##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549




---

FORM 10-K

|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | Annual Report Pursuant to Section 13 or
    15(d) of the Securities Exchange Act Of 1934    
|   |  | For the fiscal year ended December 31, 2005                                                 
|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                                                           |  | 52-0278528                          
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer Identification No.)

142 West 57th Street

New York, New York 10019


(Address of principal executive offices) (Zip
Code)


(212) 887-1300

(Registrants telephone number, including
area code)




---

Securities registered pursuant to
Section 12(b) of the Act:

|                                            |  |                                          
|------------------------------------------- |  | -----------------------------------------
|Title of Each Class Registered              |  | Name of Each Exchange on Which Registered
|                                            |  |                                          
|Common Stock, par value $0.50 per
    share |  | New York Stock Exchange                  

Securities registered pursuant to Section 12(g) of the Act:

None


Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the
Securities
Act.    Yes þ         No o

Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of
1934.    Yes o         No þ

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, and (2) has been
subject to such filing requirements for the past
90 days.    Yes þ         No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this
Form 10-K.    o

Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, or a
non-accelerated file. See definition of accelerated filer
and large accelerated file in Rule 12b-2 of the
Exchange Act.

Large Accelerated
Filer þ         Accelerated
Filer o         Non-Accelerated
Filer o


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 aggregate market value of the
registrants common stock as of June 30, 2005, the
last business day of the registrants most recently
completed second fiscal quarter (based upon the closing sale
price of Arbitrons common stock as reported by the New
York Stock Exchange on that date), held by nonaffiliates, was
approximately $1,355,003,281.

Common stock, par value $0.50 per share,
outstanding as of February 21, 2006: 31,077,453 shares

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates certain information by
reference from the registrants definitive proxy statement
for the 2006 annual meeting of stockholders, which proxy
statement will be filed no later than 120 days after the
end of the registrants fiscal year ended December 31,
2005.



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##### Table of Contents










TABLE OF CONTENTS

|                               |  |                                                                                                                      |   |          |    | 
|------------------------------ |  | -------------------------------------------------------------------------------------------------------------------- | - | -------- | -- | 
|                               |  |                                                                                                                      |   | Page No.
|                               |  |                                                                                                                      |   |         
|                              
|                              
|                              
|                              
|FORWARD-LOOKING
    STATEMENTS |  |                                                                                                                      | 5 |         
|                              
|                              
|                              
|                              
|                              
|PART I                        
|                              
|                              
|                              
|                              
|ITEM 1.                        |  | BUSINESS                                                                                                             |   |          | 6  | 
|                              
|                              
|                              
|                              
|                               |  | Overview                                                                                                             |   |          | 6  | 
|                              
|                              
|                              
|                              
|                               |  | Industry
    Background and Markets                                                                                  |   |          | 7  | 
|                              
|                              
|                              
|                              
|                               |  | Radio Audience
    Measurement Services                                                                              |   |          | 8  | 
|                              
|                              
|                              
|                              
|                               |  | Software
    Applications                                                                                            |   |          | 13 | 
|                              
|                              
|                              
|                              
|                               |  | Local Market
    Consumer Information Services                                                                       |   |          | 14 | 
|                              
|                              
|                              
|                              
|                               |  | Arbitron Cable
    Services                                                                                          |   |          | 15 | 
|                              
|                              
|                              
|                              
|                               |  | Arbitron Outdoor
    and Out-of-Home Services                                                                        |   |          | 15 | 
|                              
|                              
|                              
|                              
|                               |  | Custom Research
    Services                                                                                         |   |          | 16 | 
|                              
|                              
|                              
|                              
|                               |  | The comScore
    Arbitron Online Radio Ratings Service                                                               |   |          | 16 | 
|                              
|                              
|                              
|                              
|                               |  | International
    Operations                                                                                         |   |          | 16 | 
|                              
|                              
|                              
|                              
|                               |  | Strategy                                                                                                             |   |          | 16 | 
|                              
|                              
|                              
|                              
|                               |  | Customers, Sales
    and Marketing                                                                                   |   |          | 17 | 
|                              
|                              
|                              
|                              
|                               |  | Competition                                                                                                          |   |          | 18 | 
|                              
|                              
|                              
|                              
|                               |  | Intellectual
    Property                                                                                            |   |          | 19 | 
|                              
|                              
|                              
|                              
|                               |  | Research and
    Development                                                                                         |   |          | 20 | 
|                              
|                              
|                              
|                              
|                               |  | Governmental
    Regulation                                                                                          |   |          | 20 | 
|                              
|                              
|                              
|                              
|                               |  | Employees                                                                                                            |   |          | 21 | 
|                              
|                              
|                              
|                              
|                               |  | Seasonality                                                                                                          |   |          | 21 | 
|                              
|                              
|                              
|                              
|                               |  | Available
    Information                                                                                            |   |          | 21 | 
|                              
|                              
|                              
|                              
|ITEM 1A.                       |  | RISK
    FACTORS                                                                                                     |   |          | 21 | 
|                              
|                              
|                              
|                              
|ITEM 1B.                       |  | UNRESOLVED STAFF
    COMMENTS                                                                                        |   |          | 30 | 
|                              
|                              
|                              
|                              
|ITEM 2.                        |  | PROPERTIES                                                                                                           |   |          | 30 | 
|                              
|                              
|                              
|                              
|ITEM 3.                        |  | LEGAL
    PROCEEDINGS                                                                                                |   |          | 30 | 
|                              
|                              
|                              
|                              
|ITEM 4.                        |  | SUBMISSION OF MATTERS TO
    A VOTE OF SECURITY HOLDERS                                                              |   |          | 31 | 
|                              
|                              
|                              
|                              
|                              
|PART II                       
|                              
|                              
|                              
|                              
|ITEM 5.                        |  | MARKET FOR
    REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
    ISSUER PURCHASES OF EQUITY SECURITIES |   |          | 31 | 
|                              
|                              
|                              
|                              
|ITEM 6.                        |  | SELECTED FINANCIAL
    DATA                                                                                          |   |          | 31 | 
|                              
|                              
|                              
|                              
|ITEM 7.                        |  | MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS                        |   |          | 33 | 
|                              
|                              
|                              
|                              
|                               |  | Overview                                                                                                             |   |          | 33 | 
|                              
|                              
|                              
|                              
|                               |  | Significant
    Customers                                                                                            |   |          | 33 | 
|                              
|                              
|                              
|                              
|                               |  | Portable People
    Meter                                                                                            |   |          | 33 | 
|                              
|                              
|                              
|                              
|                               |  | Portable People
    Meter  National Marketing Panel (Project
    Apollo)                                          |   |          | 35 | 
|                              
|                              
|                              
|                              
|                               |  | Response Rates
    and Sample Proportionality                                                                        |   |          | 36 | 
|                              
|                              
|                              
|                              
|                               |  | Small Market
    Initiatives                                                                                         |   |          | 36 | 
|                              
|                              
|                              
|                              
|                               |  | Stock
    Repurchase                                                                                                 |   |          | 36 | 
|                              
|                              
|                              
|                              
|                               |  | Dividends                                                                                                            |   |          | 36 | 

