UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2009

Or

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                     

ARBITRON INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		52-0278528 (I.R.S. Employer Identification No.)

9705 Patuxent Woods Drive
Columbia, Maryland 21046
(Address of principal executive offices) (Zip Code)
(410) 312-8000
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ     No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o     No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o     No þ

     The registrant had 26,511,199  shares of common stock, par value $0.50 per share, outstanding as of July 31, 2009.

 

 

ARBITRON INC.

INDEX

						Page No.
PART I — FINANCIAL INFORMATION
		Item 1.		Financial Statements
				Consolidated Balance Sheets — June 30, 2009, and December 31, 2008		4
				Consolidated Statements of Income — Three Months Ended June 30, 2009, and 2008		5
				Consolidated Statements of Income — Six Months Ended June 30, 2009, and 2008		6
				Consolidated Statements of Cash Flows — Six Months Ended June 30, 2009, and 2008		7
				Notes to Consolidated Financial Statements — June 30, 2009		8
		Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
		Item 3.		Quantitative and Qualitative Disclosures About Market Risk		40
		Item 4.		Controls and Procedures		40
PART II — OTHER INFORMATION
		Item 1.		Legal Proceedings		41
		Item 1A.		Risk Factors		43
		Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		44
		Item 4.		Submission of Matters to a Vote of Security Holders		44
		Item 6.		Exhibits		45
		Signature				46

     

     Arbitron owns or has the rights to various trademarks, trade names or service marks used in its radio audience measurement business and subsidiaries, including the following: the Arbitron name and logo, Arbitrends^SM, RetailDirect^®, RADAR^®, Tapscan^TM, Tapscan WorldWide^TM, LocalMotion^®, Maximi$er^®, Maximi$er^® Plus, Arbitron PD Advantage^®, SmartPlus^®, Arbitron Portable People Meter^TM, PPM^TM, Arbitron PPM^®, Marketing Resources Plus^®, MRP^SM, PrintPlus^®, MapMAKER Direct^SM, Media Professional^SM, Media Professional Plus^SM, Qualitap^SM and Schedule-It^SM.

     The trademarks Windows^® and Media Rating Council^® are the registered trademarks of others.

     

     We routinely post important information on our website at www.arbitron.com. Information contained on our website is not part of this quarterly report.

ARBITRON INC.
Consolidated Balance Sheets
(In thousands, except par value data)

		June 30,				December 31,
		2009				2008
		(unaudited)				(audited)
Assets
Current assets
Cash and cash equivalents		$	12,669			$	8,658
Trade accounts receivable, net of allowance for doubtful accounts of $3,036 in 2009 and $2,598 in 2008			64,959				50,037
Inventory			1,169				2,507
Prepaid expenses and other current assets			9,699				10,167
Deferred tax assets			2,391				2,476
Total current assets			90,887				73,845
Equity and other investments			15,482				14,901
Property and equipment, net			67,209				62,930
Goodwill, net			38,500				38,500
Other intangibles, net			879				950
Noncurrent deferred tax assets			7,188				7,576
Other noncurrent assets			684				895
Total assets		$	220,829			$	199,597
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities
Accounts payable		$	9,183			$	15,401
Accrued expenses and other current liabilities			22,934				29,732
Deferred revenue			56,566				57,304
Total current liabilities			88,683				102,437
Long-term debt			105,000				85,000
Other noncurrent liabilities			26,909				26,655
Total liabilities			220,592				214,092
Commitments and contingencies			—				—
Stockholders’ equity (deficit)
Preferred stock, $100.00 par value, 750 shares authorized, no shares issued			—				—
Common stock, $0.50 par value, authorized 500,000 shares, issued 32,338 shares as of June 30, 2009, and December 31, 2008			16,169				16,169
Net distributions to parent prior to March 30, 2001, spin-off			(239,042	)			(239,042	)
Retained earnings subsequent to spin-off			240,622				226,345
Common stock held in treasury, 5,827 shares in 2009 and 5,928 shares in 2008			(2,914	)			(2,964	)
Accumulated other comprehensive loss			(14,598	)			(15,003	)
Total stockholders’ equity (deficit)			237				(14,495	)
Total liabilities and stockholders’ equity (deficit)		$	220,829			$	199,597

See accompanying notes to consolidated financial statements.

ARBITRON INC.
Consolidated Statements of Income
(In thousands, except per share data)
(unaudited)

		Three Months Ended
		June 30,
		2009				2008
Revenue		$	86,799			$	78,655
Costs and expenses
Cost of revenue			55,762				52,585
Selling, general and administrative			19,351				19,977
Research and development			10,584				9,864
Restructuring and reorganization			185				—
Total costs and expenses			85,882				82,426
Operating income (loss)			917				(3,771	)
Equity in net income of affiliate(s)			5,581				5,166
Income from continuing operations before interest and income tax expense			6,498				1,395
Interest income			14				271
Interest expense			365				682
Income from continuing operations before income tax expense			6,147				984
Income tax expense			2,651				359
Income from continuing operations			3,496				625
Discontinued operations
Loss on sale of discontinued operations, net of taxes			—				(25	)
Total loss from discontinued operations, net of taxes			—				(25	)
Net income		$	3,496			$	600
Income per weighted-average common share
Basic
Continuing operations		$	0.13			$	0.02
Discontinued operations			—				—
Net income		$	0.13			$	0.02
Diluted
Continuing operations		$	0.13			$	0.02
Discontinued operations			—				—
Net income		$	0.13			$	0.02
Weighted-average common shares used in calculations
Basic			26,486				27,183
Potentially dilutive securities			169				251
Diluted			26,655				27,434
Dividends declared per common share outstanding		$	0.10			$	0.10

See accompanying notes to consolidated financial statements.

ARBITRON INC.
Consolidated Statements of Income
(In thousands, except per share data)
(unaudited)

		Six Months Ended
		June 30,
		2009				2008
Revenue		$	185,288			$	172,720
Costs and expenses
Cost of revenue			95,291				87,695
Selling, general and administrative			37,775				38,529
Research and development			19,890				19,528
Restructuring and reorganization			8,356				—
Total costs and expenses			161,312				145,752
Operating income			23,976				26,968
Equity in net income of affiliate(s)			2,581				1,221
Income from continuing operations before interest and income tax expense			26,557				28,189
Interest income			33				455
Interest expense			698				880
Income from continuing operations before income tax expense			25,892				27,764
Income tax expense			10,055				10,827
Income from continuing operations			15,837				16,937
Discontinued operations
Loss from discontinued operations, net of taxes			—				(495	)
Gain on sale of discontinued operations, net of taxes			—				425
Total loss from discontinued operations, net of taxes			—				(70	)
Net income		$	15,837			$	16,867
Income per weighted-average common share
Basic
Continuing operations		$	0.60			$	0.61
Discontinued operations			—				—
Net income		$	0.60			$	0.61
Diluted
Continuing operations		$	0.60			$	0.61
Discontinued operations			—				—
Net income		$	0.60			$	0.61
Weighted-average common shares used in calculations
Basic			26,458				27,687
Potentially dilutive securities			142				186
Diluted			26,600				27,873
Dividends declared per common share outstanding		$	0.20			$	0.20

See accompanying notes to consolidated financial statements.

