e10vq
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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, 2011
Or
     
o   Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                      to                     
Commission file number: 1-1969
ARBITRON INC.
(Exact name of registrant as specified in its charter)
     
Delaware    
(State or other jurisdiction of   52-0278528
incorporation or organization)   (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 þ 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
             
Large Accelerated Filer o   Accelerated Filer þ   Non-Accelerated Filer o   Smaller Reporting Company o
        (Do not check if a smaller reporting company)    
     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 27,218,829 shares of common stock, par value $0.50 per share, outstanding as of July 29, 2011.
 
 

 


 

ARBITRON INC.
INDEX
         
    Page No.  
       
 
       
       
 
       
    4  
 
       
    5  
 
       
    6  
 
       
    7  
 
       
    8  
 
       
    19  
 
       
    34  
 
       
    34  
 
       
       
 
       
    35  
 
       
    36  
 
       
    37  
 
       
       
 
       
    37  
 
       
    39  
 EX-31.1
 EX-31.2
 EX-32.1
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT

 


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          Arbitron owns or has the rights to various trademarks, trade names or service marks used in its radio audience ratings business and subsidiaries, including the following: the Arbitron name and logo, Arbitrendssm, RetailDirect®, RADAR®, TAPSCANtm, TAPSCAN WORLDWIDEtm, LocalMotion®, Maximi$er®, Maximi$er® Plus, Arbitron PD Advantage®, SmartPlus®, Arbitron Portable People Metertm, PPMtm, Arbitron PPMtm, Arbitron PPM®, PPM 360tm, Marketing Resources Plus®, MRPsm, PrintPlus®, MapMAKER Directsm, Media Professionalsm, Media Professional Plussm, QUALITAPsm, Get a Griptm and Schedule-Itsm.
          The trademarks Windows®, Mscoretm and Media Rating Council® referred to in this Quarterly Report on Form 10-Q 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.

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ARBITRON INC.
Consolidated Balance Sheets
(In thousands, except par value data)
                 
    June 30,     December 31,  
    2011     2010  
    (Unaudited)     (Audited)  
Assets
               
Current assets
               
Cash and cash equivalents
  $ 8,215     $ 18,925  
Trade accounts receivable, net of allowance for doubtful accounts of $4,568 as of June 30, 2011, and $4,708 as of December 31, 2010
    58,551       59,808  
Prepaid expenses and other current assets
    8,739       11,332  
Deferred tax assets
    4,707       4,758  
 
           
Total current assets
    80,212       94,823  
 
               
Equity and other investments
    17,256       18,385  
Property and equipment, net
    68,854       70,332  
Goodwill, net
    38,895       38,895  
Other intangibles, net
    5,701       6,272  
Other noncurrent assets
    267       534  
 
           
Total assets
  $ 211,185     $ 229,241  
 
           
Liabilities and Stockholders’ Equity
               
Current liabilities
               
Accounts payable
  $ 9,808     $ 10,007  
Accrued expenses and other current liabilities
    20,873       27,670  
Current portion of debt
    5,000       53,000  
Deferred revenue
    47,746       36,479  
 
           
Total current liabilities
    83,427       127,156  
Noncurrent deferred tax liabilities
    2,241       2,695  
Other noncurrent liabilities
    22,974       21,739  
 
           
Total liabilities
    108,642       151,590  
 
           
 
               
Stockholders’ equity
               
Preferred stock, $100.00 par value, 750 shares authorized, no shares issued
           
Common stock, $0.50 par value, 500,000 shares authorized, 32,338 shares issued as of June 30, 2011, and December 31, 2010
    16,169       16,169  
Retained earnings
    98,541       74,184  
Common stock held in treasury, 5,139 shares as of June 30, 2011, and 5,285 shares as of December 31, 2010
    (2,570 )     (2,642 )
Accumulated other comprehensive loss
    (9,597 )     (10,060 )
 
           
Total stockholders’ equity
    102,543       77,651  
 
           
Total liabilities and stockholders’ equity
  $ 211,185     $ 229,241  
 
           
See accompanying notes to consolidated financial statements.

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ARBITRON INC.
Consolidated Statements of Income
(In thousands, except per share data)
(unaudited)
                 
    Three Months Ended
June 30,
 
    2011     2010  
Revenue
  $ 95,737     $ 88,339  
 
           
 
               
Costs and expenses
               
Cost of revenue
    61,025       59,504  
Selling, general and administrative
    18,656       19,149  
Research and development
    9,017       9,072  
 
           
Total costs and expenses
    88,698       87,725  
 
           
 
               
Operating income
    7,039       614  
 
               
Equity in net income of affiliate
    5,453       5,642  
 
           
 
               
Income before interest and income tax expense
    12,492       6,256  
Interest income
    8       4  
Interest expense
    104       254  
 
           
 
               
Income before income tax expense
    12,396       6,006  
Income tax expense
    4,812       2,207  
 
           
Net income
  $ 7,584     $ 3,799  
 
           
 
               
Income per weighted-average common share
               
Basic
  $ 0.28     $ 0.14  
Diluted
  $ 0.27     $ 0.14  
 
               
Weighted-average common shares used in calculations
               
Basic
    27,159       26,650  
Potentially dilutive securities
    449       424  
 
           
Diluted
    27,608       27,074  
 
           
 
               
Dividends declared per common share outstanding
  $ 0.10     $ 0.10  
 
           
See accompanying notes to consolidated financial statements.

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ARBITRON INC.
Consolidated Statements of Income
(In thousands, except per share data)
(unaudited)
                 
    Six Months Ended  
    June 30,  
    2011     2010  
Revenue
  $ 196,606     $ 184,235  
 
           
 
               
Costs and expenses
               
Cost of revenue
    106,704       102,657  
Selling, general and administrative
    35,765       36,790  
Research and development
    18,012       18,981  
 
           
Total costs and expenses
    160,481       158,428  
 
           
 
               
Operating income
    36,125       25,807  
 
               
Equity in net income of affiliate
    2,921       3,111  
 
           
 
               
Income before interest and income tax expense
    39,046       28,918  
Interest income
    14       6  
Interest expense
    268       519  
 
           
 
               
Income before income tax expense
    38,792       28,405  
Income tax expense
    14,961       10,858  
 
           
Net income
  $ 23,831     $ 17,547  
 
           
 
               
Income per weighted-average common share
               
Basic
  $ 0.88     $ 0.66  
Diluted
  $ 0.86     $ 0.65  
 
               
Weighted-average common shares used in calculations
               
Basic
    27,119       26,622  
Potentially dilutive securities
    483       377  
 
           
Diluted
    27,602       26,999  
 
           
 
               
Dividends declared per common share outstanding
  $ 0.20     $ 0.20  
 
           
 
               
See accompanying notes to consolidated financial statements.

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ARBITRON INC.
Consolidated Statements of Cash Flows
(In thousands and unaudited)
                 
    Six Months Ended June 30,  
    2011     2010  
Cash flows from operating activities
               
Net income
  $ 23,831     $ 17,547  
Adjustments to reconcile net income to net cash provided by operating activities
               
Depreciation and amortization of property and equipment
    13,983       12,931  
Amortization of intangible assets
    571       264  
Loss on asset disposals and impairments
    1,221       1,319  
Loss due to retirement plan settlements
          1,212  
Reduced tax benefits on share-based awards
          (25 )
Deferred income taxes
    (706 )     (539 )
Equity in net income of affiliate
    (2,921 )     (3,111 )
Distributions from affiliate
    4,050       4,650  
Bad debt expense
    930       60  
Non-cash share-based compensation
    3,831       3,102  
Changes in operating assets and liabilities
               
Trade accounts receivable
    327       (4,141 )
Prepaid expenses and other assets
    2,705       142  
Accounts payable
    250       (398 )
Accrued expenses and other current liabilities
    (6,998 )     (6,457 )
Deferred revenue
    11,267       6,582  
Other noncurrent liabilities
    2,010       1,600  
 
           
Net cash provided by operating activities
    54,351       34,738  
 
           
 
               
Cash flows from investing activities
               
Additions to property and equipment
    (14,182 )     (12,859 )
License of other intangible assets
          (4,500 )
Purchases of equity and other investments
          (1,780 )
Payments for business acquisitions
          (2,500 )
 
           
Net cash used in investing activities
    (14,182 )     (21,639 )
 
           
 
               
Cash flows from financing activities
               
Proceeds from stock option exercises and stock purchase plan
    2,046       1,156  
Dividends paid to stockholders
    (5,408 )     (5,312 )
Tax benefits realized from share-based awards
    484        
Decrease in bank overdraft payables
          (3,833 )
Borrowings under Credit Facility
    5,000       10,000  
Payments under Credit Facility
    (53,000 )     (10,000 )
 
           
Net cash used in financing activities
    (50,878 )     (7,989 )
 
           
 
               
Effect of exchange rate changes on cash and cash equivalents
    (1 )     (1 )
 
           
Net change in cash and cash equivalents
    (10,710 )     5,109  
Cash and cash equivalents at beginning of period
    18,925       8,217  
 
           
Cash and cash equivalents at end of period
  $ 8,215     $ 13,326  
 
           
See accompanying notes to consolidated financial statements.