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|           |  |                                                                                                        |    |          |    | 
|---------- |  | ------------------------------------------------------------------------------------------------------ | -- | -------- | -- | 
|           |  |                                                                                                        |    | Page No.
|           |  |                                                                                                        |    |         
|          
|          
|          
|          
|           |  | Acquisition                                                                                            |    |          | 37 | 
|          
|          
|          
|          
|           |  | Impact of
    Hurricane Katrina                                                                        |    |          | 37 | 
|          
|          
|          
|          
|           |  | Critical
    Accounting Policies and Estimates                                                         |    |          | 37 | 
|          
|          
|          
|          
|           |  | Results of
    Operations                                                                              |    |          | 38 | 
|          
|          
|          
|          
|           |  | Liquidity and
    Capital Resources                                                                    |    |          | 43 | 
|          
|          
|          
|          
|           |  | Off-Balance
    Sheet Arrangements                                                                     |    |          | 45 | 
|          
|          
|          
|          
|           |  | New Accounting
    Pronouncements                                                                      |    |          | 45 | 
|          
|          
|          
|          
|ITEM 7A.   |  | QUANTITATIVE AND
    QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                         |    |          | 45 | 
|          
|          
|          
|          
|           |  | Interest Rate
    Risk                                                                                 |    |          | 45 | 
|          
|          
|          
|          
|           |  | Foreign Currency
    Risk                                                                              |    |          | 46 | 
|          
|          
|          
|          
|ITEM 8.    |  | FINANCIAL STATEMENTS AND
    SUPPLEMENTARY DATA                                                        |    |          | 46 | 
|          
|          
|          
|          
|ITEM 9.    |  | CHANGES IN AND
    DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
    DISCLOSURE           |    |          | 75 | 
|          
|          
|          
|          
|ITEM 9A.   |  | CONTROLS AND
    PROCEDURES                                                                            |    |          | 75 | 
|          
|          
|          
|          
|           |  | Evaluation of
    Disclosure Controls and Procedures                                                   |    |          | 75 | 
|          
|          
|          
|          
|           |  | Managements
    Report on Internal Control Over Financial Reporting                                   |    |          | 75 | 
|          
|          
|          
|          
|           |  | Changes in
    Internal Control Over Financial Reporting                                               |    |          | 75 | 
|          
|          
|          
|          
|ITEM 9B.   |  | OTHER
    INFORMATION                                                                                  |    |          | 75 | 
|          
|          
|          
|          
|          
|PART III  
|          
|          
|          
|          
|ITEM 10.   |  | DIRECTORS AND EXECUTIVE
    OFFICERS OF THE REGISTRANT                                                 |    |          | 75 | 
|          
|          
|          
|          
|ITEM 11.   |  | EXECUTIVE
    COMPENSATION                                                                             |    |          | 76 | 
|          
|          
|          
|          
|ITEM 12.   |  | SECURITY OWNERSHIP OF
    CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
    MATTERS |    |          | 76 | 
|          
|          
|          
|          
|ITEM 13.   |  | CERTAIN RELATIONSHIPS AND
    RELATED TRANSACTIONS                                                     |    |          | 76 | 
|          
|          
|          
|          
|ITEM 14.   |  | PRINCIPAL ACCOUNTANT FEES
    AND SERVICES                                                             |    |          | 76 | 
|          
|          
|          
|          
|          
|PART IV   
|          
|          
|          
|          
|ITEM 15.   |  | EXHIBITS AND FINANCIAL
    STATEMENT SCHEDULES                                                         |    |          | 76 | 
|          
|          
|          
|          
|SIGNATURES |  |                                                                                                        | 80 |         
|Ex-10.18  
|Ex-10.19  
|Ex-21     
|Ex-23     
|Ex-24     
|Ex-31.1   
|Ex-31.2   
|Ex-32.1   



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Arbitron owns or has the rights to various trademarks, trade
names or service marks used in its radio audience measurement
business and subsidiaries, including the following: the Arbitron
name and logo, ArbitrendsSM,
RetailDirect®,
RADAR®,
Tapscan®,
Tapscan
WorldWide®,
LocalMotion®,
Maximi$er®,
Maximi$er®
Plus, Arbitron PD
Advantage®,
SmartPlus®,
Arbitron Portable People MeterTM, Marketing
Resources PlusTM,
MRP®,
PrintPlusTM, MapMAKER
DirectSM, Media
ProfessionalSM,Media Professional
PlusSM, QualitapSM,
MediaMasterSM, ProspectorSM,
and Schedule-ItSM.

The trademarks
Windows®,
Media Rating
Council®
and
Homescan®
referred to in this Annual Report on Form 10-K are the
registered trademarks of others.



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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K 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, 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,
anticipates, estimates,
believes or plans, or comparable
terminology, are forward-looking statements based on current
expectations about future events, which Arbitron has derived
from information currently available to it. These
forward-looking statements involve known and unknown risks and
uncertainties that may cause our results to be materially
different from results implied in such forward-looking
statements. These risks and uncertainties include whether we
will be able to:



| |   |                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | renew all or part of contracts with large customers as they
    expire;                                                                                                                                                 
|
| |  | successfully execute our business strategies, including
    implementation of our Portable People Meter (PPM)
    services and to execute potential joint-venture or third-party
    agreements;                      
|
| |  | effectively manage the impact of any further consolidation in
    the radio and advertising agency industries;                                                                                                          
|
| |  | keep up with rapidly changing technological needs of our
    customer base, including creating new proprietary software
    systems and new customer products and services that meet these
    needs in a timely manner;
|
| |  | successfully manage the impact on our business of any economic
    downturn generally and in the advertising market in
    particular; and                                                                              
|
| |  | successfully manage the impact on costs of data collection due
    to lower respondent cooperation in surveys, privacy concerns,
    technology changes and/or government regulations.                                  

