 185 109 18 127 Charge-offs ( 271 ) ( 29 ) ( 300 ) ( 105 ) ( 9 ) ( 114 ) Recoveries 27 — 27 34 — 34 Ending balance $ 148 $ 12 $ 160 $ 230 $ 18 $ 248 104 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The provision for the year ended December 31, 2023 was primarily attributable to a deterioration in credit quality of loans outstanding. Qualitative adjustments were made to account for limitations in our current expected credit loss models due to uncertainty around the financial health of our borrowers, including the effectiveness of loan modification programs made available to merchants, as described further below. The increase in the charge-offs for the year ended December 31, 2023 compared to the prior year was due to the expansion of acceptable risk parameters in 2022, which resulted in 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. We charge off the receivables outstanding under our PPBL product when the repayments are 180 days past the contractual repayment date. We charge off the receivables outstanding under our PPWC product when the repayments are 180 days past our expectation of repayments and the merchant has not made a payment in the last 60 days, or when the repayments are 360 days past due regardless of whether the merchant has made a payment in the last 60 days. 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 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 consolidated balance sheets. 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. Loan modifications for merchants experiencing financial difficulty In certain instances, we may modify the merchant loans, advances, and interest and fees receivable for which we determine 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 enable us to potentially mitigate losses. Modifications during the year ended December 31, 2023 were term extensions. These modifications increased the term, while moving the delinquency status to current. The following table details merchant loans, advances, and interest and fees receivable as of December 31, 2023 that were modified through a term extension to a merchant experiencing financial difficulty during the year ended December 31, 2023, and the financial effect of those modifications: Year Ended December 31, 2023 Merchant loans, advances, and interest and fees receivables: Amortized cost basis (in millions) $ 103 Modifications as % of merchant loans, advances, and interest and fees receivables 9 % Weighted average term extension (months) 24 We closely monitor the performance of the merchant loans, advances, and interest and fees receivable that were modified to extend the term to understand the effectiveness of these modification efforts. The following table depicts the performance of merchant loans, advances, and interest and fees receivable as of December 31, 2023 that have been modified during the year ended December 31, 2023: December 31, 2023 (In millions) Merchant loans, advances, and interest and fees receivables: Current $ 75 30 - 59 days past due 9 60 - 89 days past due 7 90 - 179 days past due 12 Total $ 103 A merchant is considered in payment default after a modification when the merchant’s payment is 60 days past their expected or contractual repayment date. Merchant loans, advances, and interest and fees receivable modified to extend the term since January 1, 2023 that subsequently defaulted were not material during the year ended December 31, 2023. 105 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Allowances for merchant loans, advances, and interest and fees receivable modified due to merchants experiencing financial difficulties are assessed separately from other loans and advances within our portfolio and are determined by estimating current expected credit losses utilizing the modified term. Historical loss estimates are utilized in addition to macroeconomic assumptions to determine current expected credit losses. Further, we may include qualitative adjustments that incorporate incremental information not captured in the quantitative estimates of our current expected credit losses. NOTE 12— DEBT FIXED RATE NOTES In June 2023, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of ¥ 90 billion (approximately $ 638 million as of December 31, 2023). Interest on these notes is payable on June 9 and December 9 of each year, beginning on December 9, 2023. 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. In May 2020, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $ 4.0 billion. Interest on these notes is payable on June 1 and December 1 of each year, beginning on December 1, 2020. In September 2019, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $ 5.0 billion. Interest on these notes is payable in arrears semiannually (payable on April 1 and October 1). The notes issued from the June 2023, May 2022, May 2020, and September 2019 debt issuances are senior unsecured obligations and are collectively referred to as the “Notes.” We may redeem the Notes in whole, at any time, or in part (except for the June 2023 notes), from time to time, prior to maturity, at their redemption prices. Upon the occurrence of both a change of control of the Company and a downgrade of the Notes below an investment grade rating, we will be required to offer to repurchase each series of Notes at a price equal to 101 % of the then outstanding principal amounts, plus accrued and unpaid interest. The Notes are subject to covenants, including limitations on our ability to create liens on our assets, enter into sale and leaseback transactions, and merge or consolidate with another entity, in each case subject to certain exceptions, limitations, and qualifications. Proceeds from the issuance of these Notes may be used for general corporate purposes, which may include funding the repayment or redemption of outstanding debt, share repurchases, ongoing operations, capital expenditures, acquisitions of businesses, assets, or strategic investments. 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 consolidated statements of income (loss) for the year ended December 31, 2022. 106 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) As of December 31, 2023 and 2022, we had an outstanding aggregate principal amount of $ 10.6 billion and $ 10.4 billion, respectively, related to the Notes. The following table summarizes the Notes: As of December 31, Maturities Effective Interest Rate 2023 2022 (in millions) September 2019 debt issuance: Fixed-rate 2.400 % notes 10/1/2024 2.52 % $ 1,250 $ 1,250 Fixed-rate 2.650 % notes 10/1/2026 2.78 % 1,250 1,250 Fixed-rate 2.850 % notes 10/1/2029 2.96 % 1,500 1,500 May 2020 debt issuance: Fixed-rate 1.350 % notes 6/1/2023 1.55 % — 418 Fixed-rate 1.650 % notes 6/1/2025 1.78 % 1,000 1,000 Fixed-rate 2.300 % notes 6/1/2030 2.39 % 1,000 1,000 Fixed-rate 3.250 % notes 6/1/2050 3.33 % 1,000 1,000 May 2022 debt issuance: Fixed-rate 3.900 % notes 6/1/2027 4.06 % 500 500 Fixed-rate 4.400 % notes 6/1/2032 4.53 % 1,000 1,000 Fixed-rate 5.050 % notes 6/1/2052 5.14 % 1,000 1,000 Fixed-rate 5.250 % notes 6/1/2062 5.34 % 500 500 June 2023 debt issuance (1) : ¥ 30 billion fixed-rate 0.813 % notes 6/9/2025 0.89 % 213 — ¥ 23 billion fixed-rate 0.972 % notes 6/9/2026 1.06 % 163 — ¥ 37 billion fixed-rate 1.240 % notes 6/9/2028 1.31 % 262 — Total term debt $ 10,638 $ 10,418 Unamortized premium (discount) and issuance costs, net ( 68 ) ( 74 ) Less: current portion of term debt (2) ( 1,249 ) ( 418 ) Total carrying amount of term debt $ 9,321 $ 9,926 (1) Principal amounts represent the U.S. dollar equivalent as of December 31, 2023 and 2022, respectively. (2) The current portion of term debt is included within accrued expenses and other current liabilities on our consolidated balance sheets. 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 $ 334 million, $ 290 million, and $ 224 million for the years ended December 31, 2023, 2022, and 2021, respectively. 