Arm plc(ARM) - 2024 Q4 - Annual Report

Form 20-F General Information This section details Arm Holdings plc's Form 20-F filing, registrant status, financial reporting standards, and forward-looking statement disclaimers Form Details and Registrant Status This chapter details Arm Holdings plc's Form 20-F filing for FY2024, its Nasdaq listing, outstanding shares, and registrant status - Arm Holdings plc filed its Annual Report on Form 20-F for the fiscal year ended March 31, 2024[1] - The number of ordinary shares outstanding of Arm Holdings plc as of March 31, 2024, was 1,040,330,497[3] Registrant Status as of March 31, 2024 | Status | Value | | :----------------------------------- | :---------- | | Well-known seasoned issuer | No | | Large accelerated filer | No | | Accelerated filer | No | | Non-Accelerated filer | Yes | | Emerging Growth Company | No | | Financial statements in U.S. GAAP | Yes | General Information and Forward-Looking Statements This section provides general information about Arm Holdings plc, its financial reporting standards (U.S. GAAP, USD), and a special note regarding forward-looking statements - Arm Holdings plc prepares its consolidated financial statements in accordance with U.S. GAAP and presents them in U.S. dollars[9] - The report contains forward-looking statements based on current expectations, estimates, assumptions, and projections, particularly regarding future financial performance and growth opportunities[12] - Forward-looking statements involve known and unknown risks, uncertainties, and other important factors that may cause actual results to differ materially, including financial performance, dependence on the semiconductor industry, customer concentration, and intellectual property protection[13] PART I This section covers key information including risk factors, company history, business overview, organizational structure, and property details Item 1. Identity of Directors, Senior Management and Advisers This item is not applicable to this report Item 2. Offer Statistics and Expected Timetable This item is not applicable to this report Item 3. Key Information This section provides key information, including capitalization, indebtedness, and significant risk factors affecting the company A. [Reserved] This section is reserved B. Capitalization and indebtedness This item is not applicable to this report C. Reasons for the offer and use of proceeds This item is not applicable to this report D. Risk Factors This section outlines various risk factors that could materially harm Arm Holdings plc's business, financial condition, results of operations, and prospects - The company's business is subject to risks including dependence on semiconductor and electronics industries, intense competition (e.g., x86, RISC-V), reliance on third parties, and revenue unpredictability[18][19][20] - A significant portion of revenue comes from a limited number of customers (top five, including Arm China, accounted for 54% in FY2024), exposing the company to greater risks[48] - Concentration of revenue from the PRC market (22% of total revenue in FY2024) makes the company susceptible to economic and political risks, including trade tensions and export controls[65][66][67] - The company identified a material weakness in internal control over financial reporting related to IT general controls, with ongoing remediation efforts[20][174][176] - As a 'controlled company' (SoftBank Group owns ~88.1%) and a 'foreign private issuer,' Arm is exempt from certain Nasdaq corporate governance rules, which may limit protections for other shareholders[22][208][209][227][228] Item 4. Information on the Company This item provides comprehensive information on the company's history, business operations, organizational structure, and property and equipment A. History and development of the company Arm Holdings plc, incorporated in 2018, is a global leader in semiconductor IP licensing, which underwent a corporate reorganization and IPO in 2023 - Arm Holdings plc was incorporated in April 2018 and re-registered as a public limited company on September 1, 2023[298] - A corporate reorganization in September 2023 made Arm Limited a wholly-owned subsidiary of Arm Holdings plc, with historical financial statements retrospectively adjusted[302][303] - Arm's IPO was completed on September 18, 2023, with ADSs trading on Nasdaq, and the company did not receive any proceeds from the sale of 102.5 million ADSs, which were sold by a SoftBank Group subsidiary[304] B. Business Overview Arm designs and licenses high-performance, energy-efficient CPU products, operating on an IP licensing and royalty model across diverse markets - Arm architects, develops, and licenses high-performance, low-cost, and energy-efficient CPU products and related technology[311] - Over 287 billion Arm-based chips have been cumulatively shipped, running the vast majority of the world's software across various devices[311] - Arm's business model includes licensing products for an upfront fee and collecting per-unit royalties on shipped chips, contributing to long-term recurring revenue[332][333] - Key markets include Mobile