Additional important factors known to Arbitron that could cause
forward-looking statements to turn out to be incorrect are
identified and discussed from time to time in Arbitrons
filings with the Securities and Exchange Commission, including
in particular the risk factors discussed under the caption
ITEM 1A. RISK FACTORS in this Annual Report on
Form 10-K.

The forward-looking statements contained in this document speak
only as of the date hereof, and Arbitron undertakes no
obligation to correct or update any forward-looking statements,
whether as a result of new information, future events or
otherwise.

5



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##### Table of Contents






PART I






|        |         
|------- | --------
|ITEM 1. | BUSINESS

Arbitron Inc., a Delaware corporation, was formerly known as
Ceridian Corporation (Ceridian). Ceridian was formed
in 1957; however, its predecessors began operating in 1912.
Arbitrons audience research business commenced in 1949.
Arbitrons principal executive offices are located at
142 West 57th Street, New York, New York 10019,
and the telephone number is (212) 887-1300.

Prior to March 30, 2001, Ceridian was a publicly traded
company whose principal lines of business were the human
resource service businesses, the Comdata business, which
provided transaction processing and regulatory compliance
services for the transportation industry, and the radio audience
measurement business.

On March 30, 2001, Ceridian completed a reverse spin-off,
which is referred to as the spin-off. In connection
with the spin-off, the assets and liabilities associated with
the human resource service businesses and Comdata subsidiaries
were transferred to a newly formed company named New
Ceridian. The radio audience measurement business stayed
with Ceridian. Ceridian then distributed the stock of New
Ceridian to all of Ceridians existing stockholders. As a
result, New Ceridian is now a separate publicly traded
corporation. In connection with the spin-off, Ceridian changed
its name to Arbitron Inc. and effected a one-for-five reverse
stock split, and New Ceridian changed its name to Ceridian
Corporation. Because of the relative significance of the
businesses transferred to New Ceridian, New Ceridian was
considered the accounting successor to Ceridian for financial
reporting purposes.

The terms Arbitron or the Company as
used in this document refer to Arbitron Inc. and its
subsidiaries.




Overview

Arbitron is an international media and marketing research firm
primarily serving radio, cable television, advertising agencies,
advertisers, outdoor and out-of-home media and, through its
Scarborough joint venture, broadcast television and print media.
Arbitron currently has four main services:



| |   |                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | measuring radio audiences in local markets in the United States
    and Mexico;                                                                                                                                                                                                               
|
| |  | measuring national radio audiences and the audience size and
    composition of network radio programs and commercials;                                                                                                                                                                       
|
| |  | providing application software used for accessing and analyzing
    media audience and marketing information data; and                                                                                                                                                                        
|
| |  | providing consumer, shopping and media usage information
    services to radio, cable television, advertising agencies,
    advertisers, retailers, outdoor and out-of-home media, online
    industries and, through its Scarborough joint venture, broadcast
    television and print media.

Arbitron provides radio audience measurement and related
services in the United States to radio stations, advertising
agencies and advertisers. Arbitron estimates the size and
demographics of audiences of radio stations in local markets in
the United States and reports these estimates and related data
to its customers. This information is used for advertising
transactions in the radio industry. Radio stations use
Arbitrons data to price and sell advertising time, and
advertising agencies and advertisers use Arbitrons data in
purchasing advertising time. Arbitron also measures the three
largest radio markets in Mexico: Mexico City, Guadalajara and
Monterrey.

Arbitrons Radio All Dimension Audience Research
(RADAR) service measures national radio audiences
and the audience size of network radio programs and commercials.

Arbitron provides software applications that give its customers
access to Arbitrons estimates resident in its proprietary
database and enable them to more effectively analyze and
understand that information for sales, management and
programming purposes. Some Arbitron software applications also
allow customers to access data proprietary to third parties
provided the customer has a separate license to use such third
party data.

6



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##### Table of Contents



In addition to its core radio ratings service, which provides
primarily quantitative data such as how many people are
listening, Arbitron also provides qualitative data on listeners,
viewers and readers that contain detailed socioeconomic
information and information regarding what the respondents buy,
where they shop and what forms of media they use. Arbitron
provides these qualitative measurements of consumer
demographics, retail behavior and media usage in local markets
throughout the United States. Arbitron Cable provides
qualitative audience information to the advertising sales
organizations of local cable companies and national cable
networks. Arbitron Outdoor provides these qualitative
measurements to outdoor and out-of-home media sales
organizations.

The comScore Arbitron Online Radio Ratings, a service jointly
developed by Arbitron and comScore Networks Inc., measures the
national audience of audio on the Internet. In addition,
Arbitron offers custom research solutions to the Internet
industry.

Through its CSW Research Limited (Continental
Research) subsidiary, Arbitron provides media,
advertising, financial, public-sector, telecommunications and
Internet research services in the United Kingdom and elsewhere
in Europe.

Arbitron is developing a Portable People Meter (PPM)
system of audience measurement for commercialization in the
United States and has entered into commercial agreements with a
number of international media information services companies
pursuant to which the companies have been granted a license to
use Arbitrons PPM encoding technology in their audience
measurement services in specific countries outside the United
States.

Arbitrons quantitative radio audience measurement services
and related software have historically accounted for a
substantial majority of its revenue. The radio audience
measurement service and related software revenues represented
approximately 86 percent of Arbitrons total 2005
revenue. Arbitrons revenue from domestic sources and
international sources was 96 percent and four percent,
respectively, for the year ended December 31, 2005.




Industry Background and Markets

Since 1965, Arbitron has delivered to the radio industry
reliable and timely radio audience information collected from a
representative sample of radio listeners. The presence of
credible audience estimates in the radio industry has helped
radio stations to price and sell advertising time, and
advertising agencies and advertisers to purchase advertising
time. The Arbitron ratings have also become a valuable tool for
use in radio programming, distribution and scheduling decisions.

The consolidation of radio station ownership in the United
States has tended to intensify competition for advertising
dollars both within the radio industry and between radio and
other forms of media. At the same time, audiences have become
more fragmented. As a result, advertisers have increasingly
sought to tailor their advertising strategies to target specific
demographic groups through specific media. The audience
information needs of radio broadcasters, advertising agencies
and advertisers have correspondingly become more complex.
Increased competition and more complex information requirements
have heightened the need of radio broadcasters for improved
information management systems and more sophisticated means to
analyze this information. In addition, there is a demand for
high-quality radio audience information internationally from
global advertisers, United States broadcasters who have acquired
broadcasting interests in other countries and an increasing
number of private commercial broadcasters in other countries.