107 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) CREDIT FACILITIES Five-year revolving credit facility In June 2023, we entered into a credit agreement (the “Credit Agreement”) that provides for an unsecured $ 5.0 billion, five-year revolving credit facility and terminated the facility entered into in September 2019. The Credit Agreement includes a $ 150 million letter of credit sub-facility and a $ 600 million swingline sub-facility, with available borrowings under the revolving credit facility reduced by the amount of any letters of credit and swingline borrowings outstanding from time to time. Loans borrowed under the Credit Agreement are available in U.S. dollar, Euro, British pound, and Australian dollar, and in each case subject to the sub-limits and other limitations provided in the Credit Agreement. We may also, subject to the agreement of the applicable lenders and satisfaction of specified conditions, increase the commitments under the revolving credit facility by up to $ 2.0 billion. Subject to specific conditions, we may designate one or more of our subsidiaries as additional borrowers under the Credit Agreement, provided PayPal Holdings, Inc. guarantees the portion of borrowings made available and other obligations of any such subsidiaries under the Credit Agreement. As of December 31, 2023, certain subsidiaries were designated as additional borrowers. Funds borrowed under the Credit Agreement may be used for working capital, capital expenditures, acquisitions, and other purposes not in contravention of the Credit Agreement. We are obligated to pay interest on loans under the Credit Agreement and other customary fees for a credit facility of this size and type, including an upfront fee and an unused commitment fee based on our debt rating. Loans under the Credit Agreement will bear interest at either (i) the applicable term benchmark rate plus a margin (based on the Company's public debt ratings) ranging from 0.750 % to 1.250 %, (ii) the applicable Risk-Free Rate (Sterling Overnight Index Average for loans denominated in pounds sterling and Euro Short-Term Rate for loans denominated in euros) rate plus a margin (based on the Company’s public debt ratings) ranging from 0.750 % to 1.250 %, (iii) the applicable overnight rate plus a margin (based on the Company's public debt ratings) ranging from 0.750 % to 1.250 % or (iv) a formula based on the prime rate, the federal funds effective rate or the adjusted term Secured Overnight Financing Rate plus a margin (based on the Company's public debt ratings) ranging from zero to 0.250 %. Subject to certain conditions stated in the Credit Agreement, the Company and any subsidiaries designated as additional borrowers may borrow, prepay and reborrow amounts under the revolving credit facility at any time during the term of the Credit Agreement. The Credit Agreement will terminate and all amounts owing thereunder will be due and payable on June 7, 2028, unless (a) the commitments are terminated earlier, either at the request of the Company or, if an event of default occurs, by the lenders (or automatically in the case of certain bankruptcy-related events), or (b) the maturity date is extended upon the request of the Company, subject to the agreement of the lenders. The Credit Agreement contains customary representations, warranties, affirmative and negative covenants, including a financial covenant, events of default, and indemnification provisions in favor of the lenders. The negative covenants include restrictions regarding the incurrence of liens and the incurrence of subsidiary indebtedness, in each case subject to certain exceptions. The financial covenant requires the Company to meet a quarterly financial test with respect to a maximum consolidated leverage ratio. As of December 31, 2023, no borrowings or letters of credit were outstanding under the Credit Agreement. Accordingly, at December 31, 2023, $ 5.0 billion of borrowing capacity was available for the purposes permitted by the Credit Agreement, subject to customary conditions to borrowing. Paidy credit agreement 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 $ 638 million as of December 31, 2023). As of December 31, 2023 and 2022, ¥ 50.0 billion (approximately $ 355 million) and ¥ 64.3 billion (approximately $ 491 million) was drawn down under the Paidy Credit Agreement, respectively, which was recorded in long-term debt on our consolidated balance sheets. At December 31, 2023, ¥ 40.0 billion (approximately $ 283 million) of borrowing capacity was available for the purposes permitted by the Paidy Credit Agreement, subject to customary conditions to borrowing. During the years ended December 31, 2023 and 2022, the total interest expense and fees we recorded related to the Paidy Credit Agreement were de minimis. Other available facilities As of December 31, 2023, we had a short-term borrowing of $ 359 million due to a bank overdraft, which was recorded in accrued expenses and other liabilities on our consolidated balance sheet. The weighted average interest rate on the borrowing was 7.92 %. 108 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) We also maintain uncommitted credit facilities in various regions throughout the world, which had a borrowing capacity of approximately $ 80 million in the aggregate, as of December 31, 2023 and 2022. This available credit includes facilities where we can withdraw and utilize the funds at our discretion for general corporate purposes. Interest rate terms for these facilities vary by region and reflect prevailing market rates for companies with strong credit ratings. As of December 31, 2023, the majority of the borrowing capacity under these credit facilities was available, subject to customary conditions to borrowing. FUTURE PRINCIPAL PAYMENTS As of December 31, 2023, the future principal payments associated with our term debt were as follows (in millions): 2024 $ 1,250 2025 1,213 2026 1,413 2027 500 2028 262 Thereafter 6,000 Total $ 10,638 NOTE 13— COMMITMENTS AND CONTINGENCIES COMMITMENTS As of December 31, 2023 and 2022, approximately $ 6.2 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. LITIGATION AND REGULATORY MATTERS Overview We are involved in legal and regulatory proceedings on an ongoing basis. Certain of these proceedings are in early stages and may seek an indeterminate amount of damages or penalties or may require us to change or adopt certain business practices. If we believe that a loss arising from such matters is probable and can be reasonably estimated, we accrue the estimated liability in our financial statements at that time. If only a range of estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, we accrue the low end of the range. For those proceedings in which an unfavorable outcome is reasonably possible but not probable, we have disclosed an estimate of the reasonably possible loss or range of losses or we have concluded that an estimate of the reasonably possible loss or range of losses arising directly from the proceeding (i.e., monetary damages or amounts paid in judgment or settlement) are not material. If we cannot estimate the probable or reasonably possible loss or range of losses arising from a legal proceeding, we have disclosed that fact. In assessing the materiality of a legal proceeding, we evaluate, among other factors, the amount of monetary damages claimed, as well as the potential impact of non-monetary remedies sought by plaintiffs (e.g., injunctive relief) that may require us to change our business practices in a manner that could have a material adverse impact on our business. With respect to the matters disclosed in this Note 13, we are unable to estimate the possible loss or range of losses that could potentially result from the application of such non-monetary remedies. Amounts accrued for legal and regulatory proceedings for which we believe a loss is probable and reasonably estimable were not material for the year ended December 31, 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. Determining legal reserves or possible losses from such matters involves judgment and may not reflect the full range of uncertainties and unpredictable outcomes. We may be exposed to losses in excess of the amount recorded, and such amounts could be material. If any of our estimates and assumptions change or prove to have been incorrect, it could have a material adverse effect on our business, financial position, results of operations, or cash flows. 