ARBITRON INC.
Consolidated Statements of Cash Flows
(In thousands and unaudited)

		Six Months Ended June 30,
		2009				2008
Cash flows from operating activities
Net income		$	15,837			$	16,867
Loss from discontinued operations, net of taxes			—				70
Income from continuing operations			15,837				16,937
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization of property and equipment			10,810				7,896
Amortization of intangible assets			71				205
Loss on asset disposals			1,071				692
Deferred income taxes			206				1,003
Equity in net income of affiliate(s)			(2,581	)			(1,221	)
Distributions from affiliate			5,400				4,750
Bad debt expense			674				460
Non-cash share-based compensation			4,626				4,347
Changes in operating assets and liabilities
Trade accounts receivable			(15,596	)			2,021
Prepaid expenses and other assets			548				56
Inventory			1,219				(467	)
Accounts payable			(5,367	)			(1,845	)
Accrued expenses and other current liabilities			(7,060	)			(6,390	)
Deferred revenue			(738	)			3,555
Other noncurrent liabilities			998				612
Net cash used in operating activities of discontinued operations			—				(1,225	)
Net cash provided by operating activities			10,118				31,386
Cash flows from investing activities
Additions to property and equipment			(16,752	)			(13,403	)
Purchases of equity and other investments			(3,400	)			(1,061	)
Net cash provided by investing activities from discontinued operations			—				2,123
Net cash used in investing activities			(20,152	)			(12,341	)
Cash flows from financing activities
Proceeds from stock option exercises and stock purchase plan			738				7,138
Stock repurchases			—				(59,731	)
Tax (loss) benefits realized from share-based awards			(1,437	)			787
Dividends paid to stockholders			(5,284	)			(5,650	)
Borrowings under Credit Facility			33,000				95,000
Payments of outstanding debt			(13,000	)			(57,000	)
Net cash provided by (used in) financing activities			14,017				(19,456	)
Effect of exchange rate changes on cash and cash equivalents			28				(6	)
Net change in cash and cash equivalents			4,011				(417	)
Cash and cash equivalents at beginning of period			8,658				22,128
Cash and cash equivalents at end of period		$	12,669			$	21,711

See accompanying notes to consolidated financial statements.

ARBITRON INC.
Notes to Consolidated Financial Statements
June 30, 2009
(unaudited)

1. Basis of Presentation and Consolidation

Presentation

     The accompanying unaudited consolidated financial statements of Arbitron Inc. (the “Company” or “Arbitron”) have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included and are of a normal recurring nature. The consolidated balance sheet as of December 31, 2008, was audited at that date, but all of the information and notes as of December 31, 2008, required by U.S. generally accepted accounting principles have not been included in this Form 10-Q. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Consolidation

     The consolidated financial statements of the Company for the three and six months ended June 30, 2009, reflect the consolidated financial position, results of operations and cash flows of the Company and its subsidiaries: Arbitron Holdings Inc., Audience Research Bureau S.A. de C.V., Ceridian Infotech (India) Private Limited, Arbitron International, LLC and Arbitron Technology Services India Private Limited. All significant intercompany balances have been eliminated in consolidation. The Company consummated the sale of CSW Research Limited (“Continental”) and Euro Fieldwork Limited, a subsidiary of Continental, on January 31, 2008. The financial information of Continental and Euro Fieldwork Limited has been separately reclassified within the consolidated financial statements as a discontinued operation. See Note 2 for further information.

2. Discontinued Operation

     During the fourth quarter of 2007, the Company approved a plan to sell Continental, which represented a component of the Company’s international operations. As a result, the assets and liabilities, results of operations and cash flow activity of Continental were reclassified separately as a discontinued operation held for sale within the consolidated financial statements for all periods presented on the Company’s annual consolidated financial statements filed on Form 10-K for the years ended December 31, 2008, and 2007. On January 31, 2008, the sale of Continental was completed at a gain of $0.5 million. The following table presents key information associated with the operating results of the discontinued operations for the 2008 reporting period presented in the consolidated financial statements filed in this quarterly report on Form 10-Q for the period ended June 30, 2009 (in thousands):

		Three Months				Six Months Ended
		Ended June 30,				June 30,
Results of Discontinued Operations		2008				2008
Revenue		$	—			$	1,011
Operating expenses			—				1,802
Operating loss			—				(791	)
Net interest income			—				7
Loss before income tax benefit			—				(784	)
Income tax benefit			—				289
Loss from discontinued operations, net of taxes			—				(495	)
(Loss) gain on sale, net of taxes			(25	)			425
Total loss from discontinued operations, net of taxes		$	(25	)		$	(70	)

3. Long-Term Debt

     On December 20, 2006, the Company entered into an agreement with a consortium of lenders to provide up to $150.0 million of financing to the Company through a five-year, unsecured revolving credit facility (the “Credit Facility”). The agreement contains an expansion feature for the Company to increase the total financing available under the Credit Facility up to $200.0 million with such increased financing to be provided by one or more existing Credit Facility lending institutions, subject to the approval of the lending banks, and/or in combination with one or more new lending institutions, subject to the approval of the Credit Facility’s administrative agent. As of June 30, 2009, and December 31, 2008, the outstanding borrowings under the Credit Facility were $105.0 million and $85.0 million, respectively.

     Under the terms of the Credit Facility, the Company is required to maintain certain leverage and coverage ratios and meet other financial conditions. The Credit Facility contains certain financial covenants, and limits among other things, the Company’s ability to sell certain assets, incur additional indebtedness, and grant or incur liens on its assets. Under the terms of the Credit Facility, all of the Company’s material domestic subsidiaries, if any, guarantee the commitment. As of June 30, 2009, and December 31, 2008, the Company had no material domestic subsidiaries as defined by the terms of the Credit Facility. As of June 30, 2009, and December 31, 2008, the Company was in compliance with the terms of the Credit Facility.

     If a default occurs on outstanding borrowings, either because the Company is unable to generate sufficient cash flow to service the debt or because the Company fails to comply with one or more of the restrictive covenants, the lenders could elect to declare all of the then outstanding borrowings, as well as accrued interest and fees, to be immediately due and payable. In addition, a default may result in the application of higher rates of interest on the amounts due.

     The Credit Facility has two borrowing options, a Eurodollar rate option or an alternate base rate option, as defined in the Credit Facility agreement. Under the Eurodollar option, the Company may elect interest periods of one, two, three or six months at the inception date and each renewal date. Borrowings under the Eurodollar option bear interest at the London Interbank Offered Rate (LIBOR) plus a margin of 0.575% to 1.25%. Borrowings under the base rate option bear interest at the higher of the lead lender’s prime rate or the Federal Funds rate plus 50 basis points, plus a margin of 0.00% to 0.25%. The specific margins, under both options, are determined based on the Company’s ratio of indebtedness to earnings before interest, income taxes, depreciation, amortization and non-cash share-based compensation (the “leverage ratio”), and is adjusted every 90 days. The Credit Facility agreement contains a facility fee provision whereby the Company is charged a fee, ranging from 0.175% to 0.25%, applied to the total amount of the commitment. The interest rate on outstanding borrowings as of June 30, 2009, and December 31, 2008, was 1.11% and 1.31%, respectively.

     Interest paid during the six-month periods ended June 30, 2009, and 2008, was $0.6 million and $0.9 million, respectively. Interest capitalized during each of the six-month periods ended June 30, 2009, and 2008, was less than $0.1 million. Non-cash amortization of deferred financing costs classified as interest expense during the six-month periods ended June 30, 2009, and 2008, was less than $0.1 million.