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ARBITRON INC.
Notes to Consolidated Financial Statements
June 30, 2011
(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, 2010 was audited as of that date, but all of the information and notes as of December 31, 2010 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, 2010.
Consolidation
     The consolidated financial statements of the Company for the six-month period ended June 30, 2011, reflect the consolidated financial position, results of operations and cash flows of the Company and its subsidiaries: Arbitron Holdings Inc., Astro West LLC, Ceridian Infotech (India) Private Limited, Arbitron International, LLC, and Arbitron Technology Services India Private Limited. All significant intercompany balances have been eliminated in consolidation. Certain amounts in the consolidated financial statements for prior periods have been reclassified to conform to the current period’s presentation.
2. New Accounting Pronouncements
     In October 2009, the Financial Accounting Standards Board (i.e. “FASB”) issued Accounting Standards Update No. 2009-13 Revenue Recognition (Topic 605) — Multiple-Deliverable Revenue Arrangements a consensus of the FASB Emerging Issues Task Force (i.e. “ASU 2009-13”). This requires companies to allocate revenue in multiple-element arrangements based on an element’s estimated selling price if vendor-specific or other third party evidence of value is not available. The new guidance is to be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted. There was no impact to the Company’s consolidated financial statements of adopting this guidance.

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3. Current Portion of Debt
     The Company has 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”), expiring on December 20, 2011. The agreement contains an expansion feature for the Company to increase the total financing available under the Credit Facility by up to $50.0 million to an aggregate of $200.0 million. Such increased financing would be provided by one or more existing Credit Facility lending institutions, subject to the approval of the lenders, and/or in combination with one or more new lending institutions, subject to the approval of the Credit Facility’s administrative agent.
     The Company expects to renew or replace the Credit Facility prior to its expiration. As of June 30, 2011, and December 31, 2010, the outstanding borrowings under the Credit Facility were $5.0 million and $53.0 million, respectively.
     Interest paid during each of the six-month periods ended June 30, 2011, and 2010, was $0.3 million and $0.5 million, respectively.
4. Stockholders’ Equity
     Changes in stockholders’ equity for the six-month period ended June 30, 2011, were as follows (in thousands):
                                                 
                                    Accumulated        
                                    Other     Total  
    Shares     Common     Treasury     Retained     Comprehensive     Stockholders’  
    Outstanding     Stock     Stock     Earnings     Loss     Equity  
     
Balance as of December 31, 2010
    27,055     $ 16,169     $ (2,642 )   $ 74,184     $ (10,060 )   $ 77,651  
 
                                               
Net income
                      23,831             23,831  
 
                                               
Common stock issued from treasury stock
    144             72       1,640             1,712  
 
                                               
Tax benefits from share-based awards
                      484             484  
 
                                               
Non-cash share-based compensation
                      3,831             3,831  
 
                                               
Dividends declared
                      (5,429 )           (5,429 )
 
                                               
Other comprehensive income
                            463       463  
     
 
                                               
Balance as of June 30, 2011
    27,199     $ 16,169     $ (2,570 )   $ 98,541     $ (9,597 )   $ 102,543  
     
     A quarterly cash dividend of $0.10 per common share was paid to stockholders on July 1, 2011.

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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, 2011, and 2010, 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, 2011, and 2010, there were stock options to purchase 2,038,787 and 2,486,862 shares, respectively, of the Company’s common stock outstanding, of which stock options to purchase 869,397 and 1,356,889 shares of the Company’s common stock, respectively, were excluded from the computation of diluted net income per weighted-average common share for the quarters ended June 30, 2011, and 2010, respectively, either because the stock options’ exercise prices were greater than the average market price of the Company’s common shares or assumed repurchases from proceeds from the stock options’ exercise were antidilutive.
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. The components of comprehensive income were as follows (in thousands):
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
Net income
  $ 7,584     $ 3,799     $ 23,831     $ 17,547  
 
                       
Other comprehensive income (loss):
                               
Change in foreign currency translation adjustment
    (23 )     (253 )     (9 )     (227 )
Change in retirement liabilities, net of tax expense of $151, and $117 for the three-month periods ended June 30, 2011, and 2010, respectively; and a tax expense of $303, and $559 for the six-month periods ended June 30, 2011, and 2010, respectively;
    236       184       472       869  
 
                       
Other comprehensive income (loss)
    213       (69 )     463       642  
 
                       
 
                               
Comprehensive income
  $ 7,797     $ 3,730     $ 24,294     $ 18,189  
 
                       
The components of accumulated other comprehensive loss were as follows (in thousands):
                 
    June 30,     December 31,  
    2011     2010  
Foreign currency translation adjustment
  $ (469 )   $ (460 )
Retirement plan liabilities, net of tax
    (9,128 )     (9,600 )
 
           
Accumulated other comprehensive loss
  $ (9,597 )   $ (10,060 )
 
           

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7. Prepaid Expenses and Other Current Assets
     Prepaid expenses and other current assets as of June 30, 2011, and December 31, 2010, consist of the following (in thousands):
                 
    June 30, 2011     December 31, 2010  
Survey participant incentives and prepaid postage
  $ 1,324     $ 2,441  
Insurance recovery receivable
    573       601  
Prepaid income taxes
    4,165       5,518  
Other
    2,677       2,772  
 
           
Prepaid expenses and other current assets
  $ 8,739     $ 11,332  
 
           
     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, which the management of the Company believes are covered by the Company’s Directors and Officers insurance policy. As of June 30, 2011 and December 31, 2010, the Company incurred-to-date $10.3 million, and $9.7 million, respectively, in legal fees and costs in defense of its positions related thereto, and as of June 30, 2011, the Company had received $6.7 million in insurance reimbursements related to these legal actions. The Company reported approximately $0.6 million, and $0.3 million in related legal fees recorded during the six-month periods ended June 30, 2011, and 2010, respectively. These legal fees were offset by $0.8 million and $0.3 million in insurance recoveries as reductions to selling, general and administrative expense during the six-month periods ended June 30, 2011, and 2010, respectively.
8. Equity and Other Investments
     The Company’s equity and other investments as of June 30, 2011, and December 31, 2010, consist of the following (in thousands):
                 
    June 30, 2011     December 31, 2010  
Scarborough
  $ 12,076     $ 13,205  
 
               
TRA preferred stock
    5,180       5,180  
 
           
 
               
Equity and other investments
  $ 17,256     $ 18,385  
 
           
     The Company’s 49.5% investment in Scarborough Research (“Scarborough”), a Delaware general partnership, is accounted for using the equity method of accounting. The Company’s investment in TRA Global, Inc. (“TRA”) is accounted for using the cost method of accounting. See Note 15 Financial Instruments for further information regarding the Company’s investment in TRA as of June 30, 2011.

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     The following table shows the investment activity and balances for each of the Company’s investments and in total for the three-and six-month periods ended June 30, 2011, and 2010 (in thousands):
                                                 
    Three Months Ended     Three Months Ended  
    June 30, 2011     June 30, 2010  
    Scarborough     TRA     Total     Scarborough     TRA     Total  
         
Beginning balance
  $ 8,023     $ 5,180     $ 13,203     $ 8,057     $ 3,400     $ 11,457  
Investment income
    5,453             5,453       5,642             5,642  
Distributions from investee
    (1,400 )           (1,400 )     (1,700 )           (1,700 )
Cash investments
                            1,780       1,780  
         
Ending balance at June 30
  $ 12,076     $ 5,180     $ 17,256     $ 11,999     $ 5,180     $ 17,179  
         
                                                 
    Six Months Ended     Six Months Ended  
    June 30, 2011     June 30, 2010  
    Scarborough     TRA     Total     Scarborough     TRA     Total  
         
Beginning balance
  $ 13,205     $ 5,180     $ 18,385     $ 13,538     $ 3,400     $ 16,938  
Investment income
    2,921             2,921       3,111             3,111  
Distributions from investee
    (4,050 )           (4,050 )     (4,650 )           (4,650 )
Cash investments
                            1,780       1,780  
         
Ending balance at June 30
  $ 12,076     $ 5,180     $ 17,256     $ 11,999     $ 5,180     $ 17,179  
         
9. Acquisitions
     On July 28, 2011, a wholly-owned subsidiary of the Company acquired Zokem Oy, a Finland-based mobile audience measurement and analytics firm. The Company paid approximately $11.7 million in cash for the acquisition with possible additional cash payments to be made through 2015 of up to $12.0 million, which is contingent upon Zokem reaching certain financial performance targets in the future.
     On June 15, 2010, a wholly-owned subsidiary of the Company, purchased the technology portfolio, trade name, and equipment of Integrated Media Measurement, Inc. The Company paid $2.5 million for these assets, which included $1.8 million of intangible assets, $0.3 million of computer equipment, and $0.4 million of goodwill. The intangible assets are being amortized over 5.0 years.
     On March 23, 2010, the Company entered into a licensing arrangement with Digimarc Corporation (“Digimarc”) to receive a non-exclusive, worldwide and irrevocable license to a substantial portion of Digimarc’s domestic and international patent portfolio. The Company paid $4.5 million for this other intangible asset, which is being amortized over 7.0 years.
10. Contingencies
     The Company is involved in a number of governmental interactions primarily related to the commercialization of our PPM service. A contingent loss in the amount of $0.4 million and $0.5 million for these claims was recorded in accrued expenses and other current liabilities on the Company’s consolidated balance sheet as of June 30, 2011, and December 31, 2010, respectively.
11. 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 also subsidizes healthcare benefits for eligible retired employees who participate in the pension plan and were hired before January 1, 1992. The Company sponsored one nonqualified, unfunded supplemental retirement plan during the six-month period ended June 30, 2011. The Company sponsored two supplemental retirement plans during the six-month period ended June 30, 2010, prior to the termination of one of the supplemental plans in the third quarter of 2010.

