What is an Accelerated Share Repurchase (ASR) agreement?

An Accelerated Share Repurchase (ASR) agreement is a transaction where a company buys back its own stock from an investment bank (in this case, Goldman Sachs) at an agreed-upon discount. The company typically receives a significant portion of the shares immediately, with the final number of shares repurchased determined later based on market prices over a specified period.

Why would Northrop Grumman enter into an ASR agreement?

Companies typically enter into ASR agreements to return capital to shareholders, reduce the number of outstanding shares (which can potentially boost earnings per share), and signal confidence in the company's financial health and stock value.

What is the financial impact of this $1 billion ASR on Northrop Grumman?

Financially, the ASR will reduce the company's cash on hand by $1 billion and decrease the number of outstanding shares. This can lead to an increase in earnings per share (EPS) as the net income is divided among fewer shares, assuming earnings remain constant or grow. The exact impact on EPS will depend on the final number of shares repurchased.

When will the full impact of the share repurchase be reflected?

Northrop Grumman expects the ASR transaction to be completed in the first quarter of 2019. The full impact on the number of outstanding shares and potentially EPS will be realized upon the final settlement of the agreement, which is anticipated by that time.

NOC 8-K SEC Disclosure — Oct 29, 2018

Summary

Northrop Grumman Corporation announced on October 29, 2018, that it has entered into a $1 billion accelerated share repurchase (ASR) agreement with Goldman Sachs. This strategic move underscores the company's commitment to returning value to its shareholders and reflects confidence in its financial position and future outlook. The ASR agreement is part of Northrop Grumman's existing share repurchase authorization. The company expects to receive approximately 3.0 million shares on October 31, 2018, with the final number of shares repurchased to be determined by the volume-weighted average price during the ASR term, less a discount. The repurchase is anticipated to conclude by the first quarter of 2019, with potential adjustments for additional shares or cash payments at settlement.

Key Highlights

1Northrop Grumman entered into a $1 billion Accelerated Share Repurchase (ASR) agreement.
2The ASR agreement is with Goldman Sachs & Co. LLC.
3The share repurchases are conducted under the company's current share repurchase authorization.
4Approximately 3.0 million shares are expected to be received by the company on October 31, 2018.
5The final number of shares repurchased will be based on the volume-weighted average price, less a discount.
6The ASR transaction is expected to be completed by the first quarter of 2019.
7The agreement includes provisions for potential adjustments in shares or cash at final settlement.

NORTHROP GRUMMAN CORP /DE/ 8-K Report, Corporate Update (Oct 29, 2018)

Summary

Key Highlights

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