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Arbitron Inc. Reports Operating Results (10-Q)

November 03, 2010 | About:
10qk

10qk

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Arbitron Inc. (ARB) filed Quarterly Report for the period ended 2010-09-30.

Arbitron Inc. has a market cap of $693.4 million; its shares were traded at around $26.32 with a P/E ratio of 16.8 and P/S ratio of 1.8. The dividend yield of Arbitron Inc. stocks is 1.5%.ARB is in the portfolios of Westport Asset Management, Bruce Kovner of Caxton Associates, Mario Gabelli of GAMCO Investors, John Keeley of Keeley Fund Management, Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

We expect growth in revenue for 2010 due to the full year impact of revenue recognized for the 33 markets in which we commercialized the PPM service prior to 2010, as well as the partial year impact of revenue recognized for the ten markets in which we commercialized the PPM service during the third quarter of 2010, and the five markets in which we plan to commercialize the PPM service during the fourth quarter of 2010. However, the impact of those revenues recognized at the higher PPM rates was partially offset by a decrease in the revenue we received from customers that were subscribers in 2009 but either did not subscribe or reduced their level of subscribed services in 2010. For the three and nine months ended September 30, 2010, there was a $2.7 million and an $11.2 million aggregate decrease, respectively, in the revenue we received from customers, including Univision, that were subscribers to our services in the three and nine months ended September 30, 2009, respectively, but either did not subscribe or reduced their level of subscribed services in the comparable periods of 2010. In addition, we do not expect to recognize the full revenue impact of the launch of the PPM service in each PPM Market during the first year after commercialization of the service in that market because our customer contracts generally provide for phased-in pricing toward the higher PPM service rate over time. During the three months ended September 30, 2010, we recognized revenue based on the delivery of both the final quarterly Diary ratings and the initial monthly PPM ratings for the ten PPM Markets in which we commercialized the PPM service during the period. See PPM Trends and Initiatives below. We expect that our revenue will continue to increase during the fourth quarter of 2010 as we continue to deliver audience estimates in these new PPM Markets and continue to recognize revenue at the higher PPM rates, as well as the incremental revenue we expect to receive from the five PPM Markets in which we are scheduled to commercialize the PPM service during the period.

It is more expensive for us to recruit cell phone households. Because we intend to continue to 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 $12.0 million in 2010, which is an increase of approximately $1.5 million over 2009.

Since the fourth quarter of 2008, we have incurred $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 September 30, 2010, we have received $5.6 million in insurance reimbursements related to these legal actions and estimate that an additional $0.4 million of the aggregate costs and expenses are 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 September 30, 2010, and December 31, 2009, our capitalized software developed for internal use had carrying amounts of $24.4 million and $23.9 million, respectively, including $13.1 million and $13.7 million, respectively, of software related to the PPM service.

Insurance Receivables. Since the fourth quarter of 2008, we have incurred $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. As of September 30, 2010, we have received $5.6 million in insurance reimbursements related to these legal actions and estimate that an additional $0.4 million of the aggregate costs and expenses are probable for recovery under our Director and Officer insurance policy. These amounts are included in our prepaid expenses and other current assets on our balance sheet.

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