What is an Accelerated Share Repurchase (ASR) agreement?

An Accelerated Share Repurchase (ASR) agreement is a transaction where a company repurchases a significant amount of its own stock from a financial institution (in this case, Goldman Sachs). The company typically pays the financial institution an upfront amount, and the institution agrees to buy shares in the open market over a period of time. The final cost is often determined by a volume-weighted average price, with potential adjustments paid by the company or returned to the company.

Why is Northrop Grumman repurchasing shares?

Northrop Grumman is repurchasing shares as part of its broader capital return strategy to enhance shareholder value. By reducing the number of outstanding shares, the company can potentially increase earnings per share and signal confidence in its financial position and future prospects to investors.

How much has Northrop Grumman authorized for share repurchases?

As of April 27, 2011, Northrop Grumman's outstanding share repurchase authorization was increased to $4.0 billion. The $1.0 billion ASR agreement announced on May 4, 2011, is a portion of this total authorized amount.

What is the potential impact of the price adjustment in the ASR agreement?

The price adjustment mechanism means that the final cost of the repurchase could be higher or lower than the initial $64.17 per share, depending on the volume-weighted average trading price of Northrop Grumman's stock during the ASR period. If the average price is higher, the company might need to pay more or issue more shares. If it's lower, the company could receive a cash refund or fewer shares might be issued in the adjustment. This mechanism allows the company to benefit from favorable market prices while mitigating the risk of overpaying significantly.

NOC 8-K SEC Disclosure

Summary

Northrop Grumman Corporation (NOC) announced on May 4, 2011, that it entered into a $1.0 billion accelerated share repurchase (ASR) agreement with Goldman, Sachs & Co. This transaction, executed on May 2, 2011, involved the immediate repurchase of 15,583,606 shares of common stock at $64.17 per share, utilizing existing cash reserves. This ASR is part of a larger share repurchase authorization, which was increased to $4.0 billion on April 27, 2011, demonstrating the company's commitment to returning capital to shareholders. The ASR structure involves Goldman Sachs purchasing shares in the open market, with a potential price adjustment based on the volume-weighted average price of NOC's stock. This adjustment can be settled in cash or stock at Northrop Grumman's discretion. The agreement includes standard termination clauses and event-based adjustments, reflecting a carefully structured capital return program aimed at enhancing shareholder value.

Key Highlights

1Northrop Grumman entered into a $1.0 billion Accelerated Share Repurchase (ASR) agreement.
2The ASR involves the immediate repurchase of 15,583,606 shares of common stock.
3The ASR price per share was $64.17, funded by available cash.
4This repurchase is part of a previously announced authorization totaling $4.0 billion.
5Goldman Sachs will acquire shares in the open market on behalf of Northrop Grumman.
6A potential price adjustment, based on market price, may occur, settled in cash or stock at the company's option.
7The filing includes a press release detailing the ASR as an exhibit.

NORTHROP GRUMMAN CORP /DE/ 8-K Report, Corporate Update (May 4, 2011)

Summary

Key Highlights

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