As the importance of reaching niche audiences with targeted
marketing strategies increases, broadcasters, publishers,
advertising agencies and advertisers increasingly require that
information regarding exposure to advertising be provided on a
more granular basis and that this information be coupled with
more detailed information regarding lifestyles and purchasing
behavior. The need to integrate purchase data information with
advertising exposure information may create opportunities for
innovative approaches to satisfy these information needs.

Arbitron provides cable companies with qualitative audience
information concerning consumer demographics and retail behavior
of cable audiences and software applications.

7



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##### Table of Contents



Outdoor and out-of-home media advertising companies have
indicated a need for audience information to increase their
revenues particularly as this industry segment has expanded to
introduce place-based media in new locations such as
malls, airports and cinemas. According to Outdoor Advertising
Association of America, Inc., in 2004, advertisers spent
$5.8 billion on outdoor and out-of-home media advertising
in the United States. Audience information for these advertisers
is minimal. In response to this need, Arbitron provides
qualitative audience information and software programs that help
show advertisers that outdoor and out-of-home advertising is an
effective way to reach the people who purchase advertisers
products and services. Arbitron has been working with the
outdoor and out-of-home media industry to help them utilize
consumer information services in selling their advertising.




Radio Audience Measurement Services

Collection of Listener Data Through Diary Methodology.
Arbitron uses listener diaries to gather radio listening data
from sample households in 297 U.S. local markets for which
it currently provides radio ratings. Participants in Arbitron
surveys are selected at random by telephone number. When
participants (known as diarykeepers) agree to take
part in a survey, they are mailed a small pocket-sized diary and
asked to record their listening in the diary over the course of
a seven-day period. Participants are asked to report in their
diary the station(s) to which they are listening, when they are
listening and where they are listening, such as home, car, work
or other place. Although survey periods are 12 weeks long,
no one keeps a diary for more than seven days. Each diarykeeper
receives a diary, instructions for filling it out and a small
cash incentive. The incentive varies according to markets, and
the range is generally $1.00 to $6.00 for each diarykeeper in
the household and up to $10.00 in certain incentive programs for
returned diaries. Diarykeepers mail the diaries to
Arbitrons operations center in Columbia, Maryland, where
Arbitron conducts a series of quality control checks, enters the
information into its database and produces periodic audience
measurement estimates. Arbitron processes more than
1.4 million diaries every year to produce its audience
listening estimates. All markets are measured at least twice
each year, and major markets are measured four times per year.
Arbitrons proprietary data regarding radio audience size
and demographics are generally then provided to customers
through multiyear license agreements.

One of the challenges in measuring radio listening is to ensure
that the composition of survey respondents is representative of
the market being measured. Arbitron strives to achieve
representative samples. For example, if eight percent of the
population of a given market is composed of women aged 18 to 34,
Arbitron works to achieve that eight percent of the diarykeepers
in the sample are women aged 18 to 34. Therefore, each
diarykeepers listening should effectively represent not
only the diarykeepers personal listening but also the
listening of the demographic segment in the market overall. In
striving to achieve representative samples, Arbitron provides
enhanced incentives to certain demographic segments to encourage
participation. In markets with high concentrations of Hispanic
households, Arbitron also uses Spanish-language interviewers and
materials to reach Spanish-speaking households.

Arbitron invests in quality improvements for its radio audience
measurement service. Arbitrons current quality improvement
initiatives include the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | improve ethnic measurement, including language usage weighting
    and personal race/ethnicity. Language usage weighting provides
    that, in addition to weighting based on sex/age, county and race
    (where applicable), language usage among Hispanics will be an
    additional weighting factor in certain Arbitron markets.
    Personal race/ethnicity means that Arbitron classifies the
    personal race/ethnicity of diarykeepers at the individual level
    rather than the household level;
|
| |  | improve small market ratings services;                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | improve qualitative services for medium and small markets;                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | implement a Total Line reporting for simulcast stations.
    Stations that are 100 percent simulcasting may request
    Arbitron to report their estimates in a single combined total
    line in all applications and reports; and                                                                                                                                                                                                                                                                          
|
| |  | improve the measurement of new audio sources, including Internet
    and satellite.                                                                                                                                                                                                                                                                                                                                                                                                                          

8



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##### Table of Contents



Since the early 1990s, Arbitron has implemented programs
designed to:



| |   |                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | accelerate the delivery of audience measurement services for
    some markets;                                                                                                                     
|
| |  | address declining survey response rates;                                                                                                                                                           
|
| |  | increase sample by up to 70 percent in a majority of
    surveyed markets;                                                                                                                         
|
| |  | improve the sample representation of young men;                                                                                                                                                    
|
| |  | maintain proportional representation of African-Americans and
    Hispanics;                                                                                                                       
|
| |  | increase survey frequency so that all markets are measured at
    least twice each year (Spring and Fall) and major markets are
    measured four times per year (Spring, Summer, Fall and Winter);
|
| |  | add consumer socioeconomic questions to its standard radio diary
    in all markets;                                                                                                               
|
| |  | add consumer and retail questions to its standard radio diary in
    small markets; and                                                                                                            
|
| |  | allow smaller markets to further increase their sample.                                                                                                                                            

Portable People Meter. For several years, Arbitron has
pursued a strategy of evolving its data collection business from
diaries, which are completed by hand and mailed in by
respondents, to portable electronic measurement devices, which
passively provide measurement services without additional manual
effort by the respondents. This strategy has been pursued to
improve quality by taking advantage of new technological
capabilities and to address the vast increase in media delivery
vehicles, both inside and outside of the home.

Arbitron has developed a PPM system capable of measuring radio,
broadcast television, cable television, Internet broadcasts,
satellite radio and television audiences, and retail store video
and audio broadcasts. The PPM is a small mobile phone-sized
device that is worn or carried by a survey participant
throughout the day. It automatically detects inaudible codes
that radio, broadcast television, cable television, Internet and
satellite radio and satellite television providers embed in the
audio portion of their programming using encoders provided by
Arbitron. These proprietary codes identify the media to which a
participant is exposed throughout the day without the person
having to engage in manual recording activities. At the end of
each day, the PPM is placed into a base station that recharges
the device and sends the collected codes to Arbitron for
tabulation.