4. Stockholders’ Equity (Deficit)

     Changes in stockholders’ equity (deficit) for the six months ended June 30, 2009, were as follows (in thousands):

														Net Distributions
														to Parent				Retained				Accumulated
														Prior to				Earnings				Other				Total
		Shares				Common				Treasury				March 30, 2001				Subsequent				Comprehensive				Stockholders’
		Outstanding				Stock				Stock				Spin-off				to Spin-off				Loss				Equity (Deficit)
Balance as of December 31, 2008			26,410			$	16,169			$	(2,964	)		$	(239,042	)		$	226,345			$	(15,003	)		$	(14,495	)
Net income			—				—				—				—				15,837				—				15,837
Common stock issued from treasury stock			101				—				50				—				544				—				594
Tax loss from share-based awards			—				—				—				—				(1,437	)			—				(1,437	)
Non-cash share-based compensation			—				—				—				—				4,626				—				4,626
Dividends declared			—				—				—				—				(5,293	)			—				(5,293	)
Other comprehensive income			—				—				—				—				—				405				405
Balance as of June 30, 2009			26,511			$	16,169			$	(2,914	)		$	(239,042	)		$	240,622			$	(14,598	)		$	237

     A quarterly cash dividend of $0.10 per common share was paid to stockholders on July 1, 2009.

5. Net Income per Weighted-Average Common Share

     The computations of basic and diluted net income per weighted-average common share for the three and six-month periods ended June 30, 2009, and 2008, are based on the Company’s weighted-average shares of common stock and potentially dilutive securities outstanding.

     Potentially dilutive securities are calculated in accordance with the treasury stock method, which assumes that the proceeds from the exercise of all stock options are used to repurchase the Company’s common stock at the average market price for the period. As of June 30, 2009, and 2008, there were options to purchase 2,764,049 and 1,804,844 shares of the Company’s common stock outstanding, of which options to purchase 2,375,313 and 432,397 shares of the Company’s common stock, respectively, were excluded from the computation of diluted net income per weighted-average common share for the quarter ended June 30, 2009, and 2008, respectively, either because the options’ exercise prices were greater than the average market price of the Company’s common shares or assumed repurchases from proceeds from the options’ exercise were potentially antidilutive.

     The Company elected to use the alternative method prescribed by the Financial Accounting Standards Board (“FASB”) Staff Position Statement of Financial Accounting Standards (“SFAS”) No. 123R-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards, for determining its initial hypothetical tax benefit pool. In addition, in accordance with provisions under SFAS No. 123R, Share-Based Payment, (“SFAS No. 123R”) the assumed proceeds associated with the entire amount of tax benefits for share-based awards granted prior to SFAS No. 123R adoption, if any, were used in the diluted shares computation. For share-based awards granted subsequent to the January 1, 2006, SFAS No. 123R adoption date, the assumed proceeds for the related excess tax benefits, if any, were used in the diluted shares computation.

6. Comprehensive Income and Accumulated Other Comprehensive Loss

     The Company’s comprehensive income is comprised of net income, changes in foreign currency translation adjustments, and changes in retirement liabilities, net of tax (expense) benefits. The components of comprehensive income were as follows (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Net income		$	3,496			$	600			$	15,837			$	16,867
Other comprehensive income (loss):
Change in foreign currency translation adjustment, net of tax expense of $24, and $0 for the three months ended June 30, 2009, and 2008, respectively; and a tax benefit of $28, and $240 for the six months ended June 30, 2009, and 2008, respectively.			35				(2	)			(44	)			(373	)
Change in retirement liabilities, net of tax expense of $136, and $94 for the three months ended June 30, 2009, and 2008, respectively; and a tax expense of $295, and $187 for the six months ended June 30, 2009, and 2008, respectively.			210				142				449				286
Other comprehensive income (loss)			245				140				405				(87	)
Comprehensive income		$	3,741			$	740			$	16,242			$	16,780

The components of accumulated other comprehensive loss were as follows (in thousands):

		June 30,				December 31,
		2009				2008
Foreign currency translation adjustment, net of taxes		$	(328	)		$	(284	)
Retirement plan liabilities, net of taxes			(14,270	)			(14,719	)
Accumulated other comprehensive loss		$	(14,598	)		$	(15,003	)

7. Equity and Other Investments

     The Company’s equity and other investments consisted of the following:

		June 30,				December 31,
		2009				2008
Scarborough		$	12,082			$	14,901
Equity investments			12,082				14,901
TRA preferred stock			3,400				—
Other investments			3,400				—
Equity and other investments		$	15,482			$	14,901

     The Company’s 49.5% investment in Scarborough, a syndicated, qualitative local market research partnership, is accounted for using the equity method. The Company’s preferred stock investment in TRA Global, Inc., a Delaware corporation (“TRA”), providing media and marketing research, is accounted for using the cost method. The Company invested $3.4 million in TRA in May 2009. The Company’s 50.0% interest in Project Apollo LLC, a pilot national marketing research service, was terminated in June 2008 and was accounted for using the equity method of accounting. The following table shows the investment activity for each of the Company’s investments and in total for the three and six months ended June 30, 2009, and 2008:

		Summary of Investment Activity (in thousands)
		Three Months Ended												Three Months Ended
		June 30, 2009												June 30, 2008
		Scarborough				TRA				Total				Scarborough				Project Apollo LLC				Total
Beginning balance		$	8,400			$	—			$	8,400			$	8,006			$	199			$	8,205
Investment income (loss)			5,581				—				5,581				6,038				(872	)			5,166
Distributions from investee			(1,899	)			—				(1,899	)			(1,250	)			—				(1,250	)
Cash investments			—				3,400				3,400				—				673				673
Ending balance at June 30		$	12,082			$	3,400			$	15,482			$	12,794			$	—			$	12,794

		Summary of Investment Activity (in thousands)
		Six Months Ended												Six Months Ended
		June 30, 2009												June 30, 2008
		Scarborough				TRA				Total				Scarborough				Project Apollo LLC				Total
Beginning balance		$	14,901			$	—			$	14,901			$	14,420			$	842			$	15,262
Investment income (loss)			2,581				—				2,581				3,124				(1,903	)			1,221
Distributions from investee			(5,400	)			—				(5,400	)			(4,750	)			—				(4,750	)
Cash investments			—				3,400				3,400				—				1,061				1,061
Ending balance at June 30		$	12,082			$	3,400			$	15,482			$	12,794			$	—			$	12,794

8. Prepaids and Other Current Assets

     Prepaids and other current assets as of June 30, 2009 and December 31, 2008, consist of the following (in thousands):

		June 30, 2009				December 31, 2008
Insurance recovery receivables		$	5,120			$	5,775
Survey participant incentives and prepaid postage			2,875				2,615
Other			1,704				1,777
Prepaids and other current assets		$	9,699			$	10,167

     During 2008, the Company became involved in two securities-law civil actions and a governmental interaction primarily related to the commercialization of our PPM service. During 2008 and the six months ended June 30, 2009, the Company incurred $7.8 million in legal fees and costs in defense of its positions related to those actions and interaction. As of June 30, 2009, $2.0 million in insurance proceeds related to these legal actions was collected and the Company estimates that $4.1 million of such legal fees and costs are probable for future recovery under the Company’s Directors and Officers insurance policy. During the six months ended June 30, 2009, a $1.3 million increase in the estimated gross insurance recovery was reported as a reduction to selling, general and administrative expense on the income statement, which partially offsets the $1.6 million in related legal fees recorded during the first half of 2009.

     The Company also recorded a $1.0 million insurance claims receivable related to business interruption losses and damages incurred as a result of Hurricane Ike as of December 31, 2008. As of June 30, 2009, the Company estimates that $1.0 million of the $2.3 million loss incurred during 2008 and the first half of 2009 for Hurricane Ike are probable for recovery through insurance.

9. Restructuring and Reorganization Initiative

     During the first quarter of 2009, the Company implemented a restructuring, reorganization and expense reduction plan. Part of the reorganization included reducing the Company’s workforce by approximately 10 percent of its full-time employees. During the six months ended June 30, 2009, the Company incurred $8.4 million of pre-tax implementation expenses, related principally to severance, termination benefits, outplacement support and certain relocation cost obligations that were incurred as part of the reorganization of the Company’s management structure.

