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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from             to             .
Commission file number 001-36859
   
 
PayPal Holdings, Inc.
(Exact Name of Registrant as Specified in Its Charter)
 
 
Delaware
 
 
47-2989869
(State or Other Jurisdiction of
Incorporation or Organization)
 
 
(I.R.S. Employer
Identification No.)
2211 North First Street
San Jose
California
95131
(Address of Principal Executive Offices)
 
 
(Zip Code)
(408) 967-1000
(Registrant’s telephone number, including area code)
  
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, $0.0001 par value per share
PYPL
NASDAQ Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

1


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Yes No  
As of July 19, 2019, there were 1,176,675,415 shares of the registrant’s common stock, $0.0001 par value, outstanding, which is the only class of common or voting stock of the registrant issued.
 

2


PayPal Holdings, Inc.
TABLE OF CONTENTS

 
 
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



3

Table of Contents


PART I: FINANCIAL INFORMATION

Item 1: Financial Statements

PayPal Holdings, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
June 30,
2019
 
December 31,
2018
 
(In millions, except par value)
 
(Unaudited)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
4,909

 
$
7,575

Short-term investments
3,506

 
1,534

Accounts receivable, net
379

 
313

Loans and interest receivable, net of allowances of $222 and $172 as of June 30, 2019 and December 31, 2018, respectively
3,166

 
2,532

Funds receivable and customer accounts
23,573

 
20,062

Prepaid expenses and other current assets
902

 
947

Total current assets
36,435

 
32,963

Long-term investments
2,278

 
971

Property and equipment, net
1,720

 
1,724

Goodwill
6,236

 
6,284

Intangible assets, net
699

 
825

Other assets
1,023

 
565

Total assets
$
48,391

 
$
43,332

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
199

 
$
281

Notes payable
2,499

 
1,998

Funds payable and amounts due to customers
25,073

 
21,562

Accrued expenses and other current liabilities
2,022

 
2,002

Income taxes payable
54

 
61

Total current liabilities
29,847

 
25,904

Deferred tax liability and other long-term liabilities
2,405

 
2,042

Total liabilities
32,252

 
27,946

Commitments and Contingencies (Note 13)

 


Equity:
 
 
 
Common stock, $0.0001 par value; 4,000 shares authorized; 1,177 and 1,174 shares outstanding as of June 30, 2019 and December 31, 2018, respectively

 

Preferred stock, $0.0001 par value; 100 shares authorized, unissued

 

Treasury stock at cost, 99 and 91 shares as of June 30, 2019 and December 31, 2018, respectively
(6,216
)
 
(5,511
)
Additional paid-in-capital
15,010

 
14,939

Retained earnings
7,373

 
5,880

Accumulated other comprehensive income (loss)
(28
)
 
78

Total equity
16,139

 
15,386

Total liabilities and equity
$
48,391

 
$
43,332

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

4

Table of Contents


PayPal Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
(In millions, except per share data)
 
(Unaudited)
Net revenues
$
4,305

 
$
3,857

 
$
8,433

 
$
7,542

Operating expenses:
 
 
 
 
 
 
 
Transaction expense
1,627

 
1,362

 
3,176

 
2,637

Transaction and loan losses
318

 
334

 
659

 
639

Customer support and operations
399

 
338

 
787

 
680

Sales and marketing
356

 
307

 
685

 
588

Technology and development
483

 
441

 
994

 
889

General and administrative
419

 
387

 
838

 
734

Restructuring and other charges
(2
)
 
116

 
71

 
269

Total operating expenses
3,600

 
3,285

 
7,210

 
6,436

Operating income
705

 
572

 
1,223

 
1,106

Other income (expense), net
238

 
37

 
437

 
51

Income before income taxes
943

 
609

 
1,660

 
1,157

Income tax expense
120

 
83

 
170

 
120

Net income
$
823

 
$
526

 
$
1,490

 
$
1,037

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic
$
0.70

 
$
0.44

 
$
1.27

 
$
0.87

Diluted
$
0.69

 
$
0.44

 
$
1.25

 
$
0.86

 
 
 
 
 
 
 
 
Weighted average shares:
 
 
 
 
 
 
 
Basic
1,175

 
1,187

 
1,173

 
1,190

Diluted
1,187

 
1,202

 
1,188

 
1,209

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


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PayPal Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
(In millions)
 