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     The components of periodic benefit costs for the defined-benefit pension, postretirement healthcare and supplemental retirement plan(s) were as follows (in thousands):
                                                 
    Defined-Benefit     Postretirement Healthcare     Supplemental  
    Pension Plan     Plan     Retirement Plan(s)  
    Three Months     Three Months     Three Months  
    Ended June 30,     Ended June 30,     Ended June 30,  
    2011     2010     2011     2010     2011     2010  
Service cost
  $ 193     $ 182     $ 9     $ 9     $ 5     $ 4  
Interest cost
    455       471       21       23       40       50  
Expected return on plan assets
    (513 )     (534 )                        
Amortization of net loss
    343       263       7       9       38       30  
 
                                   
Net periodic benefit cost
  $ 478     $ 382     $ 37     $ 41     $ 83     $ 84  
 
                                   
                                                 
    Defined-Benefit     Postretirement Healthcare     Supplemental  
    Pension Plan     Plan     Retirement Plan(s)  
    Six Months     Six Months     Six Months  
    Ended June 30,     Ended June 30,     Ended June 30,  
    2011     2010     2011     2010     2011     2010  
Service cost
  $ 387     $ 365     $ 19     $ 19     $ 10     $ 8  
Interest cost
    910       942       41       45       80       109  
Expected return on plan assets
    (1,026 )     (1,068 )                        
Amortization of net loss
    685       526       14       18       76       72  
 
                                   
Net periodic benefit cost
  $ 956     $ 765     $ 74     $ 82     $ 166     $ 189  
 
                                   
 
                                               
Settlement and curtailment loss
  $     $     $     $     $     $ 1,212  
 
                                   
     During the six-month period ended June 30, 2010, the Company recognized a $1.2 million settlement loss as a result of a lump sum distribution paid to a supplemental retirement plan participant which exceeded the service and interest components incurred for that plan. No settlement charge was incurred during the six-month period ended June 30, 2011.
     The Company estimates that it will contribute $2.2 million to its defined benefit plans during 2011.
12. Taxes
     The effective tax rate increased to 38.6% for the six months ended June 30, 2011, from 38.2% for the six months ended June 30, 2010.
     During 2011, the Company’s net unrecognized tax benefits for certain tax contingencies decreased from $1.9 million as of December 31, 2010, to $1.3 million as of June 30, 2011. If recognized, the $1.3 million in unrecognized tax benefits would reduce the Company’s effective tax rate in future periods.
     Income taxes paid for the six-months ended June 30, 2011 and 2010, were $14.3 million and $15.1 million, respectively.

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13. 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,  
    2011     2010     2011     2010  
Cost of revenue
  $ 115     $ 90     $ 243     $ 180  
Selling, general and administrative
    1,634       1,886       3,429       2,808  
Research and development
    77       61       159       114  
 
                               
 
                       
Share-based compensation
  $ 1,826     $ 2,037     $ 3,831     $ 3,102  
 
                       
     There was no capitalized share-based compensation cost recorded during the six-month periods ended June 30, 2011, and 2010.
Stock Options
     Stock options awarded to employees under the 2001 Stock Incentive Plan and the 2008 Equity Compensation Plan (referred to herein collectively as the “SIPs”) generally vest annually over a three-year period, have a 10-year term and have an exercise price of not less than the fair market value of the Company’s common stock at the date of grant. For stock options granted prior to 2010, the Company’s stock option agreements generally provide for accelerated vesting if there is a change in control of the Company. Effective for stock options granted after 2009, the Company’s stock option agreements provide for accelerated vesting if (i) there is a change in control of the Company and (ii) the participant’s employment terminates during the 24-month period following the effective date of the change in control for one of the reasons specified in the stock option agreement.
     Compensation expense for stock options is recognized on a straight-line basis over the vesting period using the fair value of each stock option estimated as of the grant date. The Company uses historical data to estimate future option exercises and employee terminations in order to determine the expected term of the stock option, where the expected term of stock option granted represents the period of time that such stock option is expected to be outstanding. Identified groups of optionholders with similar historical exercise behavior are considered separately for valuation purposes. The expected term of stock options can vary for groups of optionholders exhibiting different behavior. The fair value of each stock option granted to employees and nonemployee directors during the six-month periods ended June 30, 2011, and 2010, was estimated on the date of grant using a Black-Scholes stock option valuation model, which uses a risk-free rate and volatility rate, among other things, to estimate fair value. The risk-free rate for periods within the contractual life of the stock 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.
     For the three-month periods ended June 30, 2011 and 2010, no stock options were granted, respectively.
     For the six-month periods ended June 30, 2011 and 2010, the number of stock options granted was 73,225 and 288,544, respectively, and the weighted-average exercise price for those stock options granted was $44.06 and $22.84, respectively.
     As of June 30, 2011, there was $2.6 million in total unrecognized compensation cost related to stock options granted under the SIPs. This aggregate unrecognized cost is expected to be recognized over a weighted-average remaining period of 1.8 years. The weighted-average exercise price and weighted-average remaining contractual term for outstanding stock options as of June 30, 2011, were $32.84 and 6.02 years, respectively, and as of June 30, 2010, $30.84 and 6.98 years, respectively.

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Service and Performance Award Shares
     Service award shares. During the six-month period ended June 30, 2011, the Company granted service award shares under the SIPs. These service award shares (i) were issued at the fair market value of the Company’s common stock on the date of grant, (ii) vest in four equal annual installments beginning on the first anniversary date of the grant, and (iii) for any unvested shares, expire without vesting if the employee is no longer employed by the Company. For those service award shares granted prior to 2010, the service award shares generally provide for accelerated vesting if there is a change in control of the Company. Effective for service award shares granted after 2009, the service award shares provide for accelerated vesting if (i) there is a change in control of the Company and (ii) the participant’s employment terminates during the 24-month period following the effective date of the change in control for one of the reasons specified in the restricted stock unit agreement.
     Compensation expense for service award shares is recognized on a straight-line basis over the vesting period using the fair market value of the Company’s common stock on the date of grant.
     As of June 30, 2011, there was $2.8 million of total unrecognized compensation cost related to service award shares granted under the SIPs. This aggregate unrecognized cost for service award shares is expected to be recognized over a weighted-average period of 2.26 years. Additional information for the three-and six-month periods ended June 30, 2011, and 2010, is noted in the following table (dollars in thousands, except per share amounts):
                                 
    Three Months Ended     Three Months Ended     Six Months Ended     Six Months Ended  
    June 30, 2011     June 30, 2010     June 30, 2011     June 30, 2010  
Number of service award shares granted
                18,434        
 
                               
Weighted average grant-date fair value per share
              $ 42.72        
 
                               
Fair value of service award shares vested
  $ 1,531     $ 1,467     $ 2,214     $ 2,190  
     Performance award shares. During the six-month periods ended June 30, 2011 and 2010, the Company granted performance award shares under the SIPS. These performance award shares (i) were issued at the fair market value of the Company’s common stock on the date of grant, (ii) will expire without vesting if the Company’s return on invested capital (“ROIC”) for the annual performance period does not exceed 12 percent, which is an approximation of the Company’s weighted average cost of capital, (iii) will, if the Company’s ROIC exceeds 12 percent, vest in four equal annual installments beginning on the first anniversary date of the grant, and (iv) for any unvested shares, expire without vesting if the employee is no longer employed by the Company. The Company’s performance award shares provide for accelerated vesting if (i) there is a change in control of the Company and (ii) the participant’s employment terminates during the 24-month period following the effective date of the change in control for one of the reasons specified in the performance-based restricted stock unit agreement.
     Compensation expense for performance award shares is recognized using the fair market value of the Company’s common stock on the date of grant and on an accelerated basis. The Company recognizes expense for these performance award shares under the assumption that the performance ROIC target will be achieved. If it appears such performance ROIC target will not be met, the Company would stop recognizing any further compensation cost and any previously recognized compensation cost would be reversed.

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     Additional information for the three- and six-month periods ended June 30, 2011, and 2010, is noted in the following table (dollars in thousands, except per share amounts):
                                 
    Three Months Ended     Three Months Ended     Six Months Ended     Six Months Ended  
    June 30, 2011     June 30, 2010     June 30, 2011     June 30, 2010  
Number of performance award shares granted
          39,630       22,511       91,553  
 
                               
Weighted average grant-date fair value per share
        $ 30.46     $ 44.44     $ 25.76  
 
                               
Fair value of performance award shares vested
  $ 415           $ 804        
     As of June 30, 2011, there was $1.6 million of total unrecognized compensation cost related to performance award shares granted under the SIPs. This aggregate unrecognized cost is expected to be recognized over a weighted-average period of 3.10 years.
Deferred Stock Units
     Service award grant to CEO. During the six month periods ended June 30, 2011 and 2010, the Company granted deferred stock unit service awards (“Service DSUs”) under the SIPs to its CEO. Service DSUs are issued under the SIPs at the fair market value of the Company’s stock on the date of grant, and generally vest annually over a four-year period on each anniversary date of the grant. The Service DSUs, if vested, will be convertible into shares of the Company’s common stock following the holder’s termination of employment. The Service DSUs provide for accelerated vesting upon termination without cause or retirement as defined in the CEO’s employment agreement. No Service DSUs were converted into the Company’s common stock shares during the six-month periods ended June 30, 2011, and 2010. Additional information for the three- and six-month periods ended June 30, 2011, and 2010, is noted in the following table (dollars in thousands, except per share amounts):
                                 
    Three Months Ended     Three Months Ended     Six Months Ended     Six Months Ended  
Service DSUs Awarded to CEO   June 30, 2011     June 30, 2010     June 30, 2011     June 30, 2010  
Number of shares granted
                900       60,144  
 
                               
Weighted-average grant date fair value per share
              $ 44.44     $ 24.94  
 