     The following table presents additional information regarding the activity for the three and six month periods ended June 30, 2009 (in thousands):

Reconciliation of beginning and ending liability balances

		For the Three				For the Six
		Months Ended				Months Ended
Restructuring and Reorganization		June 30, 2009				June 30, 2009
Beginning liability		$	8,156			$	—
Costs incurred and charged to expense			185				8,356
Costs paid during the period			(5,707	)			(5,722	)
Ending liability as of June 30, 2009		$	2,634			$	2,634

     Although the Company recognized a substantial majority of the related expense during the first half of 2009, certain other expenses associated with the restructuring will be incurred and recognized during the remainder of 2009. In accordance with our retirement plan provisions, retirement plan participants may elect, at their option, to receive their retirement benefits either in a lump sum payment or an annuity. According to SFAS No. 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, if the lump sum distributions paid during the plan year exceed the total of the service cost and interest cost for the plan year, any unrecognized loss or gain in the plan should be recognized for the pro rata portion equal to the percentage reduction of the projected benefit obligation. Subsequent to the June 30, 2009 financial statement report date, the aggregate of lump sum distribution elections by a number of pension plan participants, who were part of the restructuring, resulted in the recognition of a pro rata settlement loss related to two of the Company’s retirement plans during the third quarter 2009. The Company estimates that the total restructuring charge for the full year ending December 31, 2009, including the estimated loss for the pro rata settlement, will be approximately $11.0 million.

10. Retirement Plans

     Certain of the Company’s United States employees participate in a defined-benefit pension plan that closed to new participants effective January 1, 1995. The Company subsidizes healthcare benefits for eligible retired employees who participate in the pension plan and were hired before January 1, 1992. The Company also sponsors two nonqualified, unfunded supplemental retirement plans.

     The components of periodic benefit costs for the defined-benefit pension, postretirement and supplemental retirement plans were as follows (in thousands):

		Defined-Benefit								Postretirement								Supplemental
		Pension Plan								Plan								Retirement Plans
		Three Months								Three Months								Three Months
		Ended June 30,								Ended June 30,								Ended June 30,
		2009				2008				2009				2008				2009				2008
Service cost		$	222			$	196			$	13			$	11			$	5			$	29
Interest cost			477				507				23				23				72				58
Expected return on plan assets			(576	)			(615	)			—				—				—				—
Amortization of prior service cost			5				5				—				—				(3	)			(5	)
Amortization of net loss			248				182				10				9				83				46
Net periodic benefit cost		$	376			$	275			$	46			$	43			$	157			$	128
SFAS No. 88 curtailment		$	—			$	—			$	—			$	—			$	15			$	—

		Defined-Benefit								Postretirement								Supplemental
		Pension Plan								Plan								Retirement Plans
		Six Months								Six Months								Six Months
		Ended June 30,								Ended June 30,								Ended June 30,
		2009				2008				2009				2008				2009				2008
Service cost		$	444			$	392			$	25			$	21			$	46			$	59
Interest cost			953				1,013				46				47				162				117
Expected return on plan assets			(1,153	)			(1,229	)			—				—				—				—
Amortization of prior service cost			11				11				—				—				(8	)			(11	)
Amortization of net loss			497				364				21				17				222				92
Net periodic benefit cost		$	752			$	551			$	92			$	85			$	422			$	257
SFAS No. 88 curtailment		$	—			$	—			$	—			$	—			$	15			$	—

     The curtailment charge of $15, related to one of the Company’s supplemental retirement plans, was incurred as a result of an employee termination under the Company’s restructuring and reorganization initiative.

     The Company currently estimates that it will contribute $3.9 million to its defined benefit plans during 2009.

11. Taxes

     The effective tax rate from continuing operations decreased to 38.8% for the six months ended June 30, 2009, from 39.0% for the six months ended June 30, 2008.

     During 2009, the Company’s net unrecognized tax benefits for certain tax contingencies increased from $1.4 million as of December 31, 2008, to $1.6 million as of June 30, 2009. If recognized, the $1.6 million of unrecognized tax benefits would reduce the Company’s effective tax rate in future periods.

     Income taxes paid on continuing operations for the six months ended June 30, 2009, and 2008, were $12.6 million and $11.5 million, respectively.

12. Share-Based Compensation

     The following table sets forth information with regard to the income statement recognition of share-based compensation (in thousands):

		Three Months Ended June 30,								Six Months Ended June 30,
		2009				2008				2009				2008
Cost of revenue		$	52			$	252			$	82			$	412
Selling, general and administrative			2,649				2,344				4,504				3,700
Research and development			42				133				40				235
Share-based compensation		$	2,743			$	2,729			$	4,626			$	4,347

     There was no capitalized share-based compensation cost recorded during the six-month periods ended June 30, 2009, and 2008.

     On May 13, 2008, the Company’s shareholders approved the 2008 Equity Compensation Plan that provides for the grant of share-based awards, including stock options, stock appreciation rights, restricted stock and restricted stock units. The maximum amount of share awards authorized to be issued under this plan is 2,500,000 shares of the Company’s common stock and of this amount, a maximum of 625,000 shares of the Company’s common stock are authorized to be issued for awards other than stock options and stock appreciation rights. The expiration date of the 2008 Equity Compensation Plan is May 13, 2018. The Company’s policy for issuing shares upon option exercise or conversion of its nonvested share awards and deferred stock units under all of the Company’s stock incentive plans is to issue new shares of common stock, unless treasury stock is available at the time of exercise or conversion.

Stock Options

     Stock options awarded to employees under the 1999 and 2001 Stock Incentive Plans and the 2008 Equity Compensation Plan (referred to herein collectively as the “SIPs”) generally vest annually over a three-year period, have 10-year terms and have an exercise price of not less than the fair market value of the underlying stock at the date of grant. Stock options granted to directors under the SIPs generally vest upon the date of grant, are generally exercisable in six months after the date of grant, have 10-year terms and have an exercise price not less than the fair market value of the underlying stock at the date of grant. The Company’s options provide for accelerated vesting if there is a change in control of the Company.

     The Company uses historical data to estimate option exercises and employee terminations in order to determine the expected term of the option; identified groups of optionholders that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted represents the period of time that such options are expected to be outstanding. The expected term can vary for certain groups of optionholders exhibiting different behavior. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury strip bond yield curve in effect at the time of grant. Expected volatilities are based on the historical volatility of the Company’s common stock.

     The fair value of each option granted to employees and nonemployee directors during the three-month and six-month periods ended June 30, 2009, and 2008, was estimated on the date of grant using a Black-Scholes option valuation model. Those assumptions, along with other data regarding the Company’s stock options, are noted in the following table (dollars in thousands, except per share data):

Assumptions for Options Granted to
Employees and Nonemployee		Three Months Ended				Three Months Ended				Six Months Ended				Six Months Ended
Directors		June 30, 2009				June 30, 2008				June 30, 2009				June 30, 2008
Expected volatility			34.01 - 34.77	%			24.30 - 25.22	%			31.88 - 34.77	%			24.30 - 25.27	%
Expected dividends			1.91 - 1.97	%			1.00	%			1.91 - 2.95	%			1.00	%
Expected term (in years)			5.75 - 6.25				5.50 - 6.00				5.75 - 6.25				5.50 - 6.00
Risk-free rate			2.44 - 2.94	%			3.30 - 3.44	%			2.13 - 2.94	%			2.60 - 3.44	%
Weighted-average volatility			34.31	%			25.14	%			33.65	%			25.20	%
Weighted-average term (in years)			6.03				5.96				6.01				5.94
Weighted-average risk-free rate			2.50	%			3.34	%			2.42	%			2.91	%
Weighted-average dividend rate			1.97	%			1.00	%			2.17	%			1.00	%
Weighted-average grant date fair value per option		$	6.09			$	12.96			$	5.43			$	11.47
Other Data
Options granted			935,789				58,551				1,320,293				312,505
Weighted-average exercise price for options granted per share		$	20.33			$	46.64			$	18.79			$	42.71
Intrinsic value of options exercised			—			$	2,238				—			$	2,384

     As of June 30, 2009, there was $7.8 million of total unrecognized compensation cost related to options granted under the SIPs. This aggregate unrecognized cost is expected to be recognized over a weighted-average period of 2.7 years. The weighted-average exercise price and weighted-average remaining contractual term for outstanding stock options as of June 30, 2009, were $29.73 and 7.74 years, respectively, and as of June 30, 2008, $39.57 and 6.84 years, respectively.