109 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Regulatory proceedings PayPal Australia Pty Limited (“PPAU”) self-reported a potential violation to the Australian Transaction Reports and Analysis Centre (“AUSTRAC”) on May 22, 2019. This self-reported matter relates to PPAU incorrectly filing required international funds transfer instructions over a period of time under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (“AML/CTF Act”). 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. 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. The external auditor was appointed on June 22, 2023 and will assess and report on 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. 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. In February 2022, we received a CID from the Federal Trade Commission (“FTC”) related to PayPal’s practices relating to commercial customers that submit charges on behalf of other merchants or sellers, and related activities. The CID requests the production of documents and answers to written questions. We are cooperating with the FTC in connection with this CID. 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. In October 2023, we received a CID from the CFPB related to investigation and error-resolution obligations under Regulation E, the presentment of transactions to linked bank accounts, and related matters. The CID requests the production of documents and answers to written questions. We are cooperating with the CFPB in connection with this CID. On November 1, 2023, we received a subpoena from the U.S. SEC Division of Enforcement relating to PayPal USD stablecoin. The subpoena requests the production of documents. We are cooperating with the SEC in connection with this request. 110 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Legal proceedings On December 16, 2021 and January 19, 2022, two related putative shareholder derivative actions captioned Pang v. Daniel Schulman, et al. , Case No. 21-cv-09720, and Lalor v. Daniel Schulman, et al. , Case No. 22-cv-00370, respectively, were filed in the U.S. District Court for the Northern District of California (the “California Derivative Actions”), purportedly on behalf of the Company. On August 2, 2022, a related putative shareholder derivative action captioned Jefferson v. Daniel Schulman, et al. , No. 2022-0684, was filed in the Court of Chancery for the State of Delaware (the “Delaware Derivative Action,” and collectively with the California Derivative Actions, the “Derivative Actions”), purportedly on behalf of the Company. The Derivative Actions are based on the same alleged facts and circumstances as the putative securities class action captioned Kang v. PayPal Holdings, Inc., et al. , Case No. 21-cv-06468, that was filed in the U.S. District Court for the Northern District of California (the “Kang Securities Action”), and name certain of our officers, including our former Chief Executive Officer and former Chief Financial Officer, and members of our Board of Directors, as defendants. The Derivative Actions allege claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets, and violations of the Securities Exchange Act of 1934 (“Exchange Act”), and seek to recover damages on behalf of the Company. On February 1, 2022, the court entered an order consolidating the two California Derivative Actions and staying them until all motions to dismiss in the Kang Securities Action are resolved. On June 29, 2023, following the final dismissal of the Kang Securities Action, the Court ordered a stipulation dismissing the California Derivative Actions, without prejudice, and on July 7, 2023, the Court ordered a stipulation dismissing the Delaware Derivative Action, without prejudice. On October 4, 2022, a putative securities class action captioned Defined Benefit Plan of the Mid-Jersey Trucking Industry and Teamsters Local 701 Pension and Annuity Fund v. PayPal Holdings, Inc., et al. , Case No. 22-cv-5864, was filed in the U.S. 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 Exchange Act against the Company, as well as its former Chief Executive Officer, former 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 the 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. Defendants have filed a motion to dismiss the PPH Securities Action, which is fully briefed and pending before the court. On November 2, 2022, a putative shareholder derivative action captioned Shah v. Daniel Schulman, et al. , Case No. 22-cv-1445, was filed in the U.S. District Court for the District of Delaware (the “Shah Action”), purportedly 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 former 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 Exchange Act, 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. On December 20, 2022, a civil lawsuit captioned State of Hawai‘i, by its Office of Consumer Protection, v. PayPal, Inc., and PayPal Holdings, Inc. , Case No. 1CCV-22-0001610, was filed in the Circuit Court of the First Circuit of the State of Hawai‘i (the “Hawai‘i Action”). The Hawai‘i Action asserts claims for unfair and deceptive acts and practices under Hawai‘i Revised Statutes Sections 480-2(a) and 481A-3(a). Plaintiff seeks injunctive relief as well as unspecified penalties and other monetary relief. On July 14, 2023, the court denied Defendants’ motion to dismiss the complaint. Trial is scheduled to begin in April 2025. 111 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) General matters Other third parties have from time to time claimed, and others may claim in the future, that we have infringed their intellectual property rights. We are subject to patent disputes and expect that we will increasingly be subject to additional patent infringement claims involving various aspects of our business as our products and services continue to expand in scope and complexity. Such claims may be brought directly or indirectly against our companies and/or against our customers (who may be entitled to contractual indemnification under their contracts with us), and we are subject to increased exposure to such claims as a result of our acquisitions, particularly in cases where we are introducing new products or services in connection with such acquisitions. We have in the past been forced to litigate such claims, and we believe that additional lawsuits alleging such claims will be filed against us. Intellectual property claims, whether meritorious or not, are time-consuming and costly to defend and resolve, could require expensive changes in our methods of doing business, or could require us to enter into costly royalty or licensing agreements on unfavorable terms or make substantial payments to settle claims or to satisfy damages awarded by courts. From time to time, we are involved in other disputes or regulatory inquiries that arise in the ordinary course of business, including suits by our customers (individually or as class actions) 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. Further, the number and significance of these disputes and inquiries are increasing as our business has grown and expanded in scale and scope, including the number of active accounts and payments transactions on our platform, the range and