                               
Fair value of shares vested
              $ 704        
     Compensation expense for Service DSUs is recognized on a straight-line basis over the vesting period using the fair market value of the Company’s common stock on the date of grant. As of June 30, 2011, there was $0.4 million of total unrecognized compensation cost related to Service DSUs. This aggregate unrecognized cost is expected to be recognized over the weighted-average period of 0.53 years.
     Performance award grant to CEO. During the six-month periods ended June 30, 2011 and 2010, the Company granted deferred stock unit performance awards (“Performance DSUs”) under the SIPs to its CEO. These Performance DSUs (i) were issued at the fair market value of the Company’s common stock on the date of grant, (ii)

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will expire without vesting if the Company’s return on invested capital (“ROIC”) for the annual performance period does not exceed 12 percent, which is an approximation of the Company’s weighted average cost of capital, (iii) will, if the Company’s ROIC exceeds 12 percent, vest in four equal annual installments beginning on the first anniversary date of the grant, and (iv) provide for accelerated vesting upon termination without cause or retirement as defined in the CEO’s employment agreement. These Performance DSUs, if vested, will be convertible into shares of the Company’s common stock, subsequent to termination of employment. Additional information for the three- and six-month periods ended June 30, 2011, and 2010, is noted in the following table (dollars in thousands, except per share amounts):
                                 
    Three Months Ended     Three Months Ended     Six Months Ended     Six Months Ended  
Performance DSUs Awarded to CEO   June 30, 2011     June 30, 2010     June 30, 2011     June 30, 2010  
Number of shares granted
                24,122       23,004  
 
                               
Weighted-average grant date fair value per share
              $ 44.44     $ 22.17  
 
                               
Fair value of shares vested
              $ 227        
     Compensation expense for Performance DSUs is recognized using the fair market value of the Company’s common stock on the date of grant and on an accelerated basis. The Company recognizes expense for these Performance DSUs under the assumption that the performance ROIC target will be achieved. If it appears such performance ROIC target will not be met, the Company would stop recognizing any further compensation cost and any previously recognized compensation cost would be reversed. As of June 30, 2011, there was $0.9 million of total unrecognized compensation cost related to Performance DSUs. This aggregate unrecognized cost is expected to be recognized over the weighted-average period of 1.41 years.
     Awards for service on Board of Directors (“Board”). The Company issues deferred stock units to its Board of Directors (“Board DSUs”) under the SIPs. These Board DSUs (i) were issued at the fair market value of the Company’s common stock on the date of grant and (ii) if vested, will be convertible to shares of the Company’s common stock subsequent to termination of service as a director. Annual grants of Board DSUs vest annually in three equal installments over a three-year period.
     In addition to receiving Board DSU grants annually, the Board members have the right to elect to receive all or a portion of their retainer and meeting attendance fees as cash and/or deferred stock units, which vest immediately. Only nonemployee directors are eligible for director compensation and therefore Board DSUs are only granted to nonemployee Directors.

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     Additional information for the three- and six-month periods ended June 30, 2011, and 2010, is noted in the following table (dollars in thousands, except per share amounts):
                                 
Board DSUs and Dividend   Three Months Ended     Three Months Ended     Six Months Ended     Six Months Ended  
Equivalents Awarded to Board   June 30, 2011     June 30, 2010     June 30, 2011     June 30, 2010  
Number of shares granted
    21,061       25,517       22,481       31,676  
 
                               
Weighted-average grant date fair value per share
  $ 40.67     $ 29.03     $ 40.60     $ 28.38  
 
                               
Fair value of shares vested
  $ 57     $ 41     $ 173     $ 84  
     Compensation expense for Board DSUs is recognized on a straight-line basis over the vesting period using the fair market value of the Company’s common stock on the date of grant. As of June 30, 2011, there was $1.4 million of total unrecognized compensation cost related to Board DSUs granted to nonemployee directors. This aggregate unrecognized cost is expected to be recognized over the weighted-average period of 2.47 years.
14. Concentration Risk
     Arbitron is a leading media and marketing information services firm primarily serving radio, advertising agencies, cable and broadcast television, advertisers, retailers, out-of-home media, online media and print media.
     The Company’s quantitative radio audience ratings service and related software licensing revenue accounted for the following percentages, in the aggregate, of total Company revenue:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
Quantitative radio audience ratings service and related software licensing revenue
    81 %     81 %     89 %     89 %
     The Company had one customer that individually represented 20% of its annual revenue for the year ended December 31, 2010. The Company had two customers that individually represented 17% and 12% of its total accounts receivable as of June 30, 2011, and two customers that individually represented 24% and 11% of its total accounts receivable as of December 31, 2010. The Company has historically experienced a high level of contract renewals.
15. Financial Instruments
     The fair values of accounts receivable and accounts payable approximate their carrying values due to their short-term nature. The Company accounts for its $5.2 million investment in TRA’s preferred stock using the cost method of accounting. TRA is closely held and there is not an efficient market in which buyers and sellers determine the fair value of these shares. The Company periodically assesses the fair value of its investment in TRA through comparative analysis and analysis of TRA’s actual and projected financial results. As of June 30, 2011, the Company believes that the fair value of the TRA investment approximates the carrying value of $5.2 million. In the event the fair value of the investment in TRA were to fall below its carrying value in the future, the Company would be required to recognize an impairment loss.
     Due to the floating rate nature of the Company’s revolving obligation under its Credit Facility, the carrying amounts of $5.0 million and $53.0 million in outstanding borrowings as of June 30, 2011, and December 31, 2010, respectively, approximate their fair values.

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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,” “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 actual results to differ materially from results implied by such forward-looking statements. These risks and uncertainties include, in no particular order, whether we will be able to:
    successfully maintain and promote industry usage of our services, a critical mass of broadcaster encoding, and the proper understanding of our audience ratings 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;
 
    successfully obtain and/or maintain Media Rating Council, Inc. (“MRC”) accreditation for our audience ratings services;
 
    successfully launch our cross-platform initiatives;
 
    support our current and future services by designing, recruiting and maintaining research samples that appropriately balance quality, size and operational cost;
 
    successfully develop, implement and fund initiatives designed to increase sample quality;
 
    successfully manage costs associated with cell phone household recruitment and targeted in-person recruitment;
 
    successfully manage the impact on our business of the economic environment generally, and in the advertising market, in particular, including, without limitation, the insolvency of any of our customers or the impact of a downturn on our customers’ ability to fulfill their payment obligations to us;
 
    successfully integrate acquired operations, including differing levels of management and internal control effectiveness at the acquired entity;
 
    compete with companies that may have financial, marketing, sales, technical or other advantages over us;
 
    effectively respond to rapidly changing technologies by creating proprietary systems to support our research initiatives and by developing new services that meet marketplace demands in a timely manner;
 
    successfully execute our business strategies, including evaluating and, where appropriate, entering into potential acquisition, joint-venture or other material third-party agreements;
 
    manage and process the information we collect in compliance with data protection and privacy requirements;

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    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; and
 
    renew contracts with key customers.
     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, 2010, 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, advertising agencies, cable and broadcast television, advertisers, retailers, out-of-home media, online media 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 ratings services and related software have accounted for a substantial majority of our revenue. For each of the six-month periods ended June 30, 2011, and 2010, our quantitative radio ratings services and related software accounted for approximately 89 percent of our revenue. We expect that for the year ending December 31, 2011, our quantitative radio ratings services and related software licensing will account for approximately 89 percent of our revenue.
     Quarterly fluctuations in these percentages are reflective of the seasonal delivery schedule of our quantitative radio ratings service and our Scarborough revenues. For further information regarding seasonality trends, see “Seasonality.”
     While we expect that our quantitative radio ratings services 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 Portable People MeterTM (“PPMTM”) Platform, (which we define as our PPM technology and our PPM panel combined), and exploring applications of the PPM Platform to both enhance and extend beyond our domestic radio ratings business.
     As of December 31, 2010, we completed the commercialization of our PPM radio ratings service in 48 of the largest United States radio markets (“PPM Markets”). We believe those broadcasters with whom we have entered into multi-year PPM agreements account for most of the total radio advertising dollars in the PPM Markets. These agreements provide for a higher fee for PPM-based ratings than we charged for our Diary-based ratings. As a result, absent new initiatives, we expect the percentage of our revenues derived from our quantitative radio ratings services and related software is likely to increase as a result of the commercialization of the PPM service in the PPM Markets.