Nonvested Share Awards

     The Company’s nonvested share awards vest over four or five years on either a monthly or annual basis. The Company’s awards provide for accelerated vesting if there is a change in control of the Company. Compensation expense is recognized on a straight-line basis using the market price on the date of grant as the awards vest. As of June 30, 2009, there was $9.0 million of total unrecognized compensation cost related to nonvested share awards granted under the SIPs. This aggregate unrecognized cost for nonvested share awards is expected to be recognized over a weighted-average period of 2.75 years. Other nonvested share award information for the three-month and six-month periods ended June 30, 2009, and 2008, is noted in the following table (dollars in thousands, except per share data):

		Three Months Ended				Three Months Ended				Six Months Ended				Six Months Ended
		June 30, 2009				June 30, 2008				June 30, 2009				June 30, 2008
Number of shares granted			208,910				24,933				310,449				102,748
Weighted average grant-date fair value per share		$	20.29			$	49.98			$	18.56			$	43.91
Fair value of shares vested		$	132			$	65			$	781			$	1,601

Deferred Stock Units

     Deferred stock units granted to one of the Company’s employees vest annually on a calendar year basis through December 31, 2009, and are convertible into shares of common stock, subsequent to employment termination. Deferred stock units granted to nonemployee directors vest immediately upon grant and are convertible into shares of common stock subsequent to the directors’ termination of service. As of June 30, 2009, the total unrecognized compensation cost related to deferred stock units granted under the SIPs was $0.9 million and is expected to be recognized over a weighted-average period of 0.50 years. Other deferred stock unit information for the three-month and six-month periods ended June 30, 2009, and 2008, is noted in the following table (dollars in thousands):

		Three Months Ended				Three Months Ended				Six Months Ended				Six Months Ended
		June 30, 2009				June 30, 2008				June 30, 2009				June 30, 2008
Shares granted to employee directors			21,868				26				22,158				21,724
Shares granted to nonemployee directors			4,360				1,287				9,476				2,766
Fair value of shares vested		$	74			$	63			$	154			$	128

Employee Stock Purchase Plan

     On May 13, 2008, the Company’s shareholders approved an amendment to its compensatory Employee Stock Purchase Plan (“ESPP”) increasing the maximum number of shares of Company common stock reserved for sale under the ESPP from 600,000 to 850,000. The purchase price of the stock to ESPP participants is 85% of the lesser of the fair market value on either the first day or the last day of the applicable three-month offering period. ESPP information for the three-month and six-month periods ended June 30, 2009, and 2008, is noted in the following table (dollars in thousands):

		Three Months Ended				Three Months Ended				Six Months Ended				Six Months Ended
		June 30, 2009				June 30, 2008				June 30, 2009				June 30, 2008
Share-based compensation expense		$	90			$	75			$	210			$	167
Number of ESPP shares issued			25,666				8,628				63,381				18,457
Amount of proceeds received from employees		$	276			$	316			$	612			$	664

13. Concentration of Credit Risk

     The Company’s quantitative radio audience measurement business and related software licensing accounted for the following percentages of revenue:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Quantitative Radio Business			73	%			69	%			82	%			80	%
Related Software Licensing			9	%			10	%			8	%			9	%

     The Company had one customer that individually represented 18% of its annual revenue for the year ended December 31, 2008. The Company had three customers that individually represented 19%, 11%, and 10% of its total accounts receivable as of June 30, 2009. The Company has historically experienced a high level of contract renewals.

14. Financial Instruments

     Fair values of accounts receivable and accounts payable approximate carrying values due to their short-term nature. Due to the floating rate nature of the Company’s revolving obligation under its Credit Facility, the fair values of the $105.0 million and $85.0 million in outstanding borrowings as of June 30, 2009, and December 31, 2008, respectively, also approximate their carrying amounts.

15. Stock Repurchases

     On November 14, 2007, the Company’s Board of Directors authorized a program to repurchase up to $200.0 million of the Company’s outstanding common stock through either periodic open-market or private transactions at then-prevailing market prices over a period of up to two years through November 14, 2009. For the six months ended June 30, 2009, no shares of common stock were repurchased. As of June 30, 2009, the Company paid $100.0 million to repurchase 2,247,400 shares of outstanding common stock under this program since the program’s inception. For the six months ended June 30, 2008, the Company repurchased 1,371,900 shares of outstanding common stock under this program for $59.7 million.

16. Subsequent Events

     In accordance with SFAS No. 165, Subsequent Events, the Company is required to disclose the date through which subsequent events have been evaluated for disclosure. Subsequent events were evaluated through August 5, 2009, the date of issuance for the Company’s financial statements for the quarter ended June 30, 2009, as filed on this Form 10-Q. Except as disclosed elsewhere, no subsequent events that warrant further disclosure herein were noted during this evaluation.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto in this Quarterly Report on Form 10-Q.

     This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The statements regarding Arbitron Inc. and its subsidiaries (“we,” “our,” “Arbitron” or the “Company”) in this document that are not historical in nature, particularly those that utilize terminology such as “may,” “will,” “should,” “likely,” “expects,” “intends,” “anticipates,” “estimates,” “believes” or “plans” or comparable terminology, are forward-looking statements based on current expectations about future events, which we have derived from information currently available to us. These forward-looking statements involve known and unknown risks and uncertainties that may cause our results to be materially different from results implied by such forward-looking statements. These risks and uncertainties include, in no particular order, whether we will be able to:

	•		absorb costs related to legal proceedings and governmental entity interactions and avoid related fines, limitations or conditions on our business activities, including, without limitation, by meeting or exceeding our commitments and agreements with various governmental entities;
	•		successfully commercialize our Portable People MeterTM service;
	•		successfully manage the impact on our business of the current economic downturn generally, and in the advertising market, in particular, including, without limitation, the insolvency of any of our customers or the impact of such downturn on our customers’ ability to fulfill their payment obligations to us;
	•		successfully maintain and promote industry usage of our services, a critical mass of broadcaster encoding, and the proper understanding of our audience measurement services and methodology in light of governmental actions, including investigation, regulation, legislation or litigation, customer or industry group activism, or adverse community or public relations efforts;
	•		compete with companies that may have financial, marketing, sales, technical or other advantages over us;
	•		successfully design, recruit and maintain PPM panels that appropriately balance research quality, panel size and operational cost;
	•		successfully develop, implement and fund initiatives designed to increase sample quality;
	•		complete the Media Rating Council, Inc. (“MRC”) audits of our local market PPM ratings services in a timely manner and successfully obtain and/or maintain MRC accreditation for our audience measurement business;
	•		renew contracts with key customers;
	•		successfully execute our business strategies, including entering into potential acquisition, joint-venture or other material third-party agreements;
	•		effectively manage the impact, if any, of any further ownership shifts in the radio and advertising agency industries;
	•		effectively respond to rapidly changing technological needs of our customer base, including creating new proprietary software systems, such as software systems to support our cell-phone-only sampling plans, and new customer services that meet these needs in a timely manner;
	•		successfully manage the impact on costs of data collection due to lower respondent cooperation in surveys, consumer trends including a trend toward increasing incidence of cell-phone-only households, privacy concerns, technology changes, and/or government regulations;

	•		successfully develop and implement technology solutions to encode and/or measure new forms of media content and delivery, and advertising in an increasingly competitive environment;
	•		successfully integrate our new management team;
	•		realize the anticipated savings from the Company’s workforce and expense reduction program; and
	•		provide appropriate levels of operational capacity and funding to support the more labor intensive identification and recruitment of cell-phone-only households into our panels and samples.

