The Most Important Two Minutes From Google's Conf Call (GOOG)

Google's (GOOG) 4th quarter earnings were heavily impacted by... taxes. Sell-side analyst and market reaction to Google's results will focus on this issue, and the debate will focus on whether or not Google's higher tax rate in Q4 constitutes an earnings "miss" (relative to Wall St. numbers, not the company's guidance -- there wasn't any). So here's the key information directly from the conference call (full transcript here):

George Reyes, Chief Financial Officer

Now I’ll turn to taxes. Our effective tax rate for Q4 increased to 41.8% this quarter and to 31.6% for the year, above expectations of approximately 30% for the year. The amount of tax expense we recognized in any particular quarter is driven by our estimates for the year. And as we’ve said in the past, our estimates for the year are sensitive to the mix of earnings in the US and overseas. These estimates are complex and 2005 was the first year we realized any reduction to our effective tax rate as a result of profits earned overseas under our international structure. At the end of the year, we must true up the tax provision for the year, which could and in the case of Q4, did have a disproportionate impact on the 4th quarter. In calculating our true up for the year, the proportion of expenses allocated to international operations was greater than we expected. Primarily as a result of this a greater percentage of our profits were taxed at a higher domestic tax rate, which resulted in a greater effective tax rate, compared to our expectations. Keeping in mind the complexity of projecting tax rates, we expect our effective tax rate for 2006 to be approximately 30%.

And later in the Q&A:

Yousef Squalie

Thank you very much, two quick questions. First, George, if I were to normalize for the differential in your tax rate, am I correct in basically seeing that there is a 24, 25 cent differential which basically puts you back at $1.78?...

George Reyes, Chief Financial Officer

This is George, as you’re correctly starting to figure out here, really most of the mess was related to the tax impact and that’s sort of the gap to consensus. I think that’s the question you were asking.