(Unaudited)
Net income
$
823

 
$
526

 
$
1,490

 
$
1,037

Other comprehensive income (loss), net of reclassification adjustments:
 
 
 
 
 
 
 
Foreign currency translation
9

 
(29
)
 
(58
)
 
(27
)
Unrealized gains (losses) on investments, net
10

 
5

 
21

 
(10
)
Tax (expense) benefit on unrealized gains (losses) on investments, net
(4
)
 
(1
)
 
(6
)
 
3

Unrealized gains (losses) on hedging activities, net
(18
)
 
233

 
(64
)
 
215

Tax (expense) benefit on unrealized gains (losses) on hedging activities, net

 
(3
)
 
1

 
(3
)
Other comprehensive income (loss), net of tax
(3
)
 
205

 
(106
)
 
178

Comprehensive income
$
820

 
$
731

 
$
1,384

 
$
1,215

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


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PayPal Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
 
Common Stock Shares
 
Treasury Stock
 
Additional Paid-In Capital
 
Accumulated Other
Comprehensive Income (Loss)
 
Retained Earnings
 
Total 
Equity
 
 
(In millions)
 
(Unaudited)
Balances at December 31, 2018
1,174

 
$
(5,511
)
 
$
14,939

 
$
78

 
$
5,880

 
$
15,386

Adoption of leases standard

 

 

 

 
3

 
3

Net income

 

 

 

 
667

 
667

Foreign currency translation

 

 

 
(67
)
 

 
(67
)
Unrealized gains on investments, net

 

 

 
11

 

 
11

Tax expense on unrealized gains on investments, net

 

 

 
(2
)
 

 
(2
)
Unrealized losses on hedging activities, net

 

 

 
(46
)
 

 
(46
)
Tax benefit on unrealized losses on hedging activities, net

 

 

 
1

 

 
1

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes
6

 

 
(302
)
 

 

 
(302
)
Common stock repurchased
(8
)
 
(705
)
 
(45
)
 

 

 
(750
)
Stock-based compensation

 

 
256

 

 

 
256

Balances at March 31, 2019
1,172

 
$
(6,216
)
 
$
14,848

 
$
(25
)
 
$
6,550

 
$
15,157

Net income

 

 

 

 
823

 
823

Foreign currency translation

 

 

 
9

 

 
9

Unrealized gains on investments, net

 

 

 
10

 

 
10

Tax expense on unrealized gains on investments, net

 

 

 
(4
)
 

 
(4
)
Unrealized losses on hedging activities, net

 

 

 
(18
)
 

 
(18
)
Tax benefit on unrealized losses on hedging activities, net

 

 

 

 

 

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

 

 
(73
)
 

 

 
(73
)
Common stock repurchased

 

 

 

 

 

Stock-based compensation

 

 
235

 

 

 
235

Balances at June 30, 2019
1,177

 
$
(6,216
)
 
$
15,010

 
$
(28
)
 
$
7,373

 
$
16,139

 

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PayPal Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
 
Common Stock Shares
 
Treasury Stock
 
Additional Paid-In Capital
 
Accumulated Other
Comprehensive Income (Loss)
 
Retained Earnings
 
Total 
Equity
 
 
(In millions)
 
(Unaudited)
Balances at December 31, 2017
1,200

 
$
(2,001
)
 
$
14,314

 
$
(142
)
 
$
3,823

 
$
15,994

Net income

 

 

 

 
511

 
511

Foreign currency translation

 

 

 
2

 

 
2

Unrealized losses on investments, net

 

 

 
(15
)
 

 
(15
)
Tax benefit on unrealized losses on investments, net

 

 

 
4

 

 
4

Unrealized losses on hedging activities, net

 

 

 
(18
)
 

 
(18
)
Tax benefit on unrealized losses on hedging activities, net

 

 

 

 

 

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes
7

 

 
(226
)
 

 

 
(226
)
Common stock repurchased
(24
)
 
(1,810
)
 
(15
)
 

 

 
(1,825
)
Stock-based compensation

 

 
214

 

 

 
214

Balances at March 31, 2018
1,183

 
$
(3,811
)
 
$
14,287

 
$
(169
)
 
$
4,334

 
$
14,641

Net income

 

 

 

 
526

 
526

Foreign currency translation

 

 

 
(29
)
 

 
(29
)
Unrealized gains on investments, net

 

 

 
5

 