increasing complexity of the products and services that we offer, and our geographical operations. Any claims or regulatory actions against us, whether meritorious or not, could be time consuming, result in costly litigation, settlement payments, damage awards (including statutory damages for certain causes of action in certain jurisdictions), fines, penalties, injunctive relief, or increased costs of doing business through adverse judgment or settlement, require us to change our business practices in expensive ways, require significant amounts of management time, result in the diversion of significant operational resources, or otherwise harm our business. INDEMNIFICATION PROVISIONS Our agreements with eBay governing our separation from eBay provide for specific indemnity and liability obligations for both eBay and us. Disputes between eBay and us have arisen and others may arise in the future, and an adverse outcome in such matters could materially and adversely impact our business, results of operations, and financial condition. In addition, the indemnity rights we have against eBay under the agreements may not be sufficient to protect us, and our indemnity obligations to eBay may be significant. In the ordinary course of business, we include indemnification provisions in certain of our agreements with parties with whom we have commercial relationships. Under these contracts, we generally indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party in connection with claims by any third party with respect to our domain names, trademarks, logos, and other branding elements to the extent that such marks are related to the subject agreement. We have provided an indemnity for other types of third-party claims, which may include indemnities related to intellectual property rights, confidentiality, willful misconduct, data privacy obligations, and certain breach of contract claims, among others. We have also provided an indemnity to our payments processors in the event of card association fines against the processor arising out of conduct by us or our customers. It is not possible to determine the maximum potential loss under these indemnification provisions due to our limited history of prior indemnification claims and the unique facts and circumstances involved in each particular situation. PayPal has participated in the U.S. Government’s Paycheck Protection Program administered by the U.S. Small Business Administration. Loans made under this program are funded by an independent chartered financial institution that we partner with. We receive a fee for providing services in connection with these loans and retain operational 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. 112 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) As part of the agreement to sell a portion of our consumer installment receivables portfolio, in certain circumstances such as breaches in loan warranties, we may be required to indemnify the global investment firm that purchased the loans or repurchase the loans. The estimate of the maximum potential amount of future payments we may be required to make is equal to the current outstanding balances of the loans sold; however, the maximum potential amount of the indemnification is not, in our view, representative of the expected future exposure. As of December 31, 2023, the current outstanding balances of the loans sold was $ 2.2 billion. The terms of the indemnification align to the maturities of the loans sold. To date, no significant costs have been incurred, either individually or collectively, in connection with our indemnification provisions. OFF-BALANCE SHEET ARRANGEMENTS As of December 31, 2023 and 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. PROTECTION PROGRAMS We provide merchants and consumers with protection programs for certain transactions completed on our payments platform. These programs are intended to protect both merchants and consumers from loss primarily due to fraud and counterparty performance. Our Purchase Protection Program provides protection to consumers for qualifying purchases by reimbursing the consumer for the full amount of the purchase if a purchased item does not arrive or does not match the seller’s description. Our Seller Protection Programs provide protection to merchants against claims that a transaction was not authorized by the buyer or claims that an item was not received by covering the seller for the full amount of the payment on eligible sales. These protection programs are considered assurance-type warranties under applicable accounting standards for which we estimate and record associated costs in transaction and credit losses during the period the payment transaction is completed. At December 31, 2023 and 2022, the allowance for transaction losses was $ 64 million and $ 66 million, respectively. The allowance for negative customer balances was $ 218 million and $ 212 million at December 31, 2023 and 2022, respectively. The following table shows changes in the allowance for transaction losses and negative customer balances related to our protection programs for the years ended December 31, 2023 and 2022: As of December 31, 2023 2022 (In millions) Beginning balance $ 278 $ 355 Provision 1,192 1,170 Realized losses ( 1,313 ) ( 1,417 ) Recoveries 125 170 Ending balance $ 282 $ 278 113 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) NOTE 14— STOCK REPURCHASE PROGRAMS In July 2018, our Board of Directors authorized a stock repurchase program that provided for the repurchase of up to $ 10 billion of our common stock, with no expiration from the date of authorization. In June 2022, our Board of Directors authorized an additional stock repurchase program that provides for the repurchase of up to $ 15 billion of our common stock, with no expiration from the date of authorization. This program became effective in the first quarter of 2023 upon completion of the July 2018 stock repurchase program. Our stock repurchase programs are intended to offset the impact of dilution from our equity compensation programs and, subject to market conditions and other factors, may also be used to make opportunistic repurchases of our common stock to reduce outstanding share count. Any share repurchases under our stock repurchase programs may be made through open market transactions, block trades, privately negotiated transactions, including accelerated share repurchase agreements, or other means at times and in such amounts as management deems appropriate and will be funded from our working capital or other financing alternatives. Moreover, any stock repurchases are subject to market conditions and other uncertainties, and we cannot predict if or when any stock repurchases will be made. We may terminate our stock repurchase programs at any time without prior notice. During the year ended December 31, 2023, we repurchased approximately 74 million shares of our common stock for approximately $ 5.0 billion at an average cost of $ 67.72 . These shares were purchased in the open market under our stock repurchase programs authorized in July 2018 and June 2022. As of December 31, 2023, a total of approximately $ 10.9 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 have reflected the applicable excise tax in treasury stock on our consolidated balance sheets. During the year ended December 31, 2023, we recorded $ 44 million in excise tax within treasury stock on our consolidated balance sheets. During the year ended December 31, 2022, we repurchased approximately 41 million shares of our common stock for approximately $ 4.2 billion at an average cost of $ 103.47 . These shares were purchased in the open market under our stock repurchase program authorized in July 2018. As of December 31, 2022, a total of approximately $ 861 million 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 year