Applications Processor (35% of FY2024 royalty revenue), Other Mobile Chips, Consumer Electronics, Industrial IoT and Embedded, Networking Equipment, Cloud Compute, and Automotive[323][324][325][326][327][329][331] - Arm faces intense competition from established architectures like x86 and free, open-source technologies such as RISC-V[336] - Competitive strengths include technology leadership, an extensive ecosystem of third-party software and hardware partners, deep integration with customers, an efficient business model enabling long-term investment, and a world-class R&D team[338][339] - Approximately 83% of Arm's global employees are focused on research, design, and technical innovation[340] - Arm protects its intellectual property through patents (7,400 issued, 2,500 pending as of March 31, 2024), copyrights, trade secrets, and contractual agreements[341] - Revenue attributable to the relationship with Arm China was 21% of total revenue for FY2024, earned through an Intellectual Property License Agreement (IPLA) where Arm China sublicenses Arm's IP in the PRC[347] C. Organizational Structure SoftBank Group beneficially owns approximately 88.1% of Arm Holdings plc, making it the controlling parent company of numerous global subsidiaries - SoftBank Group beneficially owns approximately 88.1% of Arm Holdings plc's total issued and outstanding share capital, making it the controlling parent company[353] - Arm Holdings plc is the parent company of numerous direct and indirect wholly-owned subsidiaries operating globally[353] D. Property and Equipment Arm's global headquarters are in Cambridge, U.K., with leased facilities worldwide and total lease payment obligations of $221 million - Arm's global headquarters are in Cambridge, U.K., with approximately 322,950 square feet of leased office space[355] Lease Payment Obligations as of March 31, 2024 | Category | Amount (millions) | | :--------------------------- | :---------------- | | Total lease payment obligations | $221 | | Payable within 12 months | $33 | Item 4A. Unresolved Staff Comments This item states that there are no unresolved staff comments Item 5. Operating and Financial Review and Prospects This section reviews Arm's operating results, liquidity, capital resources, R&D, market trends, and critical accounting estimates A. Operating results Arm's FY2024 total revenue increased by 21% to $3,233 million, while operating income decreased by 83% due to higher R&D expenses - Arm's business model is flexible, licensing CPU designs and related technologies for a fee and receiving per-unit royalties on shipped Arm-based chips[361] - Revenue is disaggregated into License and Other Revenue (licensing, software tools, design services, training, support) and Royalty Revenue (per-chip royalties)[363][364][369] Consolidated Income Statement Summary (FY2024 vs. FY2023) | Metric (in millions) | FY2024 | FY2023 | % Change | | :---------------------------- | :------ | :------ | :------- | | Total revenue | $3,233 | $2,679 | 21% | | Cost of sales | $(154) | $(106) | 45% | | Gross profit | $3,079 | $2,573 | 20% | | Research and development | $(1,979)| $(1,133)| 75% | | Selling, general and administrative | $(983) | $(762) | 29% | | Total operating expense | $(2,968)| $(1,902)| 56% | | Operating income (loss) | $111 | $671 | (83)% | | Net income (loss) | $306 | $524 | (42)% | Revenue Breakdown (FY2024 vs. FY2023) | Revenue Type (in millions) | FY2024 Total | FY2023 Total | % Change | | :------------------------- | :----------- | :----------- | :------- | | License and Other Revenue | $1,431 | $1,004 | 43% | | Royalty Revenue | $1,802 | $1,675 | 8% | | Total Revenue | $3,233 | $2,679 | 21% | - Research and development expenses increased by $846 million (75%) in FY2024, primarily due to incremental share-based compensation costs and associated employer taxes from the IPO and new awards, as well as headcount increases and third-party engineering expenses[395] - Selling, general and administrative expenses increased by $221 million (29%) in FY2024, also driven by share-based compensation costs, public company readiness, and IT expenses, partially offset by reduced credit loss allowances and litigation liability reversal[396][398] - Income tax benefit of $94 million in FY2024 (vs. expense of $147 million in FY2023) was primarily due to research and development tax credits and windfall tax benefits associated with share-based compensation[402] B. Liquidity and capital resources Arm finances operations through cash from business, holding $1,923 million in cash and $1,000 million in short-term investments as of March 31, 2024 - Arm finances operations primarily through cash generated from business operations, supported by government research grants and tax credits[406] Cash and Investments as of March 31, 2024 | Category | Amount (millions) | | :----------------------- | :---------------- | | Cash and cash equivalents | $1,923 | | Short-term investments | $1,000 | Cash Flow Summary (FY2024 vs. FY2023) | Cash Flow Activity (in millions) | FY2024 | FY2023 | % Change | | :------------------------------- | :------ | :------ | :------- | | Net cash from