 
5

Tax expense on unrealized gains on investments, net

 

 

 
(1
)
 

 
(1
)
Unrealized gains on hedging activities, net

 

 

 
233

 

 
233

Tax expense on unrealized losses on hedging activities, net

 

 

 
(3
)
 

 
(3
)
Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes
7

 

 
(67
)
 

 

 
(67
)
Common stock repurchased
(6
)
 
(500
)
 

 

 

 
(500
)
Stock-based compensation

 

 
214

 

 

 
214

Balances at June 30, 2018
1,184

 
$
(4,311
)
 
$
14,434

 
$
36

 
$
4,860

 
$
15,019

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


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PayPal Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Six Months Ended June 30,
 
2019
 
2018
 
(In millions)
 
(Unaudited)
Cash flows from operating activities:
 
 
 
Net income
$
1,490

 
$
1,037

Adjustments:
 
 
 
Transaction and loan losses
659

 
639

Depreciation and amortization
458

 
365

Stock-based compensation
470

 
410

Deferred income taxes
35

 
89

Cost basis adjustments to loans and interest receivable held for sale

 
244

Unrealized gains on strategic investments
(398
)
 
(31
)
Other
(92
)
 
(10
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
(66
)
 
1

Changes in loans and interest receivable held for sale, net
4

 
(2,268
)
Accounts payable
(49
)
 
(17
)
Income taxes payable
(7
)
 
(14
)
Other assets and liabilities
(303
)
 
(766
)
Net cash provided by (used in) operating activities
2,201

 
(321
)
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(357
)
 
(376
)
Changes in principal loans receivable, net
(732
)
 
1,000

Purchases of investments
(13,191
)
 
(10,616
)
Maturities and sales of investments
10,537

 
9,669

Acquisitions, net of cash and restricted cash acquired

 
(16
)
Funds receivable
(2,214
)
 
902

Net cash (used in) provided by investing activities
(5,957
)
 
563

Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock
74

 
78

Purchases of treasury stock
(756
)
 
(2,325
)
Tax withholdings related to net share settlements of equity awards
(449
)
 
(372
)
Borrowings under financing arrangements
500

 
2,075

Repayments under financing arrangements

 
(1,076
)
Funds payable and amounts due to customers
3,129

 
1,078

Net cash provided by (used in) financing activities
2,498

 
(542
)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(1
)
 
(63
)
Net change in cash, cash equivalents, and restricted cash
(1,259
)
 
(363
)
Cash, cash equivalents, and restricted cash at beginning of period
13,233

 
8,285

Cash, cash equivalents, and restricted cash at end of period
$
11,974

 
$
7,922

 
 
 
 
Supplemental cash flow disclosures:
 
 
 
Cash paid for interest
$
45

 
$
26

Cash paid for income taxes, net
$
176

 
$
180

 
 
 
 
The below table reconciles cash, cash equivalents, and restricted cash as reported in the condensed consolidated balance sheet to the total of the same amounts shown in the condensed consolidated statement of cash flows:
 
 
 
Cash and cash equivalents
$
4,909

 
$
2,840

Short term investments
12

 
16

Funds receivable and customer accounts
7,053

 
5,066

Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows
$
11,974

 
$
7,922

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

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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 and digital payments company that enables digital and mobile payments on behalf of consumers and merchants worldwide. PayPal is committed to democratizing financial services and empowering people and businesses to join and thrive in the global economy. Our goal is to enable our consumers and merchants to manage and move their money anywhere in the world, anytime, on any platform, and using any device. We also facilitate person-to-person payments through our PayPal, Venmo, and Xoom products. Our combined payment solutions, including our PayPal, PayPal Credit, Braintree, Venmo, Xoom, and iZettle products, comprise our proprietary Payments Platform.

We operate globally and in a rapidly evolving regulatory environment characterized by a heightened regulatory focus on all aspects of the payments industry. That focus continues to become even more heightened as regulators on a global basis focus on important issues such as countering terrorist financing, anti-money laundering, privacy, cybersecurity, and consumer protection. Some of the laws and regulations to which we are subject were enacted recently, and the laws and regulations applicable to us, including those enacted prior to the advent of digital and mobile payments, are continuing to evolve through legislative and regulatory action and judicial interpretation. New or changing laws and regulations, including the way laws and regulations are interpreted and implemented, 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. Therefore, we monitor these areas closely to design compliant solutions for our customers who depend on us.