ended December 31, 2021, we repurchased approximately 15 million shares of our common stock for approximately $ 3.4 billion at an average cost of $ 219.75 . These shares were purchased in the open market under our stock repurchase program authorized in July 2018. As of December 31, 2021, a total of approximately $ 5.1 billion remained available for future repurchases of our common stock under our July 2018 stock repurchase program. Shares of common stock repurchased for the periods presented were recorded as treasury stock for the purposes of calculating net income (loss) per share and were accounted for under the cost method. No repurchased shares of common stock have been retired. NOTE 15— STOCK-BASED AND EMPLOYEE SAVINGS PLANS EQUITY INCENTIVE PLANS Under the terms of the Amended and Restated PayPal Holdings, Inc. 2015 Equity Incentive Award Plan (the “Plan”), equity awards, including restricted stock units (“RSUs”), restricted stock awards, performance based restricted stock units (“PBRSUs”), stock options, deferred stock units, and stock payments, may be granted to our directors, officers, and employees. In May 2023, our stockholders approved an additional authorization of 34.6 million shares to the Plan, and in June 2023, the Company filed a post-effective amendment to the registration statement for the PayPal Holdings, Inc. 2022 Inducement Plan (“Inducement Plan”), which enabled 2.6 million shares previously issuable under the Inducement Plan to be included in the 34.6 million additional shares issuable under the Plan. At December 31, 2023, approximately 72 million shares were authorized under the Plan and approximately 45 million shares were available for future grant, and no shares were available for future grant under the Inducement Plan. Shares issued as a result of stock option exercises and the release of stock awards were funded primarily with the issuance of new shares of common stock. 114 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) RSUs are granted to eligible employees under the Plan. RSUs issued prior to January 1, 2022 generally vest in equal annual installments over a period of three years . RSUs issued on or after January 1, 2022 generally vest over three years at a rate of 33 % after one year , then in equal quarterly installments thereafter. RSUs are subject to an employee’s continuing service to us, and do not have an expiration date. The cost of RSUs granted is determined using the fair market value of PayPal’s common stock on the date of grant. Certain of our executives and non-executives are eligible to receive PBRSUs, which are equity awards that may be earned based on an initial target number. The final number of PBRSUs may vest and settle depending on the Company’s performance against pre-established performance metrics over a predefined performance period. PBRSUs granted under the Plan generally have one to three-year performance periods with cliff vesting following the completion of the performance period, subject to the Compensation Committee’s approval of the level of achievement against the pre-established performance targets. Over the performance period, the number of PBRSUs that may be issued and related stock-based compensation expense that is recognized is adjusted upward or downward based upon the probability of achieving the approved performance targets against the performance metrics. Depending on the probability of achieving the pre-established performance targets, the number of PBRSUs issued could range from 0 % to 200 % of the target amount. All stock options under the Plan were assumed in connection with acquisitions on the same terms and conditions (including vesting) applicable to such acquired companies’ equity awards. The cost of stock options was determined using the Black-Scholes option pricing model. EMPLOYEE STOCK PURCHASE PLAN Under the terms of the Employee Stock Purchase Plan (“ESPP”), shares of our common stock may be purchased over an offering period with a maximum duration of two years at 85 % of the lower of the fair market value on the first day of the applicable offering period or on the last business day of each six-month purchase period within the offering period. Employees may contribute between 2 % and 10 % of their gross compensation during an offering period to purchase shares, but not more than the statutory limitation of $25,000 per year. All company stock purchased through the ESPP is considered outstanding and is included in the weighted-average outstanding shares for purposes of computing basic and diluted net income (loss) per share. For the years ended December 31, 2023, 2022, and 2021, our employees purchased 2.3 million, 1.9 million, and 1.4 million shares under the ESPP at an average per share price of $ 55.34 , $ 73.20 , and $ 114.36 , respectively. As of December 31, 2023, approximately 44 million shares were reserved for future issuance under the ESPP. RSU, PBRSU, AND RESTRICTED STOCK ACTIVITY The following table summarizes RSU, PBRSU, and restricted stock activity under the Plan and the Inducement Plan as of December 31, 2023 and changes during the year ended December 31, 2023: Units Weighted Average Grant-Date Fair Value (per share) (In thousands, except per share amounts) Outstanding at January 1, 2023 19,588 $ 133.27 Awarded and assumed (1) 24,970 $ 72.51 Vested (1) ( 10,799 ) $ 127.98 Forfeited/cancelled ( 3,595 ) $ 105.81 Outstanding at December 31, 2023 30,164 $ 88.10 Expected to vest 26,180 (1) Includes approximately 0.3 million of additional PBRSUs issued during 2023 due to the achievement of company performance metrics on awards granted in previous years. During the years ended December 31, 2023, 2022, and 2021, the aggregate intrinsic value of RSUs and PBRSUs vested under the Plan was $ 752 million, $ 935 million, and $ 3.4 billion, respectively. 115 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) In the year ended December 31, 2023, the Company granted 2.3 million PBRSUs with a one-year performance period (fiscal 2023), which which will become fully vested following the completion of the performance period in February 2024 ( one year from the annual incentive award cycle grant date), and 1.8 million PBRSUs with a three-year performance period. In the year ended December 31, 2022, the Company granted 1.5 million PBRSUs with a one-year performance period (fiscal 2022), of which 1.0 million were subsequently cancelled due to the change in method of payout of the Company portion of our Annual Incentive Plan from equity to cash for certain employees. As such, 0.5 million PBRSUs became fully vested following the completion of the performance period in February 2023 ( one year from the annual incentive award cycle grant date). In the year ended December 31, 2022, the Company also granted 1.1 million PBRSUs with a three-year performance period. STOCK OPTION ACTIVITY The following table summarizes stock option activity of our employees under the Plan for the year ended December 31, 2023: Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (In thousands, except per share amounts and years) Outstanding at January 1, 2023 141 $ 14.56 Assumed — $ — Exercised ( 60 ) $ 13.65 Forfeited/expired/cancelled ( 9 ) $ 15.76 Outstanding at December 31, 2023 72 $ 15.18 4.39 $ 3,402 Expected to vest 3 $ 37.45 6.92 $ 95 Options exercisable 69 $ 14.28 4.29 $ 3,305 No options were granted or assumed during the year ended December 31, 2023. The weighted average grant date fair value of options assumed from acquisitions during the years ended December 31, 2022 and 2021 was $ 147.92 and $ 237.26 , respectively. The aggregate intrinsic value was calculated as the difference between the exercise price of the underlying options and the quoted price of our common stock at December 31, 2023. During the years ended December 31, 2023, 2022, and 2021, the aggregate intrinsic value