There are several advantages of the PPM system. It is simple and
easy for respondents to use. It requires no button pushing
(which disrupts media use), no recall, and no effort to identify
and write down channels or radio stations tuned to by
respondents. The PPM is able to passively detect exposure to
encoded media by identifying each source through unique
identification codes. The PPM will help support the media
industrys increased focus on accountability to advertisers
for the investments made by advertisers. It will help to shorten
the time period between when advertising runs and when audience
delivery is reported and will provide multimedia measurement
from the same respondent. Since PPM panels have larger weekly
and monthly samples, more stable trends are expected. In
addition, the PPM is capable of measuring new digital platforms,
time-shifted broadcasts and retail, sports and music venues. The
PPM may potentially be used to measure outdoor and out-of-home
media, print, commercials, and entertainment audio, such as
movies and video games.

After conducting its first market trial of the PPM in
Manchester, England, in 1999, Arbitron conducted a market trial
in Wilmington, Delaware, in 2000 and 2001. In late 2001 through
2003, Arbitron conducted a market trial for the television and
radio markets in Philadelphia.

In late 2004, Arbitron began recruiting consumers to participate
in a market demonstration utilizing PPM technology to be
conducted in Houston, Texas. More than 100 media outlets were
encoded (including radio, broadcast television and cable
television), as well as top retailers, including Kroger, Best
BuyTM, Gap, Gallery Furniture and Old Navy. In
September 2005, Arbitron released the first data from this
demonstration. Arbitron achieved a number of sample quality
performance targets, including recruitment of a representative
panel, particularly across ethnic and language usage segments.
Arbitron continues to work on improving the performance of
recruitment and the daily cooperation rates of young adults.

9



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In July 2005, the results of a PPM economic impact study were
released. This study, which was led by the Radio Advertising
Bureau and funded by Arbitron, reported on the potential impact
to the radio industry of electronic measurement and a move from
diaries to the PPM for radio audience measurement. The results
of the study indicated that advertising expenditures associated
with the radio industry would likely increase with a fully
deployed PPM electronic ratings system and decrease with a
continuation of the existing diary system of radio audience
measurement.

To date, Arbitron has signed a number of national and regional
advertising agencies to use radio audience estimates based on
the PPM if Arbitron deploys the PPM service. These agencies
account for more than 70 percent of the national
advertising dollars spent on radio advertising. Arbitron
believes this is a significant start in an effort to gain a
critical mass of industry support for deploying the PPM as a
local market radio ratings system.

Although additional milestones remain and there is the
possibility that commercialization of the PPM could be delayed,
or that a competitor might preempt PPM commercialization
entirely, Arbitron continues to believe that the PPM service
represents a viable replacement for its diary-based ratings
service and is an essential component of the Companys
future growth.

As Arbitron has previously disclosed, commercialization of the
PPM will require a substantial financial investment. While the
Company has preserved its cash and short-term investments in
anticipation of such requirements, the expenditures likely to be
incurred in connection with such commercialization are
significant. The Company currently believes that the aggregate
capital investment associated with PPM commercialization for
audience ratings measurement could be in the range of
$10.0 million to $25.0 million for the first two to
three years of commercialization, with the higher range of
investment by Arbitron anticipated in the event Nielsen Media
Research does not join Arbitron in the commercialization of the
PPM. In addition, over the same period, Arbitron anticipates
that its results of operations will be negatively impacted as a
result of the rollout of this PPM service, which impact likely
will be material. Ultimately, the Company believes that, while
commercialization of PPM for the ratings service will have a
near-term negative impact on the Companys results of
operations, its operating margins can be restored to historical
levels by the end of the rollout period, although there can be
no assurance that this will be the case.

Two significant factors will greatly affect the amount of
capital required for deployment of the PPM and the impact of the
rollout on the Companys results of operations. First,
since Arbitrons primary customers are radio station
owners, the speed with which the radio industry requests PPM
technology will greatly affect the timing of the rollout. If the
radio industry is slow to accept electronic measurement as
opposed to the use of diaries, then it will take longer to roll
out the commercialization of the PPM, and the costs associated
with that deployment will be delayed. On the other hand, if the
radio industry asks for electronic measurement sooner rather
than later, Arbitrons capital needs will intensify, and
the near-term negative impact on the Companys results of
operations will be more significant.

Second, a significant variable in determining the ultimate costs
to Arbitron in commercializing the PPM is whether Nielsen Media
Research, Inc. (Nielsen Media Research), a provider
of U.S. television and cable audience measurement services,
will join with Arbitron in the commercial deployment of the PPM.
In May 2000, Arbitron entered into an agreement with Nielsen
Media Research under which Arbitron granted Nielsen Media
Research an option to join Arbitron in the potential commercial
deployment of the PPM for audience measurement in the United
States. Now that Arbitron believes that the PPMs viability
has been demonstrated as a result of the Houston market test,
Arbitron expects that Nielsen Media Research will make a
decision in early 2006 as to whether to join in the
commercialization of the PPM.

If Nielsen Media Research elects to join Arbitron in
commercializing the PPM, the PPM will be deployed to provide
audience measurement for both the television and radio
industries, and the costs of such commercialization will be
shared with Nielsen Media Research in some form to be agreed
upon by the parties. Arbitron and Nielsen Media Research would
each be licensed to use the data generated by the jointly
deployed PPM in their respective media measurement services, and
Arbitron would also receive royalties from Nielsen Media
Research.

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If Nielsen Media Research elects not to join Arbitron in
commercializing the PPM, Arbitron intends to deploy a PPM
service for audience measurement solely to the radio industry,
at least initially. This will require Arbitron to bear all of
the costs associated with the rollout of the PPM service.

Arbitron retains the right under the option agreement to, at any
time, license, test and/or implement a commercial deployment of
the PPM and the technology contained in the PPM outside of the
United States. In the event Nielsen Media Research exercises its
option to form the joint venture in the United States, Nielsen
Media Research also has the option to purchase from Arbitron, at
fair value, a portion of Arbitrons interest, up to
49 percent, in all audience measurement business activities
arising out of the commercial deployment of the PPM and the
technology contained in the PPM outside of the United States.