operating activities | $1,090 | $739 | 47% | | Net cash from investing activities | $(516) | $(138) | 274% | | Net cash from financing activities | $(208) | $(42) | 395% | - Operating cash flow increased by $351 million (47%) in FY2024, driven by non-cash items like share-based compensation and changes in assets/liabilities[409] - Investing activities used $378 million more cash in FY2024, primarily due to decreased proceeds from short-term investment maturities and increased purchases of property, equipment, and intangible assets[410] - Financing activities used $166 million more cash in FY2024, mainly due to increased payments of withholding tax on vested shares[411] - As of March 31, 2024, contractual obligations included $261 million in total minimum lease payments and $298 million in non-cancelable purchase commitments for cloud computing services[414][416] C. Research and development, patents and licenses, etc. This section refers to other parts of the report for detailed discussions on research and development policies and intellectual property D. Trend information Arm's future success depends on global semiconductor demand, market share in established and new high-growth areas, and continuous R&D investment - Growth is dependent on sustained global demand for semiconductor products, which is cyclical but expected to increase long-term[420] - Maintaining market share in smartphones and consumer electronics, and growing in cloud computing, automotive, and IoT, are critical for financial performance[422] - The company aims to increase value per chip by developing more advanced products and comprehensive packages, leading to higher royalty fees[423][424] - The commercial relationship with Arm China is crucial for accessing the PRC market, and its performance significantly impacts Arm's total revenue (21% in FY2024)[426] - Developments in export control regulations, particularly from the U.S. on advanced computing chips to the PRC, could limit licensing and harm commercial relationships[427] - Macroeconomic uncertainty, geopolitical events (e.g., Ukraine war, Middle East conflicts, PRC-Taiwan relations), and supply chain disruptions can cause volatility in operating performance[428][429] - Continued significant investment in R&D is essential for developing new technologies and advanced products, especially in AI, to meet evolving market demands[430] E. Critical Accounting Estimates Arm's financial statements rely on critical accounting estimates for revenue recognition, royalty accruals, investment valuation, share-based compensation, and income taxes - Critical accounting estimates include revenue recognition, allowance for expected credit losses, income taxes, share-based compensation, impairment of long-lived assets, fair value estimates and impairment for investments[433][704] - Revenue recognition involves significant judgment in determining distinct performance obligations, evaluating standalone selling prices (SSPs), and assessing contract combination criteria, especially for complex long-term licensing arrangements[435][437][438] - Sales-based royalty revenue accruals are estimated using historical data, industry trends, and customer forecasts, with adjustments made in subsequent periods based on actual reported sales[439] - Valuation of equity investments (non-marketable securities and equity method investments) involves fair value accounting, often using the NAV practical expedient or market/income approaches, requiring judgment on observable and unobservable inputs[440][442][443] - Share-based compensation expense is recognized over vesting periods, with fair values determined using Monte Carlo simulations or discounted cash flow approaches, and classifications (liability vs. equity) impacting measurement[449][450][452][453] - Goodwill is tested for impairment annually using qualitative and quantitative factors, with no impairment recorded in FY2024, FY2023, or FY2022[459][461] - Income tax accounting involves estimating deferred tax assets and liabilities, assessing the need for valuation allowances, and evaluating uncertain tax positions, which are subject to changes in tax laws and interpretations[462][463] Item 6. Directors, Senior Management and Employees This item details Arm's Board of Directors, senior management, compensation policies, board practices, employee information, and share ownership A. Directors and senior management Arm's Board of Directors consists of eight members, including independent directors, with key executives forming senior management, and no family relationships - Arm's Board of Directors has eight members, including Chairman Masayoshi Son and CEO Rene Haas[465][593] - Four non-executive directors (Karen E. Dykstra, Anthony Michael Fadell, Rosemary Schooler, Paul E. Jacobs, PhD) are deemed 'independent' under Nasdaq listing standards[593] - Senior Management includes Rene Haas (CEO), Jason Child (CFO), Kirsty Gill (Chief People Officer), Spencer Collins (Chief Legal Officer), Richard Grisenthwaite (Chief Architect), and Will Abbey (Chief Commercial Officer)[464][480][481][482][484][485][486] - There are no family relationships among any