Google takes $500m out of Q1 net income for DOJ settlement

JACK OF ALL TECHNOLOGY TRADES Google has taken $500m out of its net income for the first quarter of 2011 to put aside for a possible settlement with the US Department of Justice (DoJ) over its advertising practices.

The revelation was made in the company's 10-Q filing with the US Securities and Exchange Commission (SEC). This document is designed to give a detailed quarterly report on how well a firm is doing financially. Buried within the figures and commentaries is a little snippet about the potential settlement.

"In May 2011, in connection with a potential resolution of an investigation by the United States Department of Justice into the use of Google advertising by certain advertisers, we accrued $500m for the three month period ended March 31, 2011. Although we cannot predict the ultimate outcome of this matter, we believe it will not have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows."

This $500m was not originally taken out of the money Google brought in during that three month period, so it reflects a substantial amendment to its first quarter financial results.

In mid April Google revealed that it had operating income of $2.3bn, a big increase over the $1.96bn it earned in the same quarter last year. With the $500m change, however, that net income drops to $1.8bn, a decline of over eight per cent.

What that means for investors is that diluted earnings per share have dropped from $7.04 to $5.51, a decrease of nearly 22 per cent. This is also nine percent less than the $6.06 earned per diluted share in 2010.

It might be bad news for investors, but it's unlikely to adversely affect the company's standing in the market, as the money has not yet been spent and Google's revenue for the first quarter was still up by 27 per cent, ensuring it can afford such a large settlement. It's possible that the DoJ will ask for less, or more, but the document hints that the final figure will be in the $500m ballpark. There's also the possiblitity that Google will get off scot free, but that seems unlikely.

The fact that the public release of the document was timed to coincide with Google's I/O developer conference in San Francisco suggests that Google might have wanted to bury the $500m announcement under the multiple announcements about its future plans and new products, which paint Google as a thriving business rather than one that has some legal difficulties.

Despite the potentially huge drop in net income as a result of this change, Google still performed well on the stock market today. At the time of writing its shares were valued at $542.66, up $4.98 or 0.93 per cent.

A Google spokesperson told The INQUIRER, "This is a legal matter. We are not going to comment on it." µ