of options exercised under the Plan was $ 4 million, $ 16 million, and $ 81 million, respectively, determined as of the date of option exercise. At December 31, 2023, substantially all outstanding options were in-the-money. STOCK-BASED COMPENSATION EXPENSE Stock-based compensation expense for the Plan and the Inducement Plan is measured based on estimated fair value at the time of grant, and recognized over the award’s vesting period. T he impact on our results of operations of recording stock-based compensation expense under the equity incentive plans for the years ended December 31, 2023, 2022, and 2021 was as follows: Year Ended December 31, 2023 2022 2021 (In millions) Customer support and operations $ 305 $ 269 $ 263 Sales and marketing 179 151 175 Technology and development 612 512 515 General and administrative 434 383 468 Total stock-based compensation expense $ 1,530 $ 1,315 $ 1,421 Capitalized as part of internal use software and website development costs $ 52 $ 52 $ 68 Income tax benefit on total stock-based compensation expense $ 260 $ 209 $ 221 Income tax benefit realized related to awards vested or exercised $ 136 $ 182 $ 621 116 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) As of December 31, 2023, there was approximately $ 1.5 billion of unearned stock-based compensation that is expected to be recognized over a weighted average period of 1.80 years. If there are any modifications or cancellations of the underlying unvested awards, we may be required to accelerate, increase, or cancel all or a portion of the remaining unearned stock-based compensation expense. Future unearned stock-based compensation will increase to the extent we grant additional equity awards, change the mix of equity awards we grant, or assume unvested equity awards in connection with acquisitions. EMPLOYEE SAVINGS PLANS Under the terms of the PayPal Holdings, Inc. Deferred Compensation Plan, which also qualifies under Section 401(k) of the Code, participating U.S. employees may contribute up to 50 % of their eligible compensation, but not more than statutory limits. Under the PayPal plan, eligible employees received one dollar for each dollar contributed, up to 4 % of each employee’s eligible salary, subject to a maximum employer contribution per employee of $ 13,200 in 2023, $ 12,200 in 2022, and $ 11,600 in 2021. Our non-U.S. employees are covered by other savings plans. For the years ended December 31, 2023, 2022, and 2021, the matching contribution expense for our U.S. and international savings plans was approximately $ 80 million, $ 83 million, and $ 81 million, respectively. NOTE 16— INCOME TAXES The components of income before income taxes were as follows: Year Ended December 31, 2023 2022 2021 (In millions) United States $ 993 $ ( 155 ) $ 290 International 4,418 3,521 3,809 Income before income taxes $ 5,411 $ 3,366 $ 4,099 The income tax expense (benefit) was composed of the following: Year Ended December 31, 2023 2022 2021 (In millions) Current: Federal $ 1,031 $ 688 $ 6 State and local 145 104 80 Foreign 657 966 326 Total current portion of income tax expense $ 1,833 $ 1,758 $ 412 Deferred: Federal $ ( 490 ) $ ( 563 ) $ ( 401 ) State and local ( 79 ) ( 101 ) ( 45 ) Foreign ( 99 ) ( 147 ) ( 36 ) Total deferred portion of income tax expense (benefit) ( 668 ) ( 811 ) ( 482 ) Income tax expense (benefit) $ 1,165 $ 947 $ ( 70 ) 117 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The following is a reconciliation of the difference between the effective income tax rate and the federal statutory rate: Year Ended December 31, 2023 2022 2021 Federal statutory rate 21.0 % 21.0 % 21.0 % Domestic income taxed at different rates ( 1.5 ) % ( 0.6 ) % ( 1.7 ) % State taxes, net of federal benefit 1.1 % — % 0.9 % Foreign income taxed at different rates ( 5.1 ) % ( 12.2 ) % ( 13.4 ) % Stock-based compensation expense 3.5 % 4.1 % ( 7.3 ) % Tax credits ( 0.7 ) % ( 0.4 ) % ( 2.4 ) % Change in valuation allowances — % 2.2 % 0.5 % Intra-group transfer of intellectual property — % 10.0 % 0.7 % Other 3.2 % 4.0 % — % Effective income tax rate 21.5 % 28.1 % ( 1.7 ) % Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to reverse. Significant deferred tax assets and liabilities consist of the following: As of December 31, 2023 2022 (In millions) Deferred tax assets: Net operating loss and credit carryforwards $ 305 $ 355 Accruals and allowances 761 448 Lease liabilities 138 173 Stock-based compensation 168 154 Net unrealized losses 36 151 Safeguarded crypto liabilities 319 152 Capitalized research and development 1,207 874 Other items 114 113 Total deferred tax assets 3,048 2,420 Valuation allowance ( 276 ) ( 341 ) Net deferred tax assets $ 2,772 $ 2,079 Deferred tax liabilities: ROU lease assets $ ( 96 ) $ ( 138 ) Capitalized software development costs ( 187 ) ( 190 ) Net unrealized gains ( 170 ) ( 135 ) Safeguarded crypto assets ( 319 ) ( 152 ) Other items ( 161 ) ( 179 ) Total deferred tax liabilities ( 933 ) ( 794 ) Net deferred tax assets $ 1,839 $ 1,285 As of December 31, 2023, our foreign net operating loss carryforwards for income tax purposes were approximately $ 707 million and certain of these amounts are subject to an annual limitation. If not utilized, a portion of these losses will begin to expire in 2024. As of December 31, 2023, our California research and development tax credit carryforwards for income tax purposes were approximately $ 264 million, which may be carried forward indefinitely. It is more likely than not that most of these net operating loss and tax credit carryforwards will not be realized; therefore we have recorded a valuation allowance against them. Repatriation of our foreign earnings for use in the United States is generally not expected to result in a significant amount of income taxes; as a result, the corresponding deferred tax liability we have accrued is not material. 118 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) We benefit from agreements concluded in certain jurisdictions, most significantly Singapore. The Singapore agreement is effective through 2030, results in significantly lower rates of taxation on certain classes of income and requires various thresholds of investment and employment in that jurisdiction. We review our compliance on an annual basis to ensure we continue to meet our obligations under this agreement. Before taking into consideration the effects of the U.S. Tax Cuts and Jobs Act and other indirect tax impacts, this agreement resulted in tax savings of approximately $ 441 million, $ 510 million, and $ 327 million in 2023, 2022, and 2021, respectively. The benefit of this agreement on our net income (loss) per share (diluted) was approximately $ 0.40 , $ 0.44 , and $ 0.28 in 2023, 2022, and 2021, respectively. The following table reflects changes in unrecognized tax benefits for the periods presented below: Year Ended December 31, 2023 2022 2021 (In millions) Gross amounts of unrecognized tax benefits as of the beginning of the period $ 1,877 $ 1,678 $ 1,479 Increases related to prior period tax positions 178 52 172 Decreases related to prior period tax positions ( 30 ) ( 185 ) ( 187 ) Increases related to current period tax positions 235 337 232 Settlements — ( 2 ) ( 15 ) Statute of limitation expirations ( 24 ) ( 3 ) ( 3 ) Gross amounts of unrecognized tax benefits as of the end of the period $ 2,236 $ 1,877 $ 1,678 If the remaining balance of unrecognized tax benefits were realized in a future period, it would result in a tax benefit of $ 1.4 billion. For the years ended December 31, 2023, 2022, and 2021, we recognized net interest and penalties of $ 151 million, $ 119 million, and $ 6 million, respectively, related to uncertain tax positions in income tax expense. This expense is reflected in the “Other” line of our effective income tax rate schedule. The amount of interest and penalties accrued