Arbitron Inc. Reports Operating Results (10-Q)
Arbitron Inc. has a market cap of $779.6 million; its shares were traded at around $29.29 with a P/E ratio of 19.1 and P/S ratio of 2. The dividend yield of Arbitron Inc. stocks is 1.3%.ARB is in the portfolios of Westport Asset Management, John Keeley of Keeley Fund Management.
Highlight of Business Operations: The election of Cumulus, Inc. (Cumulus) and Clear Channel Communications, Inc. (Clear Channel) to subscribe to a competitors radio ratings service in certain small to mid-sized markets in 2009 resulted in a $5.0 million negative impact on revenue we would have received for the year ended December 31, 2009 had those two customers renewed their agreements with us, and is anticipated to adversely impact our expected revenue by approximately $10.0 million in 2010. Due to the impact of the recent economic downturn on anticipated sales of discretionary services and renewals of agreements to provide ratings services, as well as the high penetration of our current services in the radio broadcasting business, we expect that our future annual organic rate of revenue growth from our quantitative Diary-based radio ratings services will be slower than historical trends.
It is increasingly expensive for us to recruit cell phone households. Because we intend to further increase the number of cell phone households in our samples, we believe this quality improvement initiative will significantly increase our costs. We currently anticipate that the total cost of cell phone household recruitment for the PPM and Diary services will be approximately $15.0 million in 2010, which is an increase of approximately $5.0 million over 2009.
Since the fourth quarter of 2008, we have incurred approximately $9.1 million in aggregate legal costs and expenses in connection with two securities law civil actions and a governmental interaction, relating primarily to the commercialization of our PPM ratings service. For additional information regarding the Companys material legal matters, see Item 1. Legal Proceedings. As of June 30, 2010, we received $5.6 million in insurance reimbursements related to these legal actions and estimated that an additional $0.3 million of the aggregate costs and expenses were probable for recovery under our Director and Officer insurance policy. We are also involved in other legal matters for which we do not expect that the legal costs and expenses will be recoverable through insurance. We can provide no assurance that we will not continue to incur legal costs and expenses at comparable or higher levels in the future. For further information regarding these legal costs, see Critical Accounting Policies and Estimates.
Software development costs. We capitalize software development costs with respect to significant internal use software initiatives or enhancements from the time that the preliminary project stage is completed and management considers it probable that the software will be used to perform the function intended, until the time the software is placed in service for its intended use. Once the software is placed in service, the capitalized costs are amortized over periods of three to five years. We perform an assessment quarterly to determine if it is probable that all capitalized software will be used to perform its intended function. If an impairment exists, the software cost is written down to estimated fair value. As of June 30, 2010, and December 31, 2009, our capitalized software developed for internal use had carrying amounts of $24.2 million and $23.9 million, respectively, including $13.8 million and $13.7 million, respectively, of software related to the PPM service.
Insurance Receivables. Beginning in the fourth quarter of 2008, we became involved in two securities law civil actions and a governmental interaction primarily related to the commercialization of our PPM service. We have incurred a combined total of approximately $9.1 million in legal fees and expenses in connection with these matters. As of June 30, 2010, $5.6 million in insurance reimbursements related to these legal actions was received. As of June 30, 2010, and December 31, 2009, we estimated that $0.3 million and $3.5 million, respectively, of such legal fees and expenses were probable for future receipt under our Directors and Officers insurance policy. These amounts are included in our prepaid expenses and other current assets on our balance sheet.
As a result of Hurricane Ike in 2008, we incurred a combined total of $2.7 million of business interruption losses and damages. As of June 30, 2010, $1.6 million in insurance reimbursements related to these losses and damages was received, and no additional insurance reimbursements are expected to be received in the future regarding our Hurricane Ike losses. As of December 31, 2009, we estimated that insurance reimbursements for a portion of the expenses incurred were probable for future receipt under our insurance policy in the amount of $0.9 million. We included this estimate for our insurance claims receivable within our prepaid expenses and other current assets on our balance sheet.
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