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     We expect growth in revenue for 2011 due to the full year impact of revenue recognized for the PPM Markets. However, we do not expect the full revenue impact of the launch of each PPM Market to occur within the first year after commercialization because our customer contracts are typically structured to phase in higher PPM service rates over a period of time.
     As we commercialized the PPM ratings service, we incurred expenses to build the PPM panel in each PPM Market in the months before commercializing the service in that market. These costs were incremental to the costs associated with our Diary-based ratings service during those periods. With the commercialization of our PPM ratings service complete, 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 ratings service, and manage increased costs for data collection, arising among other ways, from targeted in-person recruiting and increased numbers of cell phone households, which are more expensive for us to recruit than households with landline phones.
     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.
Ratings Trends and Initiatives
Challenges in Our Radio Audience Ratings Service
     We face a number of challenges in our radio audience ratings services. Overall response rates for survey research, in general, have declined over the past several decades, and it has become increasingly difficult and more costly for us to obtain consent from persons to participate in our surveys and panels. We have been adversely impacted by these industry trends. Another measure often employed by users of our data to assess quality in our ratings is sample proportionality, which refers to how well the distribution of the sample for any individual survey compares to the distribution of the population in the local market. We strive to achieve a level of both response rates and sample proportionality in our surveys sufficient to maintain confidence in our ratings and acceptance by the industry, and to support accreditation by the MRC. Response rates are one measure of our effectiveness in obtaining consent from persons to participate in our surveys and panels.
     If response rates continue to decline or we are unable to maintain sample proportionality in our surveys or the costs of recruitment initiatives significantly increase, our radio audience ratings business could be adversely affected. In an effort to address these challenges, we established internal benchmarks we strive to achieve for response rates and sample proportionality and have instituted a number of methodological enhancements, including cell phone household and targeted in-person recruiting. It is more expensive for us to recruit cell phone households and to conduct targeted in-person recruiting. Because we intend to continue to increase both the number of cell phone households in our samples and the level of targeted in-person recruiting, we expect the expenditures required to support these methods will be material. We currently anticipate that the aggregate cost of cell phone household recruitment for the PPM and Diary services and targeted in-person recruitment for the PPM service will be approximately $16.0 million in 2011, as compared to $15.0 million in 2010.
MRC Accreditation
     In March 2011, we announced the MRC had accredited the monthly average-quarter-hour radio ratings data produced by our PPM service in 11 additional PPM Markets: Atlanta; Cincinnati; Cleveland; Kansas City; Milwaukee-Racine; Philadelphia; Phoenix; Portland, OR; Salt Lake City-Ogden-Provo; St. Louis, and Tampa-St. Petersburg-Clearwater. These 11 markets join Houston-Galveston; Minneapolis-St. Paul and Riverside-San Bernardino as accredited markets for our PPM service, bringing the total number of MRC-accredited PPM Markets to 14. The MRC has denied accreditation in our other 34 PPM Markets based on findings of audits it conducted in 2010. These 34 unaccredited markets, along with the 14 accredited markets, are expected to be audited again in 2011. We continue to seek accreditation in all of our unaccredited PPM Markets.

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     In April 2011, we also announced the MRC had accredited our TAPSCAN Web software, a Web-based sales proposal and analysis software system for radio. Reports created using the software and MRC accredited data will now indicate the software is accredited by the MRC. However, reports created using data from the 34 unaccredited PPM markets will not be MRC-accredited.
     For additional information regarding the status of MRC accreditation of our ratings services, see “Item 1. Business— Media Rating Council Accreditation” in our Annual Report on Form 10-K for the year ended December 31, 2010.
Quality Improvement Initiatives
     Portable People Meter Service. In operating our PPM ratings service, we experienced and expect to continue to experience challenges, including those related to response rates and sample proportionality as described above in “Challenges in Our Radio Audience Ratings Services.” We expect to continue to implement additional measures to address these challenges. Since launching our PPM ratings service, we have implemented a number of initiatives and announced additional forthcoming initiatives. We believe these steps reflect our commitment to ongoing improvement and our responsiveness to feedback from customers and governmental entities. We believe these commitments and enhancements, which we refer to, collectively, as our continuous improvement initiatives, are consistent with our ongoing efforts to obtain and maintain MRC accreditation and to continuously improve our radio ratings services. We expect our continuous improvement initiatives will require expenditures which will be material in the aggregate.
     Diary Service. We strive to achieve representative samples. 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 described above in “Challenges in Our Radio Audience Ratings Services.” We continue to research and test new measures to address these sample quality challenges.
Privacy and Data Security
     We are currently subject to U.S. and international data protection and privacy statutes, rules, and regulations, and may in the future become subject to additional such statutes, rules, and regulations. These statutes, rules, and regulations may affect our collection, use, storage, and transfer of personally identifiable information. Complying with these laws may require us to make certain investments, make modifications to existing services, or prohibit us from offering certain types of services. Failing to comply could result in civil and criminal liability, negative publicity, data being blocked from use, and liability under contracts with our customers.
Credit Facility
     Our revolving credit facility agreement (“Credit Facility”) is scheduled to expire on December 20, 2011. We expect to renew or replace our Credit Facility prior to its expiration. See Liquidity and Capital Resources — Credit Facility below for further information regarding the terms of our Credit Facility.
General Economic Conditions
     Our customers derive most of their revenue from transactions involving the sale or purchase of advertising. During recent challenging economic times, advertisers have reduced advertising expenditures, impacting advertising agencies and media. As a result, advertising agencies and media companies have been and may continue to be less likely to purchase our services, which has and could continue to adversely impact our business, financial position, and operating results. If the recovery from the recent economic downturn slows or if the economy experiences another downturn in the foreseeable future, it may also lead to an increase of incidences of customers’ inability to pay their accounts, an increase in our provision for doubtful accounts, and a further increase in collection cycles for accounts receivable or insolvency of our customers.

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     We depend on a limited number of key customers for our ratings services and related software. For example, in 2010, Clear Channel represented 20 percent of our total revenue. Additionally, although fewer customer contracts expire in 2011 as compared to historical standards, if one or more key customers do not renew all or part of their contracts as they expire, we could experience a significant decrease in our operating results.
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.
     Software development costs. We capitalize software development costs with respect to significant internal use software initiatives or enhancements from the time the preliminary project stage is completed and management considers it probable 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 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, 2011, and December 31, 2010, our capitalized software developed for internal use had carrying amounts of $26.9 million and $24.4 million, respectively, including $11.3 million and $12.4 million, respectively, of software related to the PPM service.
     Deferred income taxes. 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.
     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. For further information regarding our unrecognized tax benefits, see Note 12 in the Notes to Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.
     Insurance Receivables. During 2008, we became involved in two securities-law civil actions and a governmental interaction primarily related to the commercialization of our PPM service. Since 2008, we have incurred a combined total of $10.3 million in legal fees and expenses in connection with these matters. As of June 30, 2011, $6.7 million in insurance reimbursements related to these legal actions were received. As of June 30, 2011, and December 31, 2010, our insurance claims receivable related to these legal actions was $0.6 million and $0.6 million, respectively, and these amounts are included in our prepaid expenses and other current assets on our balance sheet. See Note 7 in our Notes to Consolidated Financial Statements for additional information concerning our insurance recovery receivables.
     Cost Method Investment. We account for our $5.2 million investment in TRA’s preferred stock using the cost method of accounting. TRA is closely held and there is not an efficient market in which buyers and sellers

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determine the fair value of these securities. We periodically assess the fair value of our investment in TRA through comparative analysis and analysis of TRA’s actual and projected financial results. Our assessment of the fair value of TRA requires the use of estimates and judgment. TRA is currently engaged in raising additional capital, which it has indicated to us it expects to complete in the second half of 2011. In the event the fair value of our investment in TRA were to fall below its carrying value, we would be required to recognize an impairment loss.

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Results of Operations
Comparison of the Three Months Ended June 30, 2011 to the Three Months Ended June 30, 2010
     The following table sets forth information with respect to our consolidated statements of income:
                                                 
    Three Months Ended     Increase     Percentage of  
    June 30,     (Decrease)     Revenue  
    2011     2010     Dollars     Percent     2011     2010  
Revenue
  $ 95,737     $ 88,339     $ 7,398       8.4 %     100.0 %     100.0 %
 
                                     
 
                                               
Costs and expenses
                                               
Cost of revenue
    61,025       59,504       1,521       2.6 %     63.7 %     67.4 %
Selling, general and administrative
    18,656       19,149       (493 )     (2.6 %)     19.5 %     21.7 %
Research and development
    9,017       9,072       (55 )     (0.6 %)     9.4 %     10.3 %
 
                                     
Total costs and expenses
    88,698       87,725       973       1.1 %     92.6 %     99.3 %
 
                                     
Operating income
    7,039       614       6,425       1046.4 %     7.4 %     0.7 %
 
                                               
Equity in net income of affiliate
    5,453       5,642       (189 )     (3.3 %)     5.7 %     6.4 %
 
                                     
Income before interest and tax expense
    12,492       6,256       6,236       99.7 %     13.0 %     7.1 %
Interest income
    8       4       4       100.0 %     0.0 %     0.0 %
Interest expense
    104       254       (150 )     (59.1 %)     0.1 %     0.3 %
 
                                     
 
                                               
Income before income tax expense
    12,396       6,006       6,390       106.4 %     12.9 %     6.8 %
Income tax expense
    4,812       2,207       2,605       118.0 %     5.0 %     2.5 %
 
                                     
Net income
  $ 7,584     $ 3,799     $ 3,785       99.6 %     7.9 %     4.3 %
 
                                         
 
                                               
Income per weighted average common share
                                               
Basic
  $ 0.28     $ 0.14     $ 0.14       100.0 %                
 
                                         
Diluted
  $ 0.27     $ 0.14     $ 0.13       92.9 %                
 
                                         
Cash dividends declared per common share
  $ 0.10     $ 0.10     $                        
 
                                         
 
                                               
Certain percentage amounts may not total due to rounding.

