Google (news, site) has recently adjusted its quarterly earnings report with a hefty US$ 500 million reduction. The earlier-reported cash earning has now been earmarked for a potential settlement with the Department of Justice for undisclosed ad-related issues.

Costly Settlement

In a SEC filing, Google indicates that it has set aside US$ 500 million to prepare for a possible settlement with the Justice department to avoid further inquiry or litigation. The figure was accrued over the first quarter of 2011, which now requires the company to modify its earnings report from during that period.

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 $500 million 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.

As a result, Google's net income has dropped from US$ 2.3 billion to US$ 1.8 billion for 1Q 2011, which means its per-share earnings are effectively diluted from $7.04 to $5.51 each for the period. Google is confident, though, that the decrease in earnings will not be material to its business overall.

Advertisers Misbehaving?

Neither the DoJ nor Google have provided details about the probe as it is an ongoing concern, although the contents of the SEC filing indicate that this might have something to do with advertising and tracking activities by Google and its advertising partners, particularly because of the reference to "use of Google advertising by certain advertisers."

One More Google Roadblock

At any rate, this dispute is just another addition to the legal, anti-trust and regulatory roadblocks that Google has been encountering of late. The company has been under scrutiny by European Union regulators for possible anti-trust violations by its search and ad platform. The company has also been under fire recently with the discovery that its Android platform is tracking and transmitting user-identifiable location data.

Google is currently holding its Google I/O developer conference, in which the company has introduced its innovations, roadmap for development and even the much-awaited Chromebook. With the SEC filing coinciding with Google's more exciting service, gadget and technology announcements, it seems Google wants to downplay the importance of its 1Q 2011 earnings reduction.

Still, half a billion dollars is no laughing matter, and whatever the planned settlement is for, it's probably something significant to Google's core search and advertising businesses.