of the Non-Executive Directors or Senior Management[487] Board Diversity Matrix (as of report date) | Category | Female | Male | Non-Binary | Did Not Disclose Gender | | :---------------------------- | :----- | :--- | :--------- | :---------------------- | | Directors | 2 | 3 | 0 | 3 | | LGBTQ+ | | | 0 | | | Underrepresented in Home Country Jurisdiction | | | 0 | | | Did Not Disclose Demographic Background | | | | 3 | B. Compensation Arm's compensation policy aims to attract and retain talent, with FY2024 Senior Management remuneration totaling $141.6 million, including equity awards - Aggregate remuneration for Senior Management in FY2024 was approximately $141,568,000, excluding outstanding Executive Awards[492] CEO Remuneration (FY2024) | Category | Amount ($000) | | :----------------------- | :------------ | | Salary | 1,350 | | Taxable Benefits | 19 | | Pension | 14 | | Total Fixed Remuneration | 1,383 | | Annual Bonus | 2,468 | | Special Bonus | 20,000 | | Prior Plans | 46,282 | | Total Variable Remuneration | 68,750 | | Total | 70,133 | - The CEO's annual bonus for FY2024 was $2,468,000, based on 117% achievement of company scorecard targets (revenue and Non-GAAP Operating Income) and an individual performance multiplier of 1.25x[573][574] - The CEO received a one-time IPO cash award of $20,000,000, which vested upon the IPO and was subject to a 12-month holding period[570][575] - Non-Executive Directors receive an annual cash retainer of $80,000, plus additional fees for committee roles and meeting attendance, and also receive annual RSU awards (e.g., $220,000 in FY2024) with a 12-month vesting period[509][511][579][591] - Executive Committee members (including CEO) have 5 years from IPO/employment start to achieve a shareholding of 1,000% of base salary, while Non-Executive Directors have 5 years to achieve 300% of their annual cash retainer[513][514] - The company operates an Annual Bonus Plan and various Equity Incentive Plans (2022 RSU Plan, NED Plan, 2019 AEP, 2019 EIP, Omnibus Incentive Plan) for employees and directors[528][537] - The Omnibus Incentive Plan, effective September 2023, allows for grants of stock options, SARs, restricted shares, RSUs, and PSUs, with a maximum of 20.5 million ordinary shares plus annual increases[551][554][557] C. Board practices Arm's Board of Directors, with SoftBank Group as controlling shareholder, oversees company affairs through Audit and Remuneration Committees - The Board of Directors consists of eight members, with Masayoshi Son as Chair, and four non-executive directors deemed independent under Nasdaq standards[593] - SoftBank Group has the right to designate a certain number of director candidates based on its ownership stake, ranging from seven (for >70% ownership) down to one (for >5% ownership)[595] - The Board has an Audit Committee and a Remuneration Committee, with the Audit Committee overseeing financial reporting, independent auditors, and risk management (including cybersecurity)[598][599][600] - Karen E. Dykstra chairs the Audit Committee and qualifies as an 'audit committee financial expert'[601] - The Remuneration Committee reviews and recommends compensation plans, equity-based plans, and performance goals for the CEO and non-executive directors[602] D. Employees As of March 31, 2024, Arm employed 7,096 global employees, with approximately 83% in engineering, and maintained good employee relations - As of March 31, 2024, Arm had 7,096 global employees across 19 countries[604] - Approximately 83% of employees are engaged in engineering activities[604] Employee Count by Function and Geography (FY2022-FY2024) | Category | March 31, 2024 | March 31, 2023 | March 31, 2022 | | :---------------------- | :------------- | :------------- | :------------- | | Function | | | | | Engineering | 5,887 | 4,753 | 4,758 | | Non-Engineering | 1,209 | 1,210 | 1,571 | | Geographic Distribution | | | | | United Kingdom | 3,183 | 2,785 | 3,219 | | United States | 1,389 | 1,157 | 1,177 | | India | 1,150 | 848 | 793 | | Other | 1,374 | 1,173 | 1,140 | | Total Employees | 7,096 | 5,963 | 6,329 | - The company engaged an average of 1,787 temporary employees during the fiscal year ended March 31, 2024[605] E. Share ownership This section refers to other parts of the report for information on share ownership of Directors, Senior Management, and equity incentive plans F. Disclosure of a registrant's action to recover erroneously awarded compensation Arm adopted a Clawback Policy on November 15, 2023, to recover erroneously awarded incentive-based compensation, with no recoupments in FY2024 - Arm adopted a Clawback Policy on November 15, 2023, to recover erroneously awarded incentive-based compensation from executive officers in case of accounting restatements[609] - No compensation was required to be recouped under the Clawback Policy during the fiscal year ended March 31, 2024[610] Item 7. Major Shareholders and Related Party Transactions This item details major shareholders, particularly SoftBank Group's controlling stake, and significant related party transactions with affiliates and Arm China A. Major shareholders SoftBank Group Corp. is