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72 GOOGLE INC. |Form10-K
PART II
ITEM8.Notes to Consolidated Financial Statements
Deferred Tax Assets
Deferred income taxes refl ect the net eff ects of temporary diff erences between the carrying amounts of assets and liabilities for
fi nancial reporting purposes and the amounts used for income tax purposes. Signifi cant components of our deferred tax assets
and liabilities are as follows (in millions):
As of December31,
2011 2012
Deferred tax assets:
Stock-based compensation expense $ 288 $ 311
State taxes 138 184
Capital loss carryforward 285 236
Settlement with the Authors Guild and AAP 35 28
Vacation accruals 52 67
Deferred rent 43 50
Accruals and reserves not currently deductible 268 688
Acquired net operating losses 156 505
Tax credit 55 274
Basis diff erence in investment in Home business 0 2,043
Other 11 128
Total deferred tax assets 1,331 4,514
Valuation allowance (333) (2,629)
Total deferred tax assets net of valuation allowance 998 1,885
Deferred tax liabilities:
Depreciation and amortization (479) (761)
Identifi ed intangibles (398) (1,496)
Unrealized gains on investments and other (90) (105)
Other prepaids (70) (118)
Other (33) (133)
Total deferred tax liabilities (1,070) (2,613)
Net deferred tax liabilities $ (72 ) $ (728 )
As of December31, 2012, our federal, state and foreign net operating loss carryforwards for income tax purposes were approximately
$1,048million, $333million and $384million. If not utilized, the federal net operating loss carryforwards will begin to expire in 2017
and the state net operating loss carryforwards will begin to expire in 2013. The foreign net operating loss can be carried forward
indefi nitely, however it is more likely than not that it will not be realized, therefore we have recorded a full valuation allowance.
The net operating loss carryforwards are subject to various annual limitations under Section382 of the Internal Revenue Code
and similar limitations under the tax laws of the foreign jurisdictions.
As of December31, 2012, our California research and development credit carryforwards for income tax purposes were
approximately $146million that can be carried over indefi nitely. We believe it is more likely than not that a portion of the state tax
credit will not be realized. Therefore, we have recorded a valuation allowance on the state tax credit carryforward in the amount
of $130million. We will reassess the valuation allowance quarterly and if future evidence allows for a partial or full release of the
valuation allowance, a tax benefi t will be recorded accordingly.
As of December31, 2012, our federal and state capital loss carryforwards for income tax purposes were approximately $483million
and $612million. We also have deferred tax assets for impairment losses that, if recognized, will be capital in nature. We believe
that it is more likely than not that our deferred tax assets for capital losses and impairment losses will not be realized. Therefore,
we have recorded a valuation allowance on both our federal and state deferred tax assets for these items in the amount of
$205million. We will reassess the valuation allowance quarterly and if future evidence allows for a partial or full release of the
valuation allowance, a tax benefi t will be recorded accordingly.
In December2012, we entered into an agreement with Arris Group Inc. (Arris) for the disposition of the Motorola Home business.
A deferred tax asset was established for the book to tax basis diff erence in our investment in the Motorola Home Business upon
signing the agreement. When the disposition event actually occurs in the foreseeable future, some or all of the basis diff erence in
the Home business will become a basis diff erence in Google’s investment in Arris. Since any future losses to be recognized upon
sale of the Home business or Arris Shares will be capital losses and Google already has an excess capital loss carryforward, a full
valuation allowance was recorded against this deferred tax asset. We will reassess the valuation allowance quarterly and if future
evidence allows for a partial or full release of the valuation allowance, a tax benefi t will be recorded accordingly.
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