as of December 31, 2023 and 2022 was approximately $ 520 million and $ 342 million, respectively. We are subject to taxation in the U.S. and various state and foreign jurisdictions. We are currently under examination by certain tax authorities for the 2010 to 2022 tax years. The material jurisdictions in which we are subject to examination by tax authorities for tax years after 2009 primarily include the U.S. (Federal and California), Germany, India, Israel, and Singapore. We believe that adequate amounts have been reserved for any adjustments that may ultimately result from our open examinations. Due to various factors, including uncertainties of the judicial, administrative, and regulatory processes in certain jurisdictions, the timing of the resolution of these audits is highly uncertain. It is reasonably possible that within the next twelve months, we will receive additional tax adjustments by various tax authorities or possibly reach resolution of these audits in one or more jurisdictions. These adjustments or settlements could result in changes to our contingencies related to positions on prior year tax filings. Given the number of years remaining subject to examination and the number of matters being examined, we are unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits. In connection with our separation from eBay in 2015, we entered into various agreements that govern the relationship between the parties going forward, including a tax matters agreement. Under the tax matters agreement, eBay is generally responsible for all additional taxes (and will be entitled to all related refunds of taxes) imposed on eBay and its subsidiaries (including subsidiaries that were transferred to PayPal pursuant to the separation) arising after the separation date with respect to the taxable periods (or portions thereof) ended on or prior to July 17, 2015, except for those taxes for which PayPal has reflected an unrecognized tax benefit in its financial statements on the separation date. 119 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) NOTE 17— RESTRUCTURING AND OTHER RESTRUCTURING 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 in 2023 were $ 122 million. We primarily incurred employee severance and benefits costs, which were substantially completed by the fourth quarter of 2023. The following table summarizes the restructuring reserve activity during the year ended December 31, 2023: Employee Severance and Benefits and Other Associated Costs (In millions) Accrued liability as of January 1, 2023 $ 24 Charges 122 Payments ( 142 ) Accrued liability as of December 31, 2023 $ 4 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. This effort focused on reducing redundant operations and simplifying our organizational structure. The associated restructuring charges in 2022 were $ 121 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. 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 in 2021 were $ 27 million. 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. OTHER We continue to review our real estate and facility capacity requirements due to our new and evolving work models. We incurred asset impairment charges of $ 61 million, $ 81 million, and $ 26 million in 2023, 2022, and 2021, respectively, due to exiting of certain leased properties which resulted in a reduction of ROU lease assets and related leasehold improvements. See “Note 6—Leases” for additional information. In the year ended December 31, 2023, we recognized a gain of $ 17 million due to the sale of an owned property. We also incurred a loss of $ 14 million related to another owned property, which was previously held for sale in the year ended December 31, 2023. During the year ended December 31, 2023, approximately $ 74 million of losses were recorded in restructuring and other, which included net loss on sale of loans and interest receivable previously held for sale (inclusive of transaction costs) and fair value adjustments in order to measure loans and interest receivable, held for sale, at the lower of cost or fair value. In the fourth quarter of 2023, we completed the sale of Happy Returns and recorded a pre-tax gain of $ 339 million, net of transaction costs, in restructuring and other. For additional information on the divestiture, see “Note 4—Business Combinations and Divestitures”. 120 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) NOTE 18— SUBSEQUENT EVENTS In January 2024, management initiated a global workforce reduction intended to streamline operations, focus resources on core strategic priorities, and improve our cost structure. We estimate this reduction will impact approximately 8 % of our employees and result in approximately $ 120 million of restructuring charges, primarily related to employee severance and benefits costs. The actions associated with this plan are expected to be substantially completed by the first quarter of 2024. In addition to this workforce reduction, as a part of this overall strategy, we have also committed to reassess our previous hiring plans with a focus on identifying additional efficiency opportunities, such as the deployment of more automation. This additional commitment to rationalize growth in employee headcount may not directly result in restructuring charges. 121 Table of Contents FINANCIAL STATEMENT SCHEDULE The Financial Statement Schedule II—VALUATION AND QUALIFYING ACCOUNTS is filed as part of this Annual Report on Form 10-K. Balance at Beginning of Period Charged/ (Credited) to Net Income Charged to Other Accounts Charges Utilized/ (Write-offs) Balance at End of Period (In millions) Allowance for Transaction Losses and Negative Customer Balances Year Ended December 31, 2021 $ 414 $ 1,153 $ — $ ( 1,212 ) $ 355 Year Ended December 31, 2022 $ 355 $ 1,170 $ — $ ( 1,247 ) $ 278 Year Ended December 31, 2023 $ 278 $ 1,192 $ — $ ( 1,188 ) $ 282 Allowance for Loans and Interest Receivable Year Ended December 31, 2021 $ 838 $ ( 104 ) $ — $ ( 243 ) $ 491 Year Ended December 31, 2022 $ 491 $ 437 $ — $ ( 330 ) $ 598 Year Ended December 31, 2023 $ 598 $ 539 $ — $ ( 597 ) $ 540 122 Table of Contents ITEM 16. FORM 10-K SUMMARY None. INDEX OF EXHIBITS Incorporated by Reference Exhibit Number Exhibit Description Filed with this Form 10-K Form Date Filed 2.01 Separation and Distribution Agreement by and between eBay Inc. and PayPal Holdings, Inc. 10-12B/A 6/26/2015 3.01 PayPal Holdings, Inc. Restated Certificate of Incorporation 10-Q 7/27/2017 3.02 PayPal Holdings, Inc. Amended and Restated Bylaws effective September 27, 2023 8-K 10/2/2023 4.01 Description of Securities 10-K 2/6/2020 4.02 Indenture, dated as of September 26, 2019, by and between PayPal Holdings, Inc. and Wells Fargo Bank, National Association, as Trustee 8-K 9/26/2019 4.03 Officer’s Certificate, dated as of September 26, 2019, pursuant to the Indenture, dated as of September 26, 2019, by and between PayPal Holdings, Inc. and Wells Fargo Bank, National Association, as Trustee 8-K 9/26/2019 4.04 Form of 2022 Note (included in Exhibit 4.03) 8-K 9/26/2019 4.05 Form of 2024 Note (included in Exhibit 4.03) 8-K 9/26/2019 4.06 Form of 2026 Note (included in Exhibit 4.03) 8-K 9/26/2019 4.07 Form of 2029 Note (included in Exhibit 4.03) 8-K 9/26/2019 4.08 Officer’s Certificate, dated as of May 18, 2020, pursuant to the Indenture, dated as of September 26, 2019, by and between PayPal Holdings, Inc. and Wells Fargo Bank, National Association, as Trustee 8-K 5/18/2020 4.0 9 Form of 2025 Note (included in Exhibit 4.08) 8-K 5/18/2020 4.10 Form of 2030 Note (included in Exhibit 4.08) 8-K 5/18/2020 4.11 Form of 2050 Note (included in Exhibit 4.08) 8-K 5/18/2020 4.12 Officer’s Certificate, dated as of May 23, 2022, pursuant to the Indenture, dated as of September 26, 2019, by and between PayPal Holdings, Inc. and Wells Fargo Bank, National Association, as Trustee 8-K 