In June 2005, Clear Channel Communications, Inc. (Clear
Channel), which is the largest owner of radio stations in
the United States and represented approximately 19 percent
of Arbitrons revenue in 2005, announced that it was
issuing a Request for Proposals to create a
state-of-the-art radio ratings system to replace the
current diary measurement system to which it subscribes. On
December 16, 2005, Clear Channel issued a press release in
which it announced that Arbitron is one of the seven finalists
in its Request for Proposals process. Clear Channel has targeted
March 3, 2006, as the date for selection of a final
measurement method, with a live test period planned to begin in
the spring of 2006.

Portable People Meter  National Marketing Panel
(Project Apollo). Arbitron began testing
additional marketing research applications of the PPM technology
in 2003. One application that Arbitron began testing was the use
of the PPM as the media collection tool for a national
marketing-oriented panel designed to correlate advertising with
shopping behavior and sales. The objective is to provide
multimedia exposure data combined with sales data from a single
source to produce a measure of advertising effectiveness for
advertisers, agencies and broadcasters.

In September 2004, Arbitron announced that Arbitron and VNU,
Inc. (VNU) agreed to jointly explore the development
of a new national marketing research service, called
Project Apollo, that collects multimedia and
purchase information from a common sample of consumers. In April
2005, Arbitron and VNU entered into a cost-sharing agreement to
share costs and capital expenditures associated with the
development and deployment, by year-end 2005, of a pilot panel
of more than 6,000 households as a demonstration of the national
marketing research service, and the parties currently are
discussing entering into a formal joint venture for this
service. Procter & Gamble, one of the countrys
leading consumer products companies, is collaborating with the
two companies to help ensure that the service properly addresses
the needs of marketers. At this time, six advertisers, including
Procter & Gamble, who in the aggregate spend more than
$6.2 billion for advertising on measured media, have
signed, or are in final review of agreements for the Project
Apollo pilot panel data.

This innovative service would consist of a panel of
participants, each of whom would receive incentives to carry
Arbitrons PPM, which would collect the participants
exposure to multiple media sources. Data on consumer preferences
and purchases with respect to a wide range of services and
products would also be collected from panelists, electronically
and through surveys, with the expectation of using households
from VNUs ACNielsen Homescan consumer panel, which
currently tracks packaged-goods purchases. Data would be
collected in aggregate form to provide an understanding of
participants media interactions and their resulting
shopping and purchasing behavior. The ultimate objective would
be to provide advertisers with an enhanced ability to determine
the return on investment for their marketing efforts.

The national marketing research service is a new service, for
which market acceptance is not yet known. Like the audience
measurement services for ratings, this service would require
substantial additional expenditures if it ultimately proves to
be a viable commercial service. In 2005, the Company incurred
approximately $9.4 million of incremental expenditures
relating to the national marketing pilot, approximately
$3.3 million of which constituted expenses that had a
direct impact on the Companys operating income and
approximately $6.1 million of which were capitalized.
Arbitron also currently expects to incur incremental expenses of
$6.8 million relating to Project Apollo in 2006 that will
have a direct impact on the Companys operating income. If
a decision is made to commercialize this service, substantial
additional expenditures would be incurred in the next few years.

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Since the pilot program for the PPM national marketing service
has just begun and customer response is very preliminary, it is
not yet possible to provide a meaningful assessment of future
costs associated with a potential commercialization of this
service. However, the same general cost pattern would apply as
with the PPM ratings service  substantial costs would
have to be incurred in advance of revenues, which would result
in a negative impact on results of operations in the first two
to three years of commercialization, which impact likely would
be material.

Portable People Meter  International. Arbitron
has entered into commercial agreements with a number of
international media information services companies pursuant to
which the companies have been granted a license to use
Arbitrons PPM encoding technology in their audience
measurement services in specific countries outside the United
States.

BBM Canada (BBM), the Canadian industry cooperative
for audience ratings, has a license to use Arbitrons PPM
audience measurement technology in its service. As of
January 1, 2005, BBM made the PPM the official ratings
system for buying and selling commercial airtime on
French-language television in the markets of Quebec and Montreal.

Arbitron has entered into commercial license agreements with
Taylor Nelson Sofres, PLC (TNS), a United Kingdom company, to
use Arbitrons PPM technology in Belgium. Efforts are
underway to negotiate a renewal of Arbitrons separate
commercial license agreement with TNS allowing TNS to use
Arbitrons PPM technology and its audio encoding technology
for radio and television audience measurement in selected
countries in Europe, Asia-Pacific, the Middle East and Africa.
That license expired on December 31, 2005, except for in
those countries in which TNS had already entered into local
contracts with various entities. In June 2005, TNS Gallup, a
member of TNS, announced the signing of a five-year contract
with the Norwegian National Radios Steering Committee to
install a PPM panel, making Norway the first country to use the
PPM as currency for measuring commercial radio ratings. The
panel of participants will be equipped with Arbitrons PPM
system beginning in the first quarter of 2006. In addition,
Arbitron has entered into evaluation agreements with other
audience measurement companies in various countries.

Radio Joint Audience Research Limited (RAJAR), a
United Kingdom company that was established to operate a single
audience measurement system for the radio industry in the United
Kingdom, is currently evaluating proposals for radio audience
measurement. The TNS proposal using the PPM technology is one of
the proposals being considered by RAJAR. It is expected that
RAJAR will make its decision in the first quarter of 2006.

Radio Market Report and Other Data Services.
Arbitrons listening estimates are provided in a number of
different reports that are published and licensed to its
customers. The cornerstone of Arbitrons radio audience
measurement services is the Radio Market Report, which is
available in all local markets for which Arbitron currently
provides radio ratings. The Radio Market Report provides
audience estimates for those stations in a market that meet
Arbitrons Minimum Reporting Standards. The estimates cover
a wide variety of demographics and dayparts, which are the time
periods for which audience estimates are reported. Each Radio
Market Report contains estimates to help radio stations,
advertising agencies and advertisers understand who is listening
to the radio, which stations they are listening to, and the time
and location of the listening.