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Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
(Unaudited)
                                 
    Three Months Ended     Increase  
    June 30,     (Decrease)  
    2011     2010     Dollars     Percent  
Other data:
                               
EBIT (1)
  $ 12,492     $ 6,256     $ 6,236       99.7 %
EBITDA (1)
  $ 19,731     $ 12,935     $ 6,796       52.5 %
EBIT Margin (1)
    13.0 %     7.1 %                
EBITDA Margin (1)
    20.6 %     14.6 %                
 
                               
EBIT and EBITDA Reconciliation (1)
                               
Net income
  $ 7,584     $ 3,799     $ 3,785       99.6 %
Income tax expense
    4,812       2,207       2,605       118.0 %
Interest (income)
    (8 )     (4 )     (4 )     100.0 %
Interest expense
    104       254       (150 )     (59.1 %)
 
                         
 
                               
EBIT (1)
    12,492       6,256       6,236       99.7 %
Depreciation and amortization
    7,239       6,679       560       8.4 %
 
                         
EBITDA (1)
  $ 19,731     $ 12,935     $ 6,796       52.5 %
 
                         
 
(1)   EBIT (earnings before interest and income taxes), EBIT Margin, EBITDA (earnings before interest, income taxes, depreciation and amortization), and EBITDA Margin are non-GAAP financial measures that we believe are useful to investors in evaluating our results. See “EBIT and EBITDA” for further discussion of these non-GAAP financial measures.
     Revenue. Revenue increased by 8.4% or $7.4 million for the three-month period ended June 30, 2011, as compared to the same period in 2010 primarily due to more PPM Markets and higher prices charged for PPM-based ratings than for Diary-based ratings. PPM-based ratings service revenue increased by $14.9 million primarily due to the impact of the 15 PPM Markets commercialized during the last half of 2010, as well as price escalators in all PPM commercialized markets. This increase in PPM revenue was partially offset by an $8.7 million decrease in revenue related to the transition from our Diary-based ratings service.
     Cost of Revenue. Cost of revenue increased by 2.6% or $1.5 million for the three-month period ended June 30, 2011, as compared to the same period in 2010. Cost of revenue increased primarily due to $0.6 million of increased PPM service-related costs incurred to manage PPM panels for the 48 PPM Markets commercialized as of June 30, 2011, as compared to the 33 PPM Markets commercialized as of June 30, 2010. Cost of revenue was also impacted by a $0.5 million increase in costs related to our computer center operations.
     EBIT and EBITDA. We believe presenting EBIT and EBITDA, both non-GAAP financial measures, as supplemental information helps investors, analysts and others, if they so choose, in understanding and evaluating our operating performance in some of the same ways that we do because EBIT and EBITDA exclude certain items not directly related to our core operating performance. We reference these non-GAAP financial measures in assessing current performance and making decisions about internal budgets, resource allocation and financial goals. EBIT is calculated by deducting interest income from net income and adding back interest expense and income tax expense to net income. EBITDA is calculated by deducting interest income from net income and adding back interest expense, income tax expense, and depreciation and amortization to net income. EBIT and EBITDA margins are calculated as percentages of revenue. EBIT and EBITDA should not be considered substitutes either for net income, as indicators of our operating performance, or for cash flow, as measures of our liquidity. In addition, because EBIT and EBITDA may not be calculated identically by all companies, the presentation here may not be comparable to other similarly titled measures of other companies.

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     EBIT increased by 99.7% or $6.2 million for the three-month period ended June 30, 2011, as compared to the same period in 2010, primarily due to an increase in revenue associated with the PPM service transition. However, EBITDA increased by 52.5% or $6.8 million because this non-GAAP financial measure adds back depreciation and amortization, which increased to $7.2 million for the three-month period ended June 30, 2011, from $6.7 million for the same period in 2010.

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Comparison of the Six Months Ended June 30, 2011 to the Six Months Ended June 30, 2010
     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)
                                                 
    Six Months Ended     Increase     Percentage of  
    June 30,     (Decrease)     Revenue  
    2011     2010     Dollars     Percent     2011     2010  
Revenue
  $ 196,606     $ 184,235     $ 12,371       6.7 %     100.0 %     100.0 %
 
                                     
 
                                               
Costs and expenses
                                               
Cost of revenue
    106,704       102,657       4,047       3.9 %     54.3 %     55.7 %
Selling, general and administrative
    35,765       36,790       (1,025 )     (2.8 %)     18.2 %     20.0 %
Research and development
    18,012       18,981       (969 )     (5.1 %)     9.2 %     10.3 %
 
                                     
Total costs and expenses
    160,481       158,428       2,053       1.3 %     81.6 %     86.0 %
 
                                     
Operating income
    36,125       25,807       10,318       40.0 %     18.4 %     14.0 %
 
                                               
Equity in net income of affiliate
    2,921       3,111       (190 )     (6.1 %)     1.5 %     1.7 %
 
                                     
Income before interest and tax expense
    39,046       28,918       10,128       35.0 %     19.9 %     15.7 %
Interest income
    14       6       8       133.3 %     0.0 %     0.0 %
Interest expense
    268       519       (251 )     (48.4 %)     0.1 %     0.3 %
 
                                     
 
                                               
Income before income tax expense
    38,792       28,405       10,387       36.6 %     19.7 %     15.4 %
Income tax expense
    14,961       10,858       4,103       37.8 %     7.6 %     5.9 %
 
                                     
Net income
  $ 23,831     $ 17,547     $ 6,284       35.8 %     12.1 %     9.5 %
 
                                         
 
                                               
Income per weighted average common share
                                               
Basic
  $ 0.88     $ 0.66     $ 0.22       33.3 %                
 
                                         
Diluted
  $ 0.86     $ 0.65     $ 0.21       32.3 %                
 
                                         
Cash dividends declared per common share
  $ 0.20     $ 0.20     $                        
 
                                         
Certain percentage amounts may not total due to rounding.

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Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
(Unaudited)
                                 
    Six Months Ended     Increase  
    June 30,     (Decrease)  
    2011     2010     Dollars     Percent  
Other data:
                               
EBIT (1)
  $ 39,046     $ 28,918     $ 10,128       35.0 %
EBITDA (1)
  $ 53,600     $ 42,113     $ 11,487       27.3 %
EBIT Margin (1)
    19.9 %     15.7 %                
EBITDA Margin (1)
    27.3 %     22.9 %                
 
                               
EBIT and EBITDA Reconciliation (1)
                               
Net income
  $ 23,831     $ 17,547     $ 6,284       35.8 %
Income tax expense
    14,961       10,858       4,103       37.8 %
Interest (income)
    (14 )     (6 )     (8 )     133.3 %
Interest expense
    268       519       (251 )     (48.4 %)
 
                         
 
                               
EBIT (1)
    39,046       28,918       10,128       35.0 %
Depreciation and amortization
    14,554       13,195       1,359       10.3 %
 
                         
EBITDA (1)
  $ 53,600     $ 42,113     $ 11,487       27.3 %
 
                         
 
(1)   EBIT (earnings before interest and income taxes), EBIT Margin, EBITDA (earnings before interest, income taxes, depreciation and amortization), and EBITDA Margin are non-GAAP financial measures that we believe are useful to investors in evaluating our results. See “EBIT and EBITDA” for further discussion of these non-GAAP financial measures.
     Revenue. Revenue increased by 6.7% or $12.4 million for the six-month period ended June 30, 2011, as compared to the same period in 2010 primarily due to more PPM Markets and higher prices charged for PPM-based ratings than for Diary-based ratings. PPM-based ratings service revenue increased by $29.3 million primarily due to the impact of the 15 PPM Markets commercialized during the last half of 2010, as well as price escalators in all PPM commercialized markets. This increase in PPM revenue was partially offset by an $18.5 million decrease in revenue related to the transition from our Diary-based ratings service.
     Cost of Revenue. Cost of revenue increased by 3.9% or $4.0 million for the six-month period ended June 30, 2011, as compared to the same period in 2010. Cost of revenue increased primarily due to $3.4 million of increased PPM service-related costs incurred to manage PPM panels for the 48 PPM Markets commercialized as of June 30, 2011, as compared to the 33 PPM Markets commercialized as of June 30, 2010. Cost of revenue was also impacted by a $0.6 million increase in costs related to our computer center operations. These increases in cost of revenue were partially offset by a $1.4 million of lower Diary-based service costs related primarily to the corresponding reduction in the number of Diary markets.
     Selling, General, and Administrative. Selling, general, and administrative decreased by 2.8% or $1.0 million for the six-month period ended June 30, 2011, as compared to the same period in 2010. This decrease was due primarily to $2.2 million in decreased costs related to executive realignment charges incurred during the first half of 2010 and a $1.2 million supplemental retirement plan settlement loss also incurred during the first half of 2010. These decreases were partially offset by a $0.9 million increase in bad debt expense and a $0.7 million reversal in share-based compensation incurred during 2010 in conjunction with our former CEO’s succession.
     Research and Development. Research and development decreased by 5.1% or $1.0 million for the six-month period ended June 30, 2011, as compared to the same period in 2010. Research and development decreased primarily due to a $1.7 million reduction in development costs related to our Diary service, and a $0.7 million

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reduction in development costs related to our client software, partially offset by $0.5 million in royalty costs associated with certain technology licenses and a $0.5 million increase due to the timing of employee incentive compensation.
     EBIT and EBITDA. We believe presenting EBIT and EBITDA, both non-GAAP financial measures, as supplemental information helps investors, analysts and others, if they so choose, in understanding and evaluating our operating performance in some of the same ways that we do because EBIT and EBITDA exclude certain items not directly related to our core operating performance. We reference these non-GAAP financial measures in assessing current performance and making decisions about internal budgets, resource allocation and financial goals. EBIT is calculated by deducting interest income from net income and adding back interest expense and income tax expense to net income. EBITDA is calculated by deducting interest income from net income and adding back interest expense, income tax expense, and depreciation and amortization to net income. EBIT and EBITDA margins are calculated as percentages of revenue. EBIT and EBITDA should not be considered substitutes either for net income, as indicators of our operating performance, or for cash flow, as measures of our liquidity. In addition, because EBIT and EBITDA may not be calculated identically by all companies, the presentation here may not be comparable to other similarly titled measures of other companies.
     EBIT increased by 35.0% or $10.1 million for the six-month period ended June 30, 2011, as compared to the same period in 2010, primarily due to an increase in revenue associated with the PPM service transition and a decrease in operating expenses due to prior year executive realignment charges. However, EBITDA increased by 27.3% or $11.5 million because this non-GAAP financial measure adds back depreciation and amortization, which increased to $14.6 million for the six-month period ended June 30, 2011 from $13.2 million for the same period in 2010.