     There are a number of additional important factors that could cause actual events or our actual results to differ materially from those indicated by such forward-looking statements, including, without limitation, the factors set forth in “ITEM 1A. RISK FACTORS” in our Annual Report on Form 10-K for the year ended December 31, 2008, the caption “Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, and elsewhere, and any subsequent periodic or current reports filed by us with the Securities and Exchange Commission (the “SEC”).

     In addition, any forward-looking statements represent our expectations only as of the day we filed this Quarterly Report with the SEC and should not be relied upon as representing our expectations as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our expectations change.

Overview

     We are a leading media and marketing information services firm primarily serving radio, cable television, advertising agencies, advertisers, retailers, out-of-home media, online media and, through our Scarborough Research joint venture with The Nielsen Company (“Nielsen”), broadcast television and print media. We currently provide four main services:

	•		measuring and estimating radio audiences in local markets in the United States;
	•		measuring and estimating radio audiences of network radio programs and commercials;
	•		providing software used for accessing and analyzing our media audience and marketing information data; and
	•		providing consumer, shopping, and media usage information services.

     Historically, our quantitative radio audience measurement business and related software have accounted for a substantial majority of our revenue. Our quantitative radio audience measurement business accounted for 82 percent and 80 percent of our revenue for the six-month periods ended June 30, 2009, and 2008, respectively. Our related software licensing accounted for eight percent and nine percent of our revenue for the six-month periods ended June 30, 2009, and 2008, respectively. We expect that for the year ending December 31, 2009, our quantitative radio audience measurement business and related software licensing will account for approximately 82 percent and eight percent, respectively, of our revenue, which is consistent with historic annual trends.

     Quarterly fluctuations in these percentages are reflective of the seasonal delivery schedule of our quantitative radio audience measurement business and our Scarborough revenues. For further information regarding seasonality trends, see “Seasonality.” While we expect that our quantitative radio audience measurement business and related software licensing will continue to account for the majority of our revenue for the foreseeable future, we are actively seeking opportunities to diversify our revenue base by, among other things, leveraging the investment we have made in our PPM technology and by exploring applications of the technology beyond our domestic radio audience measurement business.

     We are in the process of executing our previously announced plan to commercialize progressively our PPM ratings service in the largest United States radio markets, which we currently anticipate will result in commercialization of the service in 49 local markets by December 2010 (the “PPM Markets”). We have entered into multi-year agreements with many of our largest customers, including agreements for PPM-based ratings as we commercialize the service in the PPM Markets. These agreements generally provide for a higher fee for PPM-based ratings than we charge for Diary-based ratings. As a result, we expect that the percentage of our revenues derived from our radio ratings and related software is likely to increase as we commercialize the PPM service.

     Nielsen’s signing of Cumulus Media Inc. (“Cumulus”) and Clear Channel Communications, Inc. (“Clear Channel”) as customers for its radio ratings service in certain small to mid-sized markets is anticipated to adversely impact our expected revenue by approximately $5.0 million in 2009, and $10.0 million per year thereafter. Due to the current economic downturn’s impact on anticipated sales of discretionary services, as well as the high penetration of our current services in the radio station business, we expect that our future annual organic rate of revenue growth from our quantitative Diary-based radio ratings services will be slower than historical trends.

Diary Trends and Initiatives

     Response rates are an important measure of our effectiveness in obtaining consent from persons to participate in our surveys. Another measure often used by clients to assess quality in our ratings is sample proportionality, which refers to how well the distribution of the sample for any individual survey matches the distribution of the population in the local market. It has become increasingly difficult and more costly for us to obtain consent from persons to participate in our surveys. We must achieve a level of both sample proportionality and response rates sufficient to maintain confidence in our ratings, the support of the industry and accreditation by the MRC. Overall response rates have declined over the past several years. We have worked to address this decline through several initiatives, including various survey incentive programs. If response rates continue to decline or the costs of recruitment initiatives significantly increase, our radio audience measurement business could be adversely affected. Response rates are one quality measure of survey performance among many and an important factor impacting costs associated with data collection. We believe that additional expenditures will be required in the future to research and test new measures associated with improving response rates and sample proportionality. As part of our continuous improvement program, we intend to continue to invest in Diary service quality enhancements in 2009.

     We use a measure known as Designated Delivery Index (“DDI”) to measure our performance in delivering sample targets based on how many persons in the sample represent a particular demographic. We define DDI as the actual sample size achieved for a given demographic indexed against the target sample size for that demographic (multiplied by 100). On April 30, 2009, we announced a sample quality benchmark for persons aged 18-34 in all Diary markets beginning with the Spring 2009 survey. For the first twelve months, the benchmark will be a DDI of 70. Thereafter, the DDI benchmark will be 80. Benchmarks do not represent goals or targets for performance, rather these benchmarks represent the level of sample performance for a given demographic group below which we intend to take corrective action to improve the sample performance.

     In December 2008, we announced plans to accelerate the introduction of sampling cell-phone-only households in Diary markets in an effort to improve sample proportionality. With the Spring 2009 survey, we added cell-phone-only households to the Diary sample in 151 Diary markets using a hybrid methodology of address-based recruitment for cell-phone-only households, while using random digit dialing (“RDD”) recruitment for households with landline phone service. Beginning with the Fall 2009 survey, we intend to expand cell-phone-only sampling to all Diary markets in the continental United States, Alaska and Hawaii.

     In an effort to better target our Diary keeper premium expenditures to key buying demographics of the users of our estimates, beginning with the Spring 2009 Diary survey, we reduced the premium we pay to households where all members are aged 55 or older and redirected those premiums to households containing persons aged 18-34.

PPM Trends and Initiatives

     MRC Accreditation. In January 2007, the MRC accredited the average-quarter-hour, time—period radio ratings data produced by our PPM ratings service in the Houston-Galveston local market. In January 2009, the MRC accredited the average-quarter-hour, time-period radio ratings data produced by our PPM ratings service in the Riverside—San Bernardino local market.

     Based on initial audits completed during 2007, and our replies to the MRC’s follow-up queries, the MRC denied accreditation of the PPM ratings services in Philadelphia, New York, Nassau — Suffolk (Long Island), and Middlesex — Somerset — Union in January 2008. During 2008, the MRC reaudited the PPM ratings service in those markets. The results of those reaudits, together with additional information provided by Arbitron, were shared with the MRC PPM audit subcommittee in late 2008. As of the date of this Form 10-Q, the denial status remains in place, and the PPM services in the Philadelphia, New York, Nassau — Suffolk (Long Island), and Middlesex — Somerset — Union local markets remain unaccredited. Among other things, the MRC identified response rates, compliance rates, and differential compliance rates as concerns it had with the PPM service in these local markets.

     The MRC has audited the local market PPM methodology and execution in all other PPM Markets where we have commercialized the service, including Los Angeles, Chicago, San Francisco, San Jose, Atlanta, Dallas-Ft. Worth, Detroit, Washington D.C., Boston, Miami-Ft. Lauderdale-Hollywood, Seattle-Tacoma, Phoenix, Minneapolis-St. Paul and San Diego. With these audits currently under evaluation, the MRC has neither granted nor denied accreditation for these markets.