Arbitron licenses its respondent-level database through
Maximi$er and Maximi$er Plus, which are services for radio
stations, and Media Professional and Media Professional Plus,
which are services for advertising agencies and advertisers.
Arbitrons respondent-level database allows radio stations,
advertising agencies and advertisers to customize survey areas,
dayparts, demographics and time periods to support targeted
marketing strategies. The Maximi$er service includes a
Windows-based application to access a markets entire radio
diary database on a clients personal computer. Radio
stations use the Maximi$er service to produce information about
their station and programming not available in Arbitrons
published Radio Market Reports. The Maximi$er Plus service
allows radio stations to access Arbitrons National
Regional Database (NRD) to analyze ratings
information for customer-defined groupings of stations in
multiple markets and counties. The Media Professional service is
designed to help advertising agencies and advertisers plan and
buy radio advertising time quickly, accurately and easily. These
services integrate radio planning and

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In May 2005, Arbitron announced a program designed to increase
the stability of radio audience estimates in certain small
markets by applying a quarterly rolling-sample approach to
surveys covering 110 small markets. The goal of this
program is to provide quality enhancements for our service in
certain small markets and increase the reliability of reported
data by reducing the fluctuations in audience estimates from
measurement period to measurement period. By combining the
quarterly measurement of the related surveys, the sample size
for analyzing audience demographics for these small markets will
be increased without any increased cost to our customers. This
program is being implemented in two phases beginning with the
release of the Fall 2005 radio survey results.

In addition to the Radio Market Report, Arbitron provides a
range of ancillary services that includes Radio County Coverage
Reports, Hispanic Radio Data and Black Radio Data.

RADAR. The RADAR service provides a measurement of
national radio audiences and the audience size of network radio
programs and commercials. The audience measurements are provided
for a wide variety of demographics and dayparts for total radio
listening and for 52 separate radio networks.

Network audience estimates are created by merging the radio
listening of selected survey respondents with the actual times
that network programs and commercials are aired on each
affiliated station. RADAR estimates are delivered through
Arbitrons PC 2010 software application, which includes a
suite of products for sophisticated analysis of network
audiences. This service is provided to radio networks,
advertising agencies and network radio advertisers.

In 2003, Arbitron completed its conversion from a
telephone-based RADAR survey to one based exclusively on a
12-month sample of 50,000 Arbitron diaries. Since 2003, the
RADAR survey sample has continually increased, with an
anticipated survey sample of 100,000 Arbitron diaries by March
2006.




Software Applications

In addition to its reports, Arbitron licenses software
applications that provide access to Arbitron audience estimates
resident in its proprietary database. These applications enable
customers to more effectively analyze and understand that
information for sales, management and programming purposes.
These services also help customers to further refine sales
strategies and compete more effectively for advertising dollars.
Some Arbitron software applications also allow customers to
access data proprietary to third parties provided the customer
has a separate license to use such third party data.

Arbitrons Tapscan family of software solutions is used by
many radio stations, advertising agencies and advertisers. The
Tapscan software is one of the advertising industrys
leading radio analysis applications. It can help create
illustrative charts and graphs that make complex information
more useful to potential advertisers. Other features include
prebuy research including frequency-based tables, cost-per-point
analysis, hour-by-hour and trending, use of respondent-level
data, automatic scheduling and goal tracking, instant access to
station format and contact information. Another Tapscan service,
Qualitap, is also made available to television and cable outlets
in the United States under a licensing arrangement with
Marketron International, Inc.

The MapMAKER Direct service analyzes where the radio audience
lives and works to provide detailed maps and reports. Program
directors can use this service to better understand their
listeners and better target their promotional efforts.
Arbitrons PD Advantage service offers radio station
program directors the ability to create a variety of reports
that help analyze the market, the audience and the competition.
Arbitrons Marketing Resources Plus (MRP)
service provides media buying software systems to local and
regional advertising agencies for broadcast and print media.

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On September 20, 2005, Arbitron acquired the assets of
Integrated Radio Systems, L.L.C. for $4.6 million,
including $0.1 million in transaction costs. Integrated
Radio Systems is a provider of software systems that help radio
stations manage their advertising sales process and automate the
daily tasks in a sales department. The Integrated Radio Systems
applications combine a customer relationship management system
with scheduling and research applications and with
inventory/pricing management tools.




Local Market Consumer Information Services

In its core radio ratings service, Arbitron provides primarily
quantitative data, such as how many people are listening.
Arbitron also provides qualitative data, such as consumer and
media usage information, to radio stations, cable companies,
television stations, outdoor and out-of-home media, magazine and
newspaper publishers, advertising agencies and advertisers. The
qualitative data on listeners, viewers and readers provide more
detailed socioeconomic information and information on what
respondents buy, where they shop and what forms of media they
use. Arbitron provides these measurements of consumer
demographics, retail behavior and media usage in 275 local
markets throughout the United States.

Arbitron provides four qualitative services tailored to fit a
customers specific market size and marketing requirements:



| |   |                                                                                              
| | - | ---------------------------------------------------------------------------------------------
| |  | The Scarborough Report, which is offered in larger markets;                                  
|
| |  | The Scarborough Mid-Tier Local Market Consumer Study, which
    is offered in medium markets;
|
| |  | The RetailDirect Service, which is offered in medium
    markets; and                        
|
| |  | The Qualitative Diary Service/ LocalMotion Service, which is
    offered in smaller markets. 

Each service profiles a market, the consumers and the media
choices in terms of key characteristics. These five services
cover the major retail and media usage categories. Arbitron
provides training and support services that help its customers
understand and use the local market consumer information that
Arbitron provides.

Scarborough Report. The Scarborough service is provided
through a joint venture between Arbitron and SRDS, Inc., a
subsidiary of VNU, Inc. Although Arbitrons interest in the
Scarborough Research joint venture is 49.5 percent,
partnership voting rights and earnings are divided equally
between Arbitron and SRDS, Inc. The Scarborough service provides
detailed information about media usage, retail and shopping
habits, demographics and lifestyles in 80 large United States
markets, utilizing a sample of consumers in the relevant
markets. Scarborough data feature more than 1,700 media, retail
and lifestyle characteristics, which can help radio stations,
television stations, cable companies, advertising agencies and
advertisers, newspaper and magazine publishers, and outdoor and
out-of-home media companies, provide an in-depth profile of
their consumers. Examples of Scarborough categories include
retail shopping (e.g., major stores shopped or purchases during
the past 30 days), auto purchases (e.g., plan to buy new
auto or truck), leisure activities (e.g., attended sporting
event) and personal activities (e.g., golfing). Media
information includes broadcast and cable television viewing,
radio listenership, newspaper readership by section, magazine
readership and yellow pages usage. This information is provided
twice each year to newspapers and magazines, radio and
television broadcasters, cable companies, outdoor and
out-of-home media, advertising agencies and advertisers in the
form of the Scarborough Report. Arbitron is the exclusive
marketer of the Scarborough Report to radio broadcasters, cable
companies, and outdoor and out-of-home media. Arbitron also
markets the Scarborough Report to advertising agencies and
advertisers on a shared basis with Scarborough Research.
Scarborough Research markets the Scarborough Report to
newspapers, magazines and online service providers.
Nielsen Media Research, a subsidiary of VNU, Inc., markets
the Scarborough Report to television broadcasters.