5/23/2022 4.1 3 Form of 2027 Note (included in Exhibit 4.2) 8-K 5/23/2022 4.14 Form of 2032 Note (included in Exhibit 4.2) 8-K 5/23/2022 4.15 Form of 2052 Note (included in Exhibit 4.2) 8-K 5/23/2022 4.16 Form of 2062 Note (included in Exhibit 4.2) 8-K 5/23/2022 4.17 Officer's Certificate pursuant to the Indenture, dated as of June 9, 2023 8-K 6/9/2023 4.18 Form of Note for 0.813% Notes due 2025 (included in Exhibit 4.17) 8-K 6/9/2023 4.19 Form of Note for 0.972% Notes due 2026 (included in Exhibit 4.18) 8-K 6/9/2023 4.2 0 Form of Note for 1.240% Notes due 2026 (included in Exhibit 4.18) 8-K 6/9/2023 10.01 Tax Matters Agreement by and between eBay Inc. and PayPal Holdings, Inc. dated July 17, 2015 8-K 7/20/2015 10.0 2 + PayPal Employee Incentive Plan, as amended and restated DEF 14A 4/14/2016 10.0 3 + PayPal Holdings, Inc. Amended and Restated 2015 Equity Incentive Award Plan 8-K 5/31/2023 10.0 4 + PayPal Holdings, Inc. Amended and Restated Deferred Compensation Plan effective November 6, 2018 10-K 2/7/2019 123 Table of Contents Incorporated by Reference Exhibit Number Exhibit Description Filed with this Form 10-K Form Date Filed 10.0 5 + PayPal Holdings, Inc. Executive Change in Control and Severance Plan, as amended and restated, effective as of September 27, 2021 10-Q 11/9/2021 10.0 6 + Form of Indemnity Agreement between PayPal Holdings, Inc. and individual directors and officers 10-12B/A 5/14/2015 10.0 7 + Form of Global Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement under the PayPal Holdings, Inc. 2015 Equity Incentive Award Plan 10-12B/A 5/14/2015 10. 08 + Form of Global Performance Based Restricted Stock Unit Award Grant Notice and Performance Based Restricted Stock Unit Award Agreement under the PayPal Holdings, Inc. 2015 Equity Incentive Award Plan, as amended and restated 10-Q 4/27/2017 10. 09 + Form of Global Notice of Grant of Stock Option and Stock Option Agreement under the PayPal Holdings, Inc. 2015 Equity Incentive Award Plan 10-12B/A 5/14/2015 10.1 0 + Form of Director Annual Award Agreement under the PayPal Holdings, Inc. 2015 Equity Incentive Award Plan 10-12B/A 5/14/2015 10.1 1 + Form of Electing Director Quarterly Award Agreement under the PayPal Holdings, Inc. 2015 Equity Incentive Award Plan 10-12B/A 5/14/2015 10.1 2 + PayPal Holdings, Inc. Amended and Restated Employee Stock Purchase Plan 8-K 5/25/2018 10.1 3 + Amendment to PayPal Holdings, Inc. Amended and Restated Employee Stock Purchase Plan 10-Q 11/9/2021 10.1 4 + PayPal Holdings, Inc. 2022 Inducement Plan 10-Q 8/2/2022 10.1 5 + Offer Letter dated September 29, 2014 between eBay Inc. and Daniel Schulman 10-12B/A 5/14/2015 10.1 6 + Amendment dated December 31, 2014 to Offer Letter between eBay Inc. and Daniel Schulman 10-12B/A 5/14/2015 10. 17 + Letter dated April 13, 2015 from eBay Inc. to Jonathan Auerbach 10-K 2/11/2016 10. 18 + Letter Agreement, dated April 17, 2016, between Aaron Karczmer and PayPal Holdings, Inc. 10-Q 4/27/2017 10. 19 + Letter Agreement effective July 13, 2022, between Blake Jorgensen and PayPal Holdings, Inc. 10-Q 8/2/2022 10.2 0 + Letter Agreement dated June 15, 2022 between Gabrielle Rabinovitch and PayPal Holdings, Inc. 8-K 6/17/2022 10.2 1 + Letter Agreement dated September 27, 2022 between Gabrielle Rabinovitch and PayPal Holdings, Inc. 8-K 10/3/2022 10.2 2 + Letter Agreement dated September 1, 2022 between John Kim and PayPal Holdings, Inc. 10-Q 11/3/2022 10.23+ Letter Agreement by and between PayPal Holdings, Inc. and Alex Chriss, dated August 10, 2023 8-K 8/14/2023 10.24+ Offer Letter, dated October 29, 2023, by and between PayPal Holdings, Inc. and Jamie Miller 8-K 11/1/2023 10.25+ ^ Transition Agreement by and between PayPal, Inc. and Gabrielle Rabinovitch, dated December 21, 2023 8-K 12/22/2023 10.27 Credit Agreement, dated as of June 7, 2023, among PayPal Holdings, Inc. the Designated Borrowers party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A. and J.P. Morgan Securities Australia Limited, as the Administrative Agents 8-K 6/13/2023 124 Table of Contents Incorporated by Reference Exhibit Number Exhibit Description Filed with this Form 10-K Form Date Filed 10.28† Receivables Purchase Agreement, dated as of June 16, 2023 in the form as amended and restated as of October 13, 2023 by and between PayPal (Europe) S.à r.l. et Cie, SCA (as Seller and Receivables Manager), Alps Partners S.à r.l. (as Purchaser), BNY Mellon Corporate Trustee Services limited (as Security Agent), Avega S.à r.l. (as Back-Up Receivables Manager Facilitator) and Alps Partners (Holding) S.à r.l. (as Class C Lender) 10-Q 11/2/2023 10.2 9 † Receivables Management Agreement, dated as of June 16, 2023 in the form as amended and restated as of October 13, 2023 by and between PayPal (Europe) S.à r.l. et Cie, SCA (as Seller and Receivables Manager), Alps Partners S.à r.l. (as Purchaser), Avega S.à r.l. (as Back-Up Receivables Manager Facilitator) and Alps Partners (Holding) S.à r.l. (as Class C Lender) 10-Q 11/2/2023 10.30+ Offer Letter, dated October 23, 2023, by and between PayPal Holdings, Inc. and Michelle Gill X 10.31+ Offer Letter, dated October 23, 2023, by and between PayPal Holdings, Inc. and Diego Scotti X 10.32+ Offer Letter, dated December 4, 2023, by and between PayPal Holdings, Inc. and Suzan Kereere X 10.33+ Independent Director Compensation Policy X 21.01 List of Subsidiaries X 22.01 PricewaterhouseCoopers LLP consent X 23.01 Power of Attorney (see signature page) X 31.01 Certification of PayPal Holdings, Inc.’s Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 X 31.02 Certification of PayPal Holdings, Inc.’s Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 X 32.01 Certification of PayPal Holdings, Inc.’s Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002 X 32.02 Certification of PayPal Holdings, Inc.’s Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002 X 97.1 PayPal Holdings, Inc. Mandatory Recovery Policy for Executive Officers X 101 The following financial information related to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income (Loss), (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows; and (vi) the related Notes to Consolidated Financial Statements X 104 Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101 X + Indicates a management contract or compensatory plan or arrangement. † Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S‑K. ^ Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Registrant agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request. 125 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 7, 2024. PayPal Holdings, Inc. By: /s/ Alex Chriss Name: Title: Alex Chriss President, Chief Executive Officer and Director Table of Contents POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Alex Chriss, Jamie Miller, Bimal Patel, Brian Y. Yamasaki and Hasitha Verma, and each or any one of them, each with the power of substitution, his or her attorney-in-fact, to sign any amendments to this report, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on February 7, 2024. Principal Executive Officer: Principal Financial Officer and Principal Accounting Officer: By: /s/ Alex Chriss By: /s/ Jamie Miller Alex Chriss Jamie Miller President, Chief Executive Officer and Director Executive Vice President, Chief Financial Officer Additional Directors By: /s/ Rodney C. Adkins By: /s/ Jonathan Christodoro Rodney C. Adkins Jonathan Christodoro Director Director By: /s/ John J. Donahoe By: /s/ David W. Dorman John J. Donahoe David W. Dorman Director Director By: /s/ Belinda Johnson By: /s/ Enrique Lores Belinda Johnson Enrique Lores Director Director By: /s/ Gail J. McGovern By: /s/ Deborah M. Messemer Gail J. McGovern Deborah M. Messemer Director Director By: /s/ David M. Moffett By: /s/ Ann M. Sarnoff David M. Moffett Ann M. Sarnoff Director Director By: /s/ Frank D. Yeary Frank D. Yeary Director