Significant Accounting Policies

Basis of Presentation and Principles of Consolidation
The condensed 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 condensed consolidated statements of income and our investment balance is included in long-term investments on our condensed consolidated balance sheets. Investments in entities where we do not have the ability to exercise significant influence over the investee are accounted for at fair value or cost minus impairment, if any, adjusted for changes resulting from observable price changes, which are included in other income (expense), net on our condensed consolidated statements of income. Our investment balance is included in long-term investments on our condensed consolidated balance sheets.
These condensed consolidated financial statements and accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”) filed with the Securities and Exchange Commission.
In the opinion of management, these condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for fair statement of the condensed consolidated financial statements for interim periods. Certain amounts for prior years have been reclassified to conform to the financial statement presentation as of and for the three and six months ended June 30, 2019.

Reclassifications

Beginning with the first quarter of 2019, we reclassified certain operating expenses within the condensed consolidated statements of income. Prior period amounts have been reclassified to conform to this presentation. These changes have no impact on our previously reported consolidated net income for prior periods, including total operating expenses, financial position, or cash flows for any periods presented.


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The classification changes relate primarily to the combination of costs incurred to develop and operate our Payments Platform into a new caption entitled technology and development. This new caption includes: (a) costs incurred in operating, maintaining, and enhancing our Payments Platform, including network and infrastructure costs, which were previously classified in the customer support and operations caption, and (b) costs incurred in developing new and improving existing products, which were previously classified in the product development caption on our consolidated statements of income. In addition, we have eliminated the presentation of depreciation and amortization expense as a separate financial statement caption by reclassifying these expenses into financial statement captions aligned with the internal organizations that are the primary beneficiaries of the depreciation and amortization of such assets.

The following tables present the effects of the changes on the presentation of these operating expenses to the previously reported condensed consolidated statements of income:

 
Three Months Ended June 30, 2018
 
(In millions)
 
As Previously Reported
 
Adjustments
 
Revised
 
 
 
 
 
 
Transaction expense
$
1,362

 
$

 
$
1,362

Transaction and loan losses
334

 

 
334

Customer support and operations
357

 
(19
)
 
338

Sales and marketing
313

 
(6
)
 
307

Product development
255

 
(255
)
 

Technology and development

 
441

 
441

General and administrative
368

 
19

 
387

Depreciation and amortization
180

 
(180
)
 

Restructuring and other charges
116

 

 
116

Total operating expenses
$
3,285

 
$

 
$
3,285



 
Six Months Ended June 30, 2018
 
(In millions)
 
As Previously Reported
 
Adjustments
 
Revised
 
 
 
 
 
 
Transaction expense
$
2,637

 
$

 
$
2,637

Transaction and loan losses
639

 

 
639

Customer support and operations
708

 
(28
)
 
680

Sales and marketing
598

 
(10
)
 
588

Product development
513

 
(513
)
 

Technology and development

 
889

 
889

General and administrative
707

 
27

 
734

Depreciation and amortization
365

 
(365
)
 

Restructuring and other charges
269

 

 
269

Total operating expenses
$
6,436

 
$

 
$
6,436



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Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses, during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to provisions for transaction and loan losses, loss contingencies, income taxes, revenue recognition, and the valuation of goodwill and intangible assets. We base our estimates on historical experience and various other assumptions which we believe to be reasonable under the circumstances. Actual results could differ from those estimates.

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 liabilities and other long-term liabilities on our condensed consolidated balance sheets. As of June 30, 2019, we had no finance leases. 

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Our leases do not provide an implicit rate; we use an incremental borrowing rate for specific terms on a collateralized basis based on the information available on the commencement date in determining the present value of lease payments. 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. 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. In addition, we have elected 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.

Recent Accounting Guidance

In 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance on the measurement of credit losses on financial instruments. Credit losses on loans, trade and other receivables, held-to-maturity debt securities, and other instruments will reflect our current estimate of the expected credit losses and generally will result in the earlier recognition of allowances for losses. Credit losses on available-for-sale debt securities with unrealized losses will be recognized as allowances for credit losses limited to the amount by which fair value is below amortized cost. Additional disclosures will be required, including information used to track credit quality by year of origination for most financing receivables. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. We will adopt the new guidance effective January 1, 2020. We are required to apply the provisions of this guidance as a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted with impairment of available-for-sale debt securities applied prospectively after adoption. We are evaluating the impact of and approach to adopting this new accounting guidance on our condensed consolidated financial statements.

