Business Context and Reporting Period
Company: Interactive Brokers Group, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: August 13, 2012 (Filed August 15, 2012)
Subject: Non-reliance on previously issued financial statements due to an accounting error regarding the classification of noncontrolling interests.
Key Financial Metrics
This filing does not report new operational financial metrics such as revenue, profit, cash flow, margins, debt, or liquidity. The document addresses a balance sheet classification error rather than operational performance.
Material Changes and Accounting Error
- Non-Reliance Declaration: The Audit Committee concluded that financial statements for the years ended December 31, 2011 and 2010, and the quarter ended March 31, 2012, can no longer be relied upon.
- Nature of Error: Noncontrolling interests in IBG LLC attributable to IBG Holdings LLC were incorrectly classified as permanent equity. They should have been reported as temporary equity ("redeemable noncontrolling interests") outside of permanent equity for periods prior to the June 6, 2012 amendment to the Exchange Agreement.
- Measurement: These interests should have been accounted for at redemption value based on the per share fair value of the Company's common stock.
- Impact on Net Income and Cash Flow: The error had no effect on reported net income or cash flows.
- Impact on Earnings Per Share (EPS): Reported EPS for certain prior periods will be impacted by the restatement.
Outlook, Management Commentary, and Risks
- Restatement Plan: The Company will restate the financial statements included in the 2011 Form 10-K and the Q1 2012 Form 10-Q as soon as practicable.
- Future Reporting: For periods subsequent to the June 6, 2012 Amendment, noncontrolling interests will be reported as permanent equity, consistent with historical presentation prior to the error discovery. EPS for these future periods will also follow historical presentation.
- Investigation: The conclusion was reached following guidance from the SEC, an internal investigation, and discussions with the independent auditor, Deloitte & Touche LLP.
Investor Verification Checklist
- Verify the upcoming restated financial statements for the 2011 fiscal year and Q1 2012.
- Confirm the specific impact of the reclassification on reported Earnings Per Share (EPS) for prior periods.
- Review the June 6, 2012 Amendment to the Exchange Agreement to understand the change in equity classification.
- Monitor future filings for the revised balance sheet presentation of redeemable noncontrolling interests.