the principal shareholder, beneficially owning approximately 88.1% of Arm's shares, making Arm a 'controlled company' - SoftBank Group Corp. beneficially owns approximately 88.1% of Arm's total issued and outstanding ordinary shares as of May 15, 2024, making Arm a 'controlled company'[618][619] - 769,029,000 of Arm's ordinary shares (73.4% equity interest) beneficially owned by SoftBank Group were pledged as security under the SoftBank Group Facility[618][619] - Individual Directors and Senior Management beneficially own less than 1% of the outstanding ordinary shares[618] B. Related Party Transactions Arm has significant related party transactions with SoftBank Group and Arm China, including governance agreements, consulting services, and IP licensing - Arm entered into a Shareholder Governance Agreement with SoftBank Group, granting SoftBank rights related to board composition, registration, related party transactions, information, and consultation[622] - SoftBank Group has pre-emptive rights to subscribe for new share issuances to maintain its proportional ownership[623] - Arm provides technical consultancy and advisory services to SoftBank Group and its affiliates under a consulting agreement, without fees but with expense reimbursement[640] - The SoftBank Group Facility, a margin loan of $8.5 billion, is secured by a pledge of 769,029,000 of Arm's ordinary shares (73.4% equity interest)[644] - Arm China, an associate in which Arm holds an indirect 4.8% non-voting interest, generated 21% of Arm's total revenue in FY2024 through an Intellectual Property License Agreement (IPLA)[651][652] - Arm is contractually obligated to indemnify Arm China and its PRC customers for IP infringement claims under the IPLA[653] - A related party transaction policy requires material related party transactions to be reviewed and approved or ratified by the audit committee, with specific provisions for transactions with SoftBank Group[655][656] C. Interests of experts and counsel This item is not applicable to this report Item 8. Financial Information This item presents Arm's consolidated financial statements, including income statements, balance sheets, cash flows, and notes, along with legal proceedings and dividend policy A. Consolidated Statements and Other Financial Information This section presents Arm's consolidated financial statements for FY2024, 2023, and 2022, covering income, balance sheets, cash flows, and critical accounting policies - Arm is involved in various legal proceedings, including pending litigation with Qualcomm and Nuvia regarding IP infringement and breach of contract, with management not believing it will have a material adverse effect on financial position[660] - Arm does not anticipate paying cash dividends in the foreseeable future, intending to retain earnings for business use, with dividend payments subject to distributable reserves under English law[661] Consolidated Income Statements (FY2024, FY2023, FY2022) | (in millions) | FY2024 | FY2023 | FY2022 | | :-------------------------------- | :------ | :------ | :------ | | Total revenue | $3,233 | $2,679 | $2,703 | | Gross profit | $3,079 | $2,573 | $2,572 | | Total operating expense | $(2,968)| $(1,902)| $(1,939)| | Operating income (loss) | $111 | $671 | $633 | | Income (loss) before income taxes | $212 | $671 | $786 | | Net income (loss) | $306 | $524 | $549 | Consolidated Balance Sheets (as of March 31, 2024 and 2023) | (in millions) | March 31, 2024 | March 31, 2023 | | :-------------------------------- | :------------- | :------------- | | Total current assets | $4,197 | $3,537 | | Total non-current assets | $3,730 | $3,329 | | Total assets | $7,927 | $6,866 | | Total current liabilities | $1,505 | $1,363 | | Total non-current liabilities | $1,127 | $1,452 | | Total liabilities | $2,632 | $2,815 | | Total shareholders' equity | $5,295 | $4,051 | | Total liabilities and shareholders' equity | $7,927 | $6,866 | Consolidated Statements of Cash Flows (FY2024, FY2023, FY2022) | (in millions) | FY2024 | FY2023 | FY2022 | | :------------------------------------------- | :------ | :------ | :------ | | Net cash provided by (used for) operating activities | $1,090 | $739 | $458 | | Net cash provided by (used for) investing activities | $(516) | $(138) | $(619) | | Net cash provided by (used for) financing activities | $(208) | $(42) | $(32) | | Net increase (decrease) in cash and cash equivalents | $369 | $550 | $(210) | | Cash and cash equivalents at the end of the period | $1,923 | $1,554 | $1,004 | Revenue by Geographic Region (FY2024, FY2023, FY2022) | (in millions) | FY2024 | FY2023 | FY2022 | | :-------------- | :------ | :------ | :------ | | United States | $1,413 | $1,088 | $1,243 | | PRC | $697 | $657 | $476 | | Taiwan | $522 | $359 | $431 | | Republic of Korea | $308 | $241 | $226 | | Other countries | $293 | $334 | $327 | | Total | $3,233| $2,679| $2,703| - For FY2024, three customers collectively represented 42% of total revenue, with the largest customer accounting for 21%[801] Share-based Compensation Cost (FY2024, FY2023, FY2022) | (in millions) | FY2024 | FY2023 | FY2022 | | :-------------------------------- | :------ | :------ | :----- | | Cost of sales | $41 | $12 | $1 | | Research and development | $728 | $212 | $18 | | Selling, general and administrative | $301 | $102 | $7 | | Total | $1,070| $326 | $26 | Net Income (Loss) Per Share (Basic and Diluted) (FY2024, FY2023, FY2022) | (per share amounts) | FY2024 | FY2023 | FY2022 | | :---------------------------------- | :----- | :----- | :----- | | Net income from continuing operations (Basic) | $0.30 | $0.51 | $0.66 | | Net income from continuing operations (Diluted) | $0.29 | $0.51 | $0.66 | | Net income (loss) per share - basic | $0.30 | $0.51 | $0.54 | | Net income (loss) per share - diluted | $0.29 | $0.51 | $0.54 | - As of March 31, 2024, the aggregate transaction price allocated to remaining performance obligations was $2,484.4 million, with approximately 28% expected to be recognized as revenue over the next 12 months[814] - In December 2023, Arm terminated an agreement with Arm China for software engineering services, bringing them in-house, resulting in $5.5 million in contract termination costs[378][974] - A $40.0 million loss contingency related to contractual disputes with a non-top five customer was reversed in September 2023 after an agreement was reached, reducing selling, general and administrative expenses[966] - Arm has a non-cancelable purchase commitment of $340.0 million with its cloud computing web services provider for July 2023 through June 2029, with $298.0 million remaining as of March 31, 2024[968] - In May 2024, Arm agreed to purchase $35.0 million of Raspberry Pi Holdings plc's ordinary shares in its IPO, subject to customary conditions[990] Item 9. The Offer and Listing This item details Arm's American Depositary Shares (ADSs) trading on Nasdaq and confirms its ordinary shares are not listed on any exchange A. Offer and listing details Arm's American Depositary Shares (ADSs) began trading on the Nasdaq Global Select Market under 'ARM' on September 14, 2023 - Arm's ADSs began trading on the Nasdaq Global Select Market under the ticker symbol 'ARM' on September 14, 2023[992] - Ordinary shares of Arm Holdings plc are not listed on any exchange[992] B. Plan of distribution This item is not applicable to this report C. Markets This section refers to the 'Offer and Listing Details' for information on markets where Arm's securities are traded D. Selling shareholders This item is not applicable to this report E. Dilution This item is not applicable to this report F. Expenses of the issue This item is not applicable to this report Item 10. Additional Information This item provides additional information on share capital, articles of association, material contracts, exchange controls, and taxation A. Share capital This item is not applicable to this report B. Memorandum and articles of association Arm's Articles of Association, as amended, are attached as Exhibit 1.1 to this Annual Report, with further details in Exhibit 2.3 - Arm's Articles of Association, as amended, are attached as Exhibit 1.1, with additional information in Exhibit 2.3[994] C. Material Contracts No material contracts outside the ordinary course of business have been entered into since May 29, 2022, other than those disclosed - No material contracts outside the ordinary course of business have been entered into since May 29, 2022, other than those disclosed in Item 7 or elsewhere in the report[995] D. Exchange controls No U.K. laws restrict capital import/export or dividend remittances to non-resident holders, except for withholding tax requirements - No U.K. laws or regulations restrict capital import/export or dividend remittances to non-resident holders, except for withholding tax[996] - Non-residents have no limitations on holding or voting Arm shares under English law or the Articles[996] E. Taxation This section describes material U.S. federal income tax consequences for U.S. Holders and U.K. tax considerations for dividends and capital gains - U.S. Holders of ADSs are generally treated as holding the underlying ordinary shares for U.S. federal income tax purposes[1001] - Non-liquidating distributions are generally treated as foreign-source dividends, potentially qualifying for preferential rates if ADSs are readily tradable on Nasdaq and Arm is not a PFIC[1002] - Gain or loss on sale of ordinary shares or ADSs is generally capital gain or loss, treated as U.S.-source for foreign tax credit purposes[1003][1005] - Arm does not believe it was a PFIC for FY2024 and does not expect to become one, but this determination is fact-intensive and subject to change[1008] - U.K. dividends are not subject to withholding tax, and non-U.K. residents are generally not liable for U.K. capital gains tax on disposal of ADSs/ordinary shares, with exceptions[1024][1025] - Acquisition or transfer of ADSs/ADRs is generally not subject to U.K. stamp duty or SDRT, but transfers of ordinary shares are typically subject to 0.5% (or 1.5% in certain cases) stamp duty/SDRT[1028][1029] F. Dividends and paying agents This item is not applicable to this report G. Statement by experts This item is not applicable to this report H. Documents on display Arm's