Scarborough Mid-Tier Local Market Consumer Study.
The Scarborough Mid-Tier Local Market Consumer Study is
also provided through the Scarborough joint venture between
Arbitron and SRDS, Inc., a subsidiary of VNU, Inc. This service
will provide information about media usage, retail and shopping
habits, demographics and lifestyles in six mid-sized markets in
2006, utilizing a survey sample of adult consumers age 18
and above in the relevant markets. This survey information will
be collected through a single consumer

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RetailDirect. Arbitrons RetailDirect service is a
locally oriented, purchase data and media usage research service
provided in 19 mid-sized United States markets. This service,
which utilizes diaries and telephone surveys, provides a profile
of the audience in terms of local media, retail and consumer
preferences so that local radio and television broadcasters,
outdoor and out-of-home media, and cable companies have
information to help them develop targeted sales and programming
strategies. Retail categories include automotive, audio-video,
furniture and appliances, soft drinks and beer, fast food,
department stores, grocery stores, banks and hospitals. Media
usage categories include local radio, broadcast television,
cable networks, outdoor and out-of-home media, newspapers,
yellow pages and advertising circulars.

Qualitative Diary Service/ LocalMotion Service.
Arbitrons Qualitative Diary Service collects consumer and
media usage information from Arbitron radio diarykeepers in 176
smaller United States markets. The same people who report their
radio listenership in the market also answer more than 27
demographic, product and service questions. Consumer behavior
information is collected for key local market retail categories,
such as automotive sales, grocery, fast food, furniture and
bedding stores, beer, soft drinks and banking. The Qualitative
Diary Service also collects information about other media, such
as television news viewership, cable television viewership,
outdoor and out-of-home media exposure and newspaper readership.
This qualitative service provided for cable television companies
is known as LocalMotion.




Arbitron Cable Services

Arbitron provides its local market consumer information services
to media other than radio, including cable television. Feedback
from Arbitrons cable customers suggests that the cable
industry is in need of improved local measurement systems
because current quantitative measurement methods, such as
diaries and television meter-based measurement systems, have not
provided adequate depth of demographic information on cable
network audiences. Without solid measures of demographic
audiences at the local market level, cable may not be achieving
its full potential of local and national advertising revenues.
In response to this need, Arbitron Cable provides cable
companies with qualitative audience information and software
programs concerning consumer demographics and retail behavior of
cable audiences.

Arbitron expects that its PPM would provide a reliable local
audience measurement service for the cable industry. If a joint
venture with Nielsen Media Research is formed, it is anticipated
that Nielsen Media Research would be licensed to use the PPM
data to provide local audience measurement services to cable
companies in the United States. If Nielsen Media Research elects
not to join Arbitron in commercializing the PPM, Arbitron could
provide nonratings ancillary services to the cable industry,
such as information on out-of-home viewership and information to
help analyze channel programming.




Arbitron Outdoor and Out-of-Home Services

Arbitron provides its local market consumer information services
to outdoor and out-of-home media companies. This industry
segment has expanded to introduce placed-based media
in new locations such as malls, airports and cinemas. Arbitron
is working with the outdoor and out-of-home media industry to
help them utilize consumer information services in selling their
advertising. Arbitron seeks to use the expertise and resources
from its many years of audience measurement to assist outdoor
and out-of-home media companies and their advertisers to
identify and reach their audiences.

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Custom Research Services

Arbitron is in the process of expanding its custom research
efforts to serve emerging advertising media. For example,
Arbitron has contracts to produce audience listening estimates
of Chinese-language listeners to radio and has produced custom
research studies for satellite radio and out-of-home/place-based
media.




The comScore Arbitron Online Radio Ratings Service

The comScore Arbitron Online Radio Ratings, a service jointly
developed by Arbitron and comScore Networks Inc., measures the
national audience of audio on the Internet. In addition,
Arbitron offers custom research solutions to the Internet
industry.




International Operations



| |                                              
| | ---------------------------------------------
| | CSW Research Limited (Continental Research)

Through its Continental Research subsidiary, Arbitron provides
media, advertising, financial, public sector, telecommunications
and Internet research services in the United Kingdom and
elsewhere in Europe.

Media. Continental Researchs media clients
cover the full spectrum of traditional and new media, with
particular strength in the television and radio markets. Its
media services include measuring audiences, evaluating existing
services and building forecasting models.

Advertising. Continental Research evaluates every
stage of the advertising process: from strategy development,
creative development, precampaign testing, pre- and
post-advertising and tracking, and on-air coincidental studies,
to analysis of those responding to the campaign, and consumers
who purchased the advertised products.

Financial. Continental Researchs experience
in business-to-business financial research ranges from new
product development to market measurement to advertising
tracking. When conducting financial research and other business
and consumer studies, Continental Research uses The Million Plus
Panel, which comprises a pool of approximately 3.7 million
United Kingdom residents and contains up to 3,000 demographic,
lifestyle and purchasing details for each resident.

Public Sector. Continental Researchs public
sector services provide surveys for central and local
governments and individual government departments and regulatory
bodies. Continental Research designs cost-effective, targeted
studies that provide government departments with information
regarding their initiatives to become more customer-focused.

Telecommunications and Internet. Continental
Researchs telecommunications and Internet projects have
ranged from local area markets to multinational markets and have
examined pricing, promotion, billing, product differentiation,
advertising effectiveness, distribution systems, customer
satisfaction, market estimation and new product development
research.



| |       
| | ------
| | Mexico

The Arbitron syndicated radio audience measurement service
provides audience estimates covering a wide variety of
demographics and dayparts for the three largest radio markets in
Mexico: Mexico City, Guadalajara and Monterrey. This service
also provides qualitative information concerning consumer and
media usage in Mexico.




Strategy

Arbitrons objectives are to grow its radio audience
measurement business and to expand its audience measurement
services to a broader range of media types, including broadcast
television, cable, outdoor and

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Continue to