Recently Adopted Accounting Guidance

In 2016, the FASB issued new accounting guidance related to accounting for leases, which requires lessees to recognize lease assets and lease liabilities on the balance sheet for the rights and obligations created by all leases with terms greater than 12 months. As we are not a lessor, other changes in the guidance applicable to lessors do not apply. Additionally, in 2018, the FASB issued codification and targeted improvements to this guidance effective for fiscal years and interim periods within those years beginning after December 15, 2018, with early adoption permitted. We adopted the new guidance on January 1, 2019, using a modified retrospective basis and applied the optional practical expedients related to the transition. We recorded $511 million for the ROU assets and $521 million for the lease liabilities associated with our operating leases upon adoption. The adoption of this guidance did not have a significant impact to our consolidated statements of earnings, stockholders’ equity, and cash flows. For additional information, see Note 6—“Leases.”

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There are other new accounting pronouncements issued by the FASB that we have adopted or will adopt, as applicable, and we do not believe any of these accounting pronouncements has had, or will have, a material impact on our condensed consolidated financial statements or disclosures.

Note 2—Revenue

PayPal enables its 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.
Disaggregation of Revenue

We determine operating segments based on how our chief operating decision maker (“CODM”) manages the business, makes operating decisions around the allocation of resources, and evaluates operating performance. Our CODM is our Chief Executive Officer, who reviews our operating results on a consolidated basis. We operate in one segment and have one reportable segment. Based on the information provided to and reviewed by our CODM, we believe that the nature, amount, timing, and uncertainty of our revenue and cash flows and how they are affected by economic factors are most appropriately depicted through our primary geographical markets and type of revenue categories (transaction revenues and other value added services). Revenues recorded within these categories are earned from similar services for which the nature of associated fees and the related revenue recognition models are substantially the same.

The following table presents our revenues disaggregated by primary geographical markets and revenues by major products and services:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
  
2018
 
2019
  
2018
 
(In millions)
Primary geographical markets
 
 
 
 
 
 
 
United States (“U.S.”)
$
2,297

 
$
2,150

 
$
4,484

 
$
4,173

United Kingdom (“U.K.”)
454

 
402

 
887

 
794

Other countries(1)
1,554

 
1,305

 
3,062

 
2,575

Total revenues(2)
$
4,305

 
$
3,857

 
$
8,433

 
$
7,542

 
 
 
 
 
 
 
 
Types of revenues
 
 
 
 
 
 
 
Transaction revenues
$
3,878

 
$
3,318

 
$
7,609

 
$
6,515

Other value added services
427

 
539

 
824

 
1,027

Total revenues(2)
$
4,305

 
$
3,857

 
$
8,433

 
$
7,542

(1) No single country included in the other countries category generated more than 10% of total revenue.
(2) Total revenues include $276 million and $441 million for the three months ended June 30, 2019 and 2018, respectively, and $533 million and $800 million for the six months ended June 30, 2019 and 2018, respectively, which do not represent revenues recognized in the scope of ASC Topic 606, Revenue from contracts with customers. Such revenues relate to interest, fees, and gains earned on loan and interest receivables, net and held for sale portfolio, as well as hedging gains or losses and interest earned on certain PayPal customer balances.

Net revenues are attributed to the country in which the merchant is located, or in the case of a cross-border transaction, may be earned from the country in which the consumer and the merchant respectively reside. Net revenues earned from other value added services are typically attributed to the country in which either the customer or partner reside.


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Note 3—Net Income Per Share

Basic net income per share is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding for the period. The dilutive effect of outstanding equity incentive awards is reflected in diluted net income per share by application of the treasury stock method. The calculation of diluted net income per share excludes all anti-dilutive common shares.

The following table sets forth the computation of basic and diluted net income per share for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
  
2018
 
2019
  
2018
 
(In millions, except per share amounts)
Numerator:
 
 
 
 
 
 
 
Net income
$
823

 
$
526

 
$
1,490

 
$
1,037

Denominator:
 
 
 
 
 
 
 
Weighted average shares of common stock - basic
1,175

 
1,187

 
1,173

 
1,190

Dilutive effect of equity incentive awards
12

 
15

 
15

 
19