SEC filings, including annual reports on Form 20-F, are available on the SEC website and the company's corporate website - Arm's SEC filings are available on www.sec.gov and its corporate website www.arm.com[1031](index=1031&type=chunk) I. Subsidiary Information This item is not applicable to this report J. Annual Report to Security Holders Arm will file an annual report to security holders under U.K. law and promptly furnish it on Form 6-K via EDGAR - Arm will file an annual report to security holders under U.K. law and furnish it on Form 6-K via EDGAR[1032] Item 11. Qualitative and Quantitative Disclosures about Market Risk Arm is exposed to market risks from foreign currency and interest rate fluctuations, using forward contracts to mitigate currency risk - Arm is exposed to market risks from foreign currency exchange rates and interest rates[1033] - A hypothetical 1% increase or decrease in interest rates would have an approximate $20 million (positive or negative) impact on operating results for FY2024[1034] - A hypothetical 10% increase or decrease in the relative value of USD to British pound sterling would have an approximate $54 million (positive or negative) effect on operating results for FY2024[1035] - The company mitigates foreign currency risk through the use of currency forward contracts[1035] Item 12. Description of Securities Other than Equity Securities This item describes fees and charges associated with Arm's American Depositary Shares (ADSs) under the deposit agreement A. Debt Securities This item is not applicable to this report B. Warrants and Rights This item is not applicable to this report C. Other Securities This item is not applicable to this report D. American Depositary Shares Holders of Arm's American Depositary Shares (ADSs) are subject to various fees and charges under the deposit agreement - ADS holders are required to pay fees for services such as issuance, cancellation, cash dividends, ADS distributions, and annual ADS services[1039][1040] - Fees for ADS issuance and cancellation are charged to the respective persons, while distribution and service fees are charged to holders as of the record date[1043] - The depositary may reimburse Arm for certain expenses related to the ADR program[1044] PART II This part covers defaults, dividend arrearages, material modifications to security holder rights, controls and procedures, and corporate governance Item 13. Defaults, Dividend Arrearages and Delinquencies This item is not applicable to this report Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds Arm completed its IPO on September 18, 2023, with proceeds of $5,227.5 million going to a SoftBank Group subsidiary - Arm completed its IPO on September 18, 2023, selling 102,500,000 ADSs at $51.00 per ADS[1047] - Gross proceeds of $5,227,500,000 from the IPO were received by a SoftBank Group subsidiary, not by Arm Holdings plc[1047][1048] - Arm incurred approximately $84 million in expenses related to the IPO[1047] Item 15. Controls and Procedures Arm's disclosure controls were effective as of March 31, 2024, despite an ongoing material weakness in IT general controls - Arm's disclosure controls and procedures were evaluated as effective as of March 31, 2024[1049] - A material weakness in internal control over financial reporting was identified for FY2022 and FY2021, related to IT general controls (user access, segregation of duties, change management, batch process monitoring)[1051] - Remediation efforts are ongoing in FY2023 and FY2024, including improving access rights management, expanding change management, and engaging external experts[1051] - Management's annual report and the independent auditor's attestation report on internal control over financial reporting are not included due to a transition period for newly public companies[1054][1055] - No changes in internal control over financial reporting materially affected or are reasonably likely to materially affect controls during FY2024[1056] Item 16. [Reserved] This item is reserved Item 16A. Audit committee financial expert Karen E. Dykstra, the Audit Committee chair, is designated as an 'Audit Committee financial expert' and is independent - Karen E. Dykstra, Chair of the Audit Committee, qualifies as an 'Audit Committee financial expert' and is independent[1057] Item 16B. Code of Ethics Arm maintains a Code of Conduct for all personnel, promoting ethical standards and compliance with financial reporting requirements - Arm maintains a Code of Conduct for all employees, contractors, senior management, and directors[1058] - The Code of Conduct is intended to meet the definition of 'code of ethics' under Item 16B of Form 20-F[1058] - Amendments or waivers to the Code of Conduct for directors or senior management will be disclosed on the company's website[1058] Item 16C. Principal Accountant Fees and Services Deloitte & Touche LLP served as Arm's principal accountant for FY2024 and FY2023, with total fees of $12 million and $13 million respectively - Deloitte & Touche LLP served as Arm's principal independent registered public accounting firm for FY2024 and FY2023[1059] Principal Accountant Fees (FY2024 vs. FY2023) | (in millions) | FY2024 | FY2023 | | :---------------- | :----- | :----- | | Audit fees | $11 | $12 | | Audit-related fees| $0 | $1 | | Tax fees | $0 | $0 | | All other fees | $1 | $0 | | Total | $12| $13| - The Audit Committee pre-approves all audit and permissible non-audit services[1062] Item 16D. Exemptions from the Listing Standards for Audit Committees Mses. Dykstra and Schooler meet Nasdaq's independence requirements, while Mr. Fisher serves under phase-in provisions for new public companies - Mses. Dykstra and Schooler meet Nasdaq's independence requirements for audit committee members[1064] - Mr. Fisher is permitted to serve on the Audit Committee until September 13, 2024, under phase-in provisions for new public companies[1064] Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers Arm repurchased 2,765,419 ordinary shares in FY2024 at an average price of $77.25 to satisfy employee tax obligations on RSU vesting Issuer Purchases of Equity Securities (FY2024) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :-------------------------- | :------------------------------- | :--------------------------- | | October 1, 2023 to October 31, 2023 | 388,530 | $53.45 | | November 1, 2023 to November 30, 2023 | 1,581,222 | $55.43 | | February 1, 2024 to February 29, 2024 | 724,954 | $131.54 | | March 1, 2024 to March 31, 2024 | 70,713 | $139.47 | | Total | 2,765,419 | $77.25 | - Shares were purchased by withholding ordinary shares issuable upon the vesting of RSUs to satisfy employees' minimum tax and remittance payments[1068] Item 16F. Change in Registrant's Certifying Accountant This item is not applicable to this report Item 16G. Corporate Governance As a 'foreign private issuer' and 'controlled company', Arm leverages Nasdaq exemptions, following English corporate law practices - Arm is a 'foreign private issuer' and 'controlled company' (SoftBank Group owns ~88.1% of outstanding ordinary shares as of May 15, 2024)[1070][1073] - The company takes advantage of exemptions from certain Nasdaq corporate governance rules, following English corporate law practices instead[1070] - Exemptions include requirements for a majority independent board, independent director selection of nominees, remuneration committee responsibilities, and shareholder approval for certain security issuances[1070][1073] - Shareholders may not have the same protections as those in companies subject to all Nasdaq corporate governance requirements[1072][1073] Item 16H. Mine Safety Disclosure This item is not applicable to this report Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to this report Item 16J. Insider Trading Policies Arm has an Insider Trading Policy for its securities and those of partners/customers, applicable to officers, directors, and employees - Arm has an Insider Trading Policy for its securities and those of partners/customers, applicable to officers, directors, and employees[1075] - The policy is designed to promote compliance with insider trading laws, rules, and regulations[1075] Item 16K. Cybersecurity Cybersecurity is a critical component of Arm's enterprise risk management, overseen by the Board and Audit Committee, following NIST frameworks - Cybersecurity is a critical component of Arm's enterprise risk management, with oversight from the Board of Directors and Audit Committee[1076][1079] - The company's cybersecurity policies and practices follow recognized NIST frameworks, focusing on identification, prevention, mitigation, and response to threats[1076] - Key areas of the cybersecurity program include 24/7 cyber defense operations, system safeguards (firewalls, intrusion detection, access controls), incident response and recovery planning, collaboration with external entities, third-party risk management, and mandatory employee training[1077] - The Chief Information Security Officer, a qualified professional with over 10 years of experience, is principally responsible for overseeing the cybersecurity program and reports to the Chief Information Officer, who reports to the CFO[1080][1081] - As of the filing date, cybersecurity threats have not materially affected Arm's business strategy, results of operations, or financial condition[1083] PART III This part addresses financial statements and lists all exhibits filed as part of the Form 20-F Item 17. Financial Statements The company has responded to Item 18 in lieu of this item Item 18. Financial Statements This item refers to 'Item 8. Financial Information' for the company's financial statements Item 19. Exhibits This section lists all exhibits filed as part of the Form 20-F, including Articles of Association and various agreements - Key exhibits include Articles of Association, Deposit Agreement, Arm IP License Agreement, Omnibus Incentive Plan, Shareholder Governance Agreement, Consulting Agreement, Deeds of Indemnity, and the Clawback Policy[1086][1087] Signature The report is certified by Laura Bartels, Chief Accounting Officer, on behalf of Arm Holdings plc, dated May 29, 2024 - The report is certified by Laura Bartels, Chief Accounting Officer, on behalf of Arm Holdings plc, dated May 29, 2024[1089]