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Liquidity and Capital Resources
                         
    As of June 30,     As of December 31,        
    2011     2010     Change  
Cash and cash equivalents
  $ 8,215     $ 18,925     $ (10,710 )
Working capital deficiency
  $ (3,215 )   $ (32,333 )   $ 29,118  
Working capital, excluding deferred revenue which does not require a significant additional cash outlay
  $ 49,531     $ 4,146     $ 45,385  
Total debt
  $ 5,000     $ 53,000     $ (48,000 )
     We have relied upon our cash flow from operations, supplemented by borrowings under our available revolving credit facility (“Credit Facility”) as needed, to fund our dividends, capital expenditures, contractual obligations, and expenses. We expect that based on current and anticipated levels of operating performance, our cash flow from operations, cash and cash equivalents, and availability under our Credit Facility will be sufficient to support our operations for the next 12 months. We expect to renew or replace our revolving credit facility prior to December 20, 2011, the Credit Facility’s expiration date. See “Credit Facility” for further discussion of the relevant terms and covenants.
     Operating activities. For the six-month period ended June 30, 2011, the net cash provided by operating activities was $54.4 million, which was primarily due to $53.6 million in EBITDA, partially offset by $14.3 million in income taxes paid for the six-month period ended June 30, 2011. EBITDA is discussed and reconciled to net income in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations.”
     Net cash provided by operating activities for the six-month period ended June 30, 2011, was positively impacted by an $11.3 million increase in deferred revenue, primarily due to price escalators associated with our PPM ratings service, a $2.7 million increase associated with reductions in prepaid expenses and other current assets, and a $2.0 million increase in noncurrent liabilities associated with long-term incentive compensation and retirement benefits.
     These increases in operating activities for the six-month period ended June 30, 2011, were partially offset by a $7.0 million decrease in accrued expenses and other current liabilities, which resulted primarily from a $3.4 million decrease in payroll, bonus and benefit accruals and a $2.6 million decrease in our Scarborough royalty accrual.
     Investing activities. Net cash used in investing activities for the six-month periods ended June 30, 2011, and 2010, was $14.2 million and $21.6 million, respectively. This approximately $7.5 million decrease in cash used in investing activities was due to a $4.5 million licensing arrangement entered during the first quarter of 2010, a $2.5 million asset acquisition during the second quarter of 2010, and a $1.8 million purchase of equity and other investments during the second quarter of 2010. These decreases in net cash used in investing activities were partially offset by a $1.3 million increase in capital expenditures, primarily related to software and meter equipment.
     Financing activities. Net cash used in financing activities for the six-month periods ended June 30, 2011, and 2010, was $50.9 million and $8.0 million, respectively. The $42.9 million increase in net cash used in financing activities was due primarily to a $48.0 million increase in the net repayment of our outstanding obligations under our Credit Facility during 2011 as compared to 2010. This increase to net cash used in financing activities was partially offset by a $3.8 million reversal of a bank overdraft payable during the first quarter of 2010, and a $0.9 million increase in proceeds from stock option exercises and stock purchase plans, which resulted from an increase in our company stock price during the six-month period ended June 30, 2011, as compared to the same period of 2010.
   Credit Facility
     On December 20, 2006, we entered into an agreement with a consortium of lenders to provide up to $150.0 million of financing through a five-year, unsecured revolving credit facility. Our Credit Facility is scheduled to expire on December 20, 2011. We expect to renew or replace our Credit Facility prior to its expiration.

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     The Credit Facility agreement contains an expansion feature for us to increase the total financing available under the Credit Facility by up to $50.0 million to an aggregate of $200.0 million. Such increased financing would be provided by one or more existing Credit Facility lending institutions, subject to the approval of our current lenders, and/or in combination with one or more new lending institutions, subject to the approval of the Credit Facility’s administrative agent. Interest on borrowings under the Credit Facility is calculated based on a floating rate for a duration of up to six months as selected by us.
     Our Credit Facility contains financial terms, covenants and operating restrictions that potentially restrict our financial flexibility. The material debt covenants under our Credit Facility include both a maximum leverage ratio and a minimum interest coverage ratio. The leverage ratio is a non-GAAP financial measure equal to the amount of our consolidated total indebtedness, as defined in our Credit Facility, divided by a contractually defined adjusted Earnings Before Interest, Taxes, Depreciation and Amortization and non-cash compensation (“Consolidated EBITDA”) for the trailing 12-month period. The interest coverage ratio is a non-GAAP financial measure equal to Consolidated EBITDA divided by total interest expense. Both ratios are designed as measures of our ability to meet current and future obligations. The following table presents the actual ratios and their threshold limits as defined by the Credit Facility as of June 30, 2011:
                 
Covenant   Threshold     Actual  
Maximum leverage ratio
    3.0       0.04  
Minimum interest coverage ratio
    3.0       162.0  
     As of June 30, 2011, based upon these financial covenants, there was no default or limit on our ability to borrow the unused portion of our Credit Facility.
     Our Credit Facility contains customary events of default, including nonpayment and breach covenants. In the event of default, repayment of borrowings under the Credit Facility could be accelerated. Our Credit Facility also contains cross default provisions whereby a default on any material indebtedness, as defined in the Credit Facility, could result in the acceleration of our outstanding debt and the termination of any unused commitment under the Credit Facility. The agreement potentially limits, among other things, our ability to sell assets, incur additional indebtedness, and grant or incur liens on our assets. Under the terms of the Credit Facility, all of our material domestic subsidiaries, if any, guarantee the commitment. Currently, we do not have any material domestic subsidiaries as defined under the terms of the Credit Facility. Although we do not believe that the terms of our Credit Facility limit the operation of our business in any material respect, the terms of the Credit Facility may restrict or prohibit our ability to raise additional debt capital when needed or could prevent us from investing in other growth initiatives. Our outstanding borrowings under the Credit Facility were $5.0 million and $53.0 million as of June 30, 2011, and December 31, 2010, respectively. We have been in compliance with the terms of the Credit Facility since the agreement’s inception. As of July 29, 2011, we had $15.0 million in outstanding debt under the Credit Facility.
   Other Liquidity Matters
     Recruitment of younger demographic groups through cell phone household and targeted in-person recruiting initiatives for both our Diary and PPM services has increased and will continue to increase our cost of revenue as we strive to continue to improve the quality of our samples. We believe that based on current and anticipated levels of operating performance, our cash flow from operations, cash and cash equivalents, and availability under our Credit Facility will be sufficient to support our operations for the next 12 months.
Seasonality
   Revenue
     We recognize revenue for services over the terms of license agreements as services are delivered while expenses are recognized as incurred. We currently gather radio-listening data in 282 U.S. local markets, including 234 Diary markets and 48 PPM Markets.