     Commercialization. We may continue to update the timing of commercialization and the composition of the PPM Markets from time to time. We currently utilize our PPM radio ratings service to produce audience estimates in 20 United States local radio markets. We commercialized our PPM ratings service in Boston with the release of the March data in April 2009, and most recently, we commercialized the service in Miami-Ft. Lauderdale-Hollywood, Seattle-Tacoma, Phoenix, Minneapolis-St. Paul, and San Diego with the release of the June data in July 2009. We currently intend to commercialize the PPM service in another 13 local markets during the second half of 2009.

     Quality Improvement Initiatives. As we have commercialized the PPM service in the PPM Markets, we have experienced and expect to continue to experience challenges in the operation of the PPM service similar to those we face in the Diary-based service, including several of the challenges related to sample proportionality and response rates mentioned above. We expect to continue to implement additional measures to address these challenges. In connection with our interactions with several governmental entities, we have announced a series of commitments concerning our PPM radio ratings services that we have agreed to implement over the next several years. We believe these commitments, which we refer to as our “continuous improvement” initiatives, are consistent with our ongoing efforts to obtain and maintain MRC accreditation and to improve our radio ratings services. These initiatives will likely require expenditures that may be material in the aggregate.

     On April 30, 2009, we announced a plan to increase our sample target for cell-phone-only households in all PPM Markets to 15 percent of total households by the end of 2009. We use a RDD approach to recruit cell-phone-only households to our PPM panels and this requires us to hand-dial each number. However, we expect to implement a hybrid method of using an address-based sample frame for cell-phone-only households together with an RDD sample frame to recruit landline households during 2009. Under this new methodology, we will be able to use auto-dialers to contact cell-phone-only households for recruitment into our panels.

     We confirmed in March 2009 that we continue to implement key methodological enhancements in our PPM service, which include, but are not limited to:

	•		use of address-based sampling techniques for at least 10 percent of our total recruitment efforts by late 2009 and for at least 15 percent of our total recruitment efforts by the end of December 2010 in all PPM Markets;
	•		application of an average-daily in-tab (our actual percentage of the installed panel that provides useable data) benchmark of 75 percent to all PPM Markets; and
	•		continued focus on improving the Sample Performance Indicator and other sample quality metrics in all PPM Markets.

     We continue to operate in a highly challenging business environment. Our future performance will be impacted by our ability to address a variety of challenges and opportunities in the markets and industries we serve, including our ability to continue to maintain and improve the quality of our PPM service, and manage increased costs for data collection, arising among other ways, from increased numbers of cell-phone-only households, which are more expensive to recruit than households with landline phones. Our goal is to obtain and maintain MRC accreditation in all of our PPM Markets, and develop and implement effective and efficient technological solutions to measure multimedia and advertising.

     While there is the possibility that the pace of commercialization of the PPM ratings service could be slowed further, we believe that the PPM ratings service is both a viable replacement for our Diary-based ratings service and a significant enhancement to our audience estimates in major radio markets, and it is an important component of our anticipated future growth. If the pace of the commercialization of our PPM ratings service is slowed further, revenue increases that we expect to receive related to the service would also be delayed.

     Commercialization of our PPM radio ratings service has and will continue to require a substantial financial investment. As we have anticipated, our efforts to support the commercialization of our PPM ratings service have had a material negative impact on our results of operations. The amount of capital required for deployment of our PPM ratings service and the impact on our results of operations will be greatly affected by the speed of the commercialization. We anticipate that PPM costs and expenses will accelerate six to nine months in advance of the commercialization of each PPM Market as we build the panels. These costs are incremental to the costs associated with our Diary-based ratings service. Our cell-phone-only household recruitment initiatives in both the Diary and PPM services will also increase our cost of revenue. Growth in revenue and earnings per share remain our most important financial goals. Protecting and supporting our existing customer base, and ensuring our services are competitive from a price, quality and service perspective are critical components to these overall goals, although there can be no guarantee that we will be successful in our efforts.

Television Suite of Audience Measurement Services

     On June 23, 2009, we announced the creation of ARB-TV, a new suite of audience measurement services designed to improve visibility into away-from-home television audiences for media companies and advertisers. By leveraging the mobility and utility of our PPM technologies, we believe the ARB-TV analytical tool can complement existing data services, offers media greater insight into what constitutes their total audience, and help advertisers plan how to reach that audience. The ARB-TV service is not part of a regular syndicated rating service accredited by the MRC, and we have not requested accreditation. Arbitron does provide one or more syndicated services that are accredited by the MRC.

General Economic Conditions

     Our clients derive most of their revenue from transactions involving the sale or purchase of advertising. During the challenging economic times we are presently experiencing, advertisers have reduced advertising expenditures, impacting advertising agencies and media companies. This, as well as the general economic downturn and credit conditions, has had a material impact on our customers, which has had a material and negative effect on our sales and renewal activity.

     During 2009, we have experienced an increase in the average number of days our sales have been outstanding before we have received payment, which has resulted in a material increase in trade accounts receivable. If the economic downturn expands or is sustained for an extended period, it also may lead to increased incidence of customers’ inability to pay their accounts, an increase in our provision for doubtful accounts, a further increase in collection cycles for accounts receivable or insolvency of our customers.

     We depend on a limited number of key customers for our radio ratings services and related software. For example, in 2008, Clear Channel represented 18 percent of our total revenue. Because many of our largest customers own and operate radio stations in markets that we expect to transition to PPM measurement, we expect that our dependence on our largest customers will continue for the foreseeable future. Additionally, if one or more key customers owning radio stations in a number of markets do not renew all or part of their contracts, we could experience a significant decrease in our operating results.

Restructuring, Reorganization and Expense Reduction Plan

     During the first quarter of 2009, we implemented a restructuring, reorganization, and expense reduction plan in an effort to offset the impact of the recession on the Company. Part of the reorganization included reducing our workforce by approximately 10 percent of our full-time employees. During the six months ended June 30, 2009, we incurred $8.4 million of pre-tax implementation expenses, related principally to severance, termination benefits, outplacement support and certain relocation cost obligations that were incurred as part of the reorganization of our management structure.

     Although we recognized a substantial majority of the related expense during the first half of 2009, certain other expenses associated with the restructuring will be incurred and recognized during the remainder of 2009. In accordance with our retirement plan provisions, retirement plan participants may elect, at their option, to receive their retirement benefits either in a lump sum payment or an annuity. According to SFAS No. 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, if the lump sum distributions paid during the plan year exceed the total of the service cost and interest cost for the plan year, any unrecognized loss or gain in the plan should be recognized for the pro rata portion equal to the percentage reduction of the projected benefit obligation. Subsequent to the June 30, 2009 financial statement report date, the aggregate of lump sum distribution elections by a number of pension plan participants, who were part of the restructuring, resulted in the recognition of a pro rata settlement loss related to two of the Company’s retirement plans during the third quarter 2009. As a result of this settlement charge, we estimate that the total restructuring charge for the full year ending December 31, 2009, including the non-cash estimated loss for the pro rata settlement, will be approximately $11.0 million, as compared to our previous estimate of approximately $9.0 million.

     We expect that the net savings resulting from our restructuring, reorganization and expense reduction plan will reduce our projected 2010 operating expenses by $10.0 million.

Lawsuits and Governmental Interactions

     During the six months ended June 30, 2009, we incurred approximately $1.6 million in legal costs and expenses in connection with two securities-law civil actions and a governmental interaction that commenced during 2008, relating primarily to the commercialization of our PPM service. We believe approximately $1.3 million is probable for recovery under our Directors and Officers insurance policy. We are also involved in other legal matters for which we do not expect that the legal costs and expenses will be recoverable through insurance. We can provide no assurance that we will not incur significant net legal costs and expenses during the remainder of 2009.