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     In our PPM markets, we deliver ratings 13 times a year, with four PPM ratings reports delivered in the fourth quarter. As a result, we expect to recognize more revenue in PPM Markets in the fourth quarter than in each of the first three quarters of the year.
     As we commercialized the PPM service, the amount of deferred revenue recorded on our balance sheet has decreased compared to our historical trends due to the more frequent delivery of our PPM service, which is delivered 13 times a year versus the quarterly and semi-annual delivery for our Diary service. The commercialization of the PPM service in the PPM Markets was completed at the end of 2010. We expect that deferred revenue will begin to increase, as compared to historical trends, approximately one year after the completion of the commercialization of the PPM service in the PPM Markets due to the impact of price escalators and the organic growth of our business.
     During the transition period from the Diary service to PPM service in each PPM Market, there were changes in the seasonality pattern because during the initial quarter in which the PPM ratings service is commercialized in a market, we recognize revenue based on the delivery of both the final quarterly Diary ratings and the initial monthly PPM ratings for that market.
     All 234 Diary markets are measured at least twice per year (April-May-June for the “Spring Survey” and October-November-December for the “Fall Survey”). In addition, we measure 48 larger Diary markets an additional two times per year (January-February-March for the “Winter Survey” and July-August-September for the “Summer Survey”). We generally deliver our Diary ratings reports and recognize the related revenue in the quarter after the survey is measured. Consequently, our Diary revenue is generally higher in the first and third quarters as a result of the delivery of the Fall Survey and Spring Survey to all Diary markets compared to revenue in the second and fourth quarters, when delivery of the Winter Survey and Summer Survey, respectively, is made only to 48 larger Diary markets.
     Revenue related to the sale of Scarborough services by Arbitron is recognized predominantly in the second and fourth quarters when the substantial majority of services are delivered.
     As a result of the various seasonal impacts mentioned above, we typically expect that the highest consolidated revenue quarter for the year would be the fourth quarter and the lowest would be the second quarter.
   Costs and expenses
     The transition from the Diary service to the PPM service in the PPM Markets also had an impact on the seasonality of costs and expenses. PPM costs and expenses generally increased six to nine months in advance of the commercialization of each market as we built the PPM panels. These build-up costs were incremental to the costs associated with our Diary-based ratings service and we recognized these increased costs as incurred rather than upon the delivery of a particular survey.
     Now that all our planned PPM Markets are commercialized, and because we conduct our PPM services continuously throughout the year, we do not expect significant seasonality in PPM costs and expenses. In our Diary service, our expenses are generally higher in the second and fourth quarters as we conduct the Spring Survey and Fall Survey for all 234 of our Diary Markets.
   Equity earnings/losses in Scarborough Research
     Our affiliate, Scarborough, typically experiences losses during the first and third quarters of each year because revenue is recognized predominantly in the second and fourth quarters when the substantial majority of services are delivered. Scarborough royalty costs, which are recognized in cost of revenue, are also higher during the second and fourth quarters.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
     The Company holds its cash and cash equivalents in highly liquid securities.
Foreign Currency Exchange Rate Risk
     The Company’s foreign operations are not significant and, therefore, its exposure to foreign currency risk is not material. If we expand our foreign operations, this exposure to foreign currency exchange rate changes could increase.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
     The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s President and Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the most recently completed fiscal quarter. Based upon that evaluation, the Company’s President and Chief Executive Officer and the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Report.
Changes in Internal Control Over Financial Reporting
     There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarterly period ended June 30, 2011, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
     We are involved, from time to time, in litigation and proceedings, including with governmental authorities, arising out of the ordinary course of business. Legal costs for services rendered in the course of these proceedings are charged to expense as they are incurred.
     On April 30, 2008, Plumbers and Pipefitters Local Union No. 630 Pension-Annuity Trust Fund filed a securities class action lawsuit in the United States District Court for the Southern District of New York on behalf of a purported Class of all purchasers of Arbitron common stock between July 19, 2007, and November 26, 2007. The plaintiff asserts that Arbitron, Stephen B. Morris (our former Chairman, President and Chief Executive Officer), and Sean R. Creamer (currently our Executive Vice President, U.S. Media Services & formerly Chief Financial Officer) violated federal securities laws. The plaintiff alleges misrepresentations and omissions relating, among other things, to the delay in commercialization of our PPM ratings service in November 2007, as well as stock sales during the period by company insiders who were not named as defendants and Messrs. Morris and Creamer. The plaintiff seeks class certification, compensatory damages plus interest and attorneys’ fees, among other remedies. On September 22, 2008 the plaintiff filed an Amended Class Action Complaint. On November 25, 2008, Arbitron, Mr. Morris, and Mr. Creamer each filed Motions to Dismiss the Amended Class Action Complaint. In September 2009, the plaintiff sought leave to file a Second Amended Class Action Complaint in lieu of oral argument on the pending Motions to Dismiss. The court granted leave to file a Second Amended Class Action Complaint and denied the pending Motions to Dismiss without prejudice. On or about October 19, 2009, the plaintiff filed a Second Amended Class Action Complaint. Briefing on motions to dismiss the Second Amended Class Action Complaint was completed in March 2010. Arbitron and each of Mr. Morris and Mr. Creamer again moved to dismiss the Second Amended Class Action Complaint. On September 24, 2010, the Court granted Mr. Creamer’s motion to dismiss the plaintiff’s claims against him, and all claims against Mr. Creamer were dismissed with prejudice. The motions to dismiss the Second Amended Class Action Complaint by Arbitron and Mr. Morris were denied. Arbitron and Mr. Morris each then filed answers denying the claims.
     On or about June 13, 2008, a purported stockholder derivative lawsuit, Pace v. Morris, et al., was filed against Arbitron, as a nominal defendant, each of our directors, and certain of our current and former executive officers in the Supreme Court of the State of New York for New York County. The derivative lawsuit is based on essentially the same substantive allegations as the securities class action lawsuit. The derivative lawsuit asserts claims against the defendants for misappropriation of information, breach of fiduciary duty, abuse of control, and unjust enrichment. On July 28, 2011 the derivative plaintiff filed an amended complaint that reiterates, in large part, the claims of the original complaint filed in 2008. The amended complaint also adds claims for breach of fiduciary duty related to the retirement of Mr. Morris in 2009 and the resignation of Mr. Skarzvnski in 2010. The derivative plaintiff seeks equitable and/or injunctive relief, restitution and disgorgement of profits, plus attorneys’ fees and costs, among other remedies.
     The Company intends to defend itself and its interests vigorously against these allegations.
     On July 14, 2009, the State of Florida commenced a civil action against us in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida, alleging violations of Florida consumer fraud law relating to the marketing and commercialization in Florida of our PPM ratings service. The lawsuit seeks civil penalties of $10,000 for each alleged violation and an order preventing us from continuing to publish our PPM listening estimates in Florida. The Company has answered the Complaint, obtained a protective order from the court to protect the confidentiality of its documents, and produced documents.
     The Company and the State of Florida entered into an Assurance of Voluntary Compliance, effective June 21, 2011, resolving the issues raised in the lawsuit and requiring that the State of Florida dismiss the lawsuit with prejudice. On or about June 24, 2011, the State of Florida filed a Notice of Voluntary Dismissal dismissing the lawsuit..
     We are involved from time to time in a number of judicial and administrative proceedings considered ordinary with respect to the nature of our current and past operations, including employment-related disputes, contract disputes, government proceedings, customer disputes, and tort claims. In some proceedings, the claimant seeks damages as well as other relief, which, if granted, would require substantial expenditures on our part. Some of these matters raise difficult and complex factual and legal issues, and are subject to many uncertainties, including,

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but not limited to, the facts and circumstances of each particular action, and the jurisdiction, forum and law under which each action is pending. Because of this complexity, final disposition of some of these proceedings may not occur for several years. As such, we are not always able to estimate the amount of our possible future liabilities. There can be no certainty that we will not ultimately incur charges in excess of present or future established accruals or insurance coverage. Although occasional adverse decisions (or settlements) may occur, we believe that the likelihood that final disposition of these proceedings will, considering the merits of the claims, have a material adverse impact on our financial position or results of operations is remote.
Item 1A. Risk Factors
The only material changes to our risk factors as described in our annual report on Form 10-K for the year ended December 31, 2010 are to add the following:
Our acquisition of businesses could negatively impact our results of operations and financial condition.
As part of our business strategy we may acquire businesses or other assets. Such acquisitions involve a number of financial, accounting, managerial, operational and other risks and challenges, including the following, any of which could adversely affect our profitability:
    Any acquired business, technology, service, or asset could under-perform relative to our expectations and the price that we paid for it, or not perform in accordance with our anticipated timetable.
 
    Acquisitions could cause our financial results to differ from our own or the investment community’s expectations in any given period, or over the long-term.
 
    Acquisition-related earnings charges (including both pre-closing and post-closing charges) could adversely impact operating results in any given period, and the impact may be substantially different from period to period.
 
    Acquisitions could create demands on our management, operational resources and financial and internal control systems that we are not equipped to handle.
 
    We could experience difficulty in integrating personnel, operations and financial and other systems and retaining key employees and customers.
 
    We may be unable to achieve cost savings or other synergies anticipated in connection with an acquisition.
 
    We may assume by acquisition unknown liabilities, known contingent liabilities that become realized, known liabilities that prove greater than anticipated, or internal control deficiencies. The realization of any of these liabilities or deficiencies may increase our expenses, adversely affect our financial position or cause us to fail to meet our public financial reporting obligations.
 
    In connection with acquisitions, we may enter into post-closing financial arrangements such as purchase price adjustments, earn-out obligations and indemnification obligations, which may have unpredictable financial results.
 
    As a result of any acquisitions, we may record significant goodwill and other indefinite lived intangible assets on our balance sheet. If we are not able to realize the value of these assets, we may be required to incur charges relating to the impairment of these assets.
Foreign currency exchange rates may adversely affect our results of operations and financial condition.
Sales and purchases in currencies other than the U.S. dollar expose us to fluctuations in foreign currencies relative to the U.S. dollar and may adversely affect our results of operations and financial condition. Increased strength of the U.S. dollar will increase the effective price of our services sold in U.S. dollars into other countries, which may require us to lower our prices or adversely affect sales to the extent we do not increase local currency prices. Decreased strength of the U.S. dollar could adversely affect the cost of materials, products and services purchased overseas. Our sales and expenses are also translated into U.S. dollars for reporting purposes and the strengthening

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or weakening of the U.S. dollar could result in unfavorable translation effects.
Work stoppages, union and works council campaigns, labor disputes and other matters associated with our international employees could adversely impact our results of operations and cause us to incur incremental costs.
Certain of our international employees are subject to non-U.S. collective labor arrangements. We are subject to potential work stoppages, union and works council campaigns and potential labor disputes, any of which could adversely impact our productivity and results of operations.
     See Item 1A. — Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2010 for a detailed discussion of risk factors affecting Arbitron.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 6. EXHIBITS
                         
            Incorporated by Reference    
Exhibit           SEC File           Filed
No.   Exhibit Description   Form   No.   Exhibit   Filing Date   Herewith
31.1
  Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a — 14(a)                   *
 
                       
31.2
  Certification of Chief Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a — 14(a)                   *
 
                       
32.1
  Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002                   *
 
                       
101+
  The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL (eXtensible Business Reporting Language):                    
 
                       
 
  (i) Condensed Consolidated Balance Sheets at June 30, 2011 and December 31, 2010;                   *
 
                       
 
  (ii) Condensed Consolidated Statement of Income for the Three and Six Months Ended June 30, 2011 and 2010;                    

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            Incorporated by Reference    
Exhibit           SEC File           Filed
No.   Exhibit Description   Form   No.   Exhibit   Filing Date   Herewith
 
  (iii) Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2011 and 2010;                    
 
 
  (iv) Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2011 and 2010; and                    
 
 
  (v) Notes to Condensed Consolidated Financial Statements, tagged as block of text.*                    
 
*   Filed or furnished herewith
 
+   Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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SIGNATURE
     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  ARBITRON INC.
 
 
  By:   /s/ RICHARD J. SURRATT    
    Richard J. Surratt   
    Executive Vice President and Chief Financial Officer (on behalf of the registrant and as the registrant’s principal financial and principal accounting officer)   
                           Date: August 5, 2011

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