TRA Investment

     On May 7, 2009, we announced our $3.4 million investment in TRA, a media and marketing research firm.

Customer Contracts

Clear Channel Agreement Executed in May 2009

     On May 5, 2009, we announced that we had entered into new three-year agreements with Clear Channel, and certain other subsidiaries of CC Media Holdings, Inc., to provide diary-based radio ratings and other related services for Clear Channel’s radio stations in the 105 United States local markets set forth in the Current Report on Form 8-K we filed with the SEC on May 5, 2009. We entered into the agreements on May 4, 2009, with an effective term beginning on January 1, 2009, and expiring on December 31, 2011.

     Under the terms and conditions of the new agreements, we will provide our diary-based Radio Market Reports, Maximi$er, TAPSCAN, Scarborough consumer data and Arbitron qualitative data, and related services and software to Clear Channel.

     The aggregate amount of all payments to be made by Clear Channel for the Radio Market Report and other related services during the term of the agreements (assuming the agreements are not terminated prior to the expiration of the stated term) currently is expected to be approximately $69.0 million, based on the radio stations currently owned by Clear Channel.

     The new agreements do not amend or otherwise affect the Radio Station License Agreement to Receive and Use Arbitron PPM Data and Estimates by and between the Company and Clear Channel Broadcasting, Inc., dated June 26, 2007, which was disclosed in a Current Report on Form 8-K filed with the SEC on June 29, 2007 and filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 20, 2007, and related agreements.

Univision Communications, Inc. (“Univision”)

     On March 30, 2009, we received a notice from Univision that it did not intend to renew its contract for PPM ratings in Chicago, Los Angeles, New York, San Francisco and San Jose on June 30, 2009 and Dallas-Ft. Worth on September 30, 2009. Univision also informed us that it does not intend to subscribe or encode its broadcast signals in Miami-Ft. Lauderdale-Hollywood, San Diego and Phoenix.

Critical Accounting Policies and Estimates

     Critical accounting policies and estimates are those that are both important to the presentation of our financial position or results of operations, and require our most difficult, complex or subjective judgments.

     We capitalize software development costs with respect to significant internal use software initiatives or enhancements in accordance with Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. The costs are capitalized from the time that the preliminary project stage is completed and management considers it probable that the software will be used to perform the function intended, until the time the software is placed in service for its intended use. Once the software is placed in service, the capitalized costs are amortized over periods of three to five years. We perform an assessment quarterly to determine if it is probable that all capitalized software will be used to perform its intended function. If an impairment exists, the software cost is written down to estimated fair value. As of June 30, 2009, and December 31, 2008, our capitalized software developed for internal use had carrying amounts of $24.2 million and $22.6 million, respectively, including $13.9 million and $13.3 million, respectively, of software related to the PPM service.

     We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year and for deferred tax assets and liabilities for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. We must make assumptions, judgments and estimates to determine the current provision for income taxes and also deferred tax assets and liabilities and any valuation allowance to be recorded against a deferred tax asset. Our assumptions, judgments and estimates relative to the current provision for income taxes take into account current tax laws, interpretation of current tax laws and possible outcomes of current and future audits conducted by domestic and foreign tax authorities. Changes in tax law or interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amounts provided for income taxes in the consolidated financial statements. Our assumptions, judgments and estimates relative to the value of a deferred tax asset take into account forecasts of the amount and nature of future taxable income. Actual operating results and the underlying amount and nature of income in future years could render current assumptions, judgments and estimates of recoverable net deferred tax assets inaccurate. We believe it is more likely than not that we will realize the benefits of these deferred tax assets. Any of the assumptions, judgments and estimates mentioned above could cause actual income tax obligations to differ from estimates, thus impacting our financial position and results of operations.

     In accordance with FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN No. 48”), an interpretation of FASB Statement No. 109, Accounting for Income Taxes, we include, in our tax calculation methodology, an assessment of the uncertainty in income taxes by establishing recognition thresholds for our tax positions. Inherent in our calculation are critical judgments by management related to the determination of the basis for our tax positions. FIN No. 48 provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. For further information, see Note 11 in the Notes to Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

     During 2008, we became involved in two securities-law civil actions and a governmental interaction primarily related to the commercialization of our PPM service. During 2008 and the six months ended June 30, 2009, we incurred $7.8 million in legal fees and expenses in connection with these matters. As of June 30, 2009, $2.0 million in insurance proceeds related to these legal actions was collected and we estimate that $4.1 million of such legal fees and expenses are probable for future recovery under our Directors and Officers insurance policy. This amount is included in our prepaids and other current assets as of June 30, 2009.

     We also recorded a $1.0 million insurance claims receivable related to business interruption losses and damages incurred as a result of Hurricane Ike as of December 31, 2008. As of June 30, 2009, the Company estimates that $1.0 million of the $2.3 million loss incurred during 2008 and the first half of 2009 for Hurricane Ike are probable for recovery through insurance.

Results of Operations

Comparison of the Three Months Ended June 30, 2009 to the Three Months Ended June 30, 2008

     The following table sets forth information with respect to our consolidated statements of income:

Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
(Unaudited)

		Three Months Ended								Increase								Percentage of
		June 30,								(Decrease)								Revenue
		2009				2008				Dollars				Percent				2009				2008
Revenue		$	86,799			$	78,655			$	8,144				10.4	%			100.0	%			100.0	%
Costs and expenses
Cost of revenue			55,762				52,585				3,177				6.0	%			64.2	%			66.9	%
Selling, general and administrative			19,351				19,977				(626	)			(3.1	%)			22.3	%			25.4	%
Research and development			10,584				9,864				720				7.3	%			12.2	%			12.5	%
Restructuring and reorganization			185				—				185			NM					0.2	%			0.0	%
Total costs and expenses			85,882				82,426				3,456				4.2	%			98.9	%			104.8	%
Operating income (loss)			917				(3,771	)			4,688			NM					1.1	%			(4.8	%)
Equity in net income of affiliate(s)			5,581				5,166				415				8.0	%			6.4	%			6.6	%
Income from continuing operations
before interest and tax expense			6,498				1,395				5,103				365.8	%			7.5	%			1.8	%
Interest income			14				271				(257	)			(94.8	%)			0.0	%			0.3	%
Interest expense			365				682				(317	)			(46.5	%)			0.4	%			0.9	%
Income from continuing operations before income
tax expense			6,147				984				5,163				524.7	%			7.1	%			1.3	%
Income tax expense			2,651				359				2,292				638.4	%			3.1	%			0.5	%
Income from continuing operations			3,496				625				2,871				459.4	%			4.0	%			0.8	%
Discontinued operations
Loss from discontinued operations, net of taxes			—				—				—			NM					0.0	%			0.0	%
Loss on sale, net of taxes			—				(25	)			25			NM					0.0	%			(0.0	%)
Total loss from discontinued operations, net of taxes			—				(25	)			25			NM					0.0	%			(0.0	%)
Net income		$	3,496			$	600			$	2,896				482.7	%			4.0	%			0.8	%
Income per weighted average common share
Basic
Continuing operations		$	0.13			$	0.02			$	0.11				550.0	%
Discontinued operations			—				—				—				—
Net income per share, basic		$	0.13			$	0.02			$	0.11				550.0	%
Diluted
Continuing operations		$	0.13			$	0.02			$	0.11				550.0	%
Discontinued operations			—				—				—				—
Net income per share, diluted		$	0.13			$	0.02			$	0.11				550.0	%
Cash dividends declared per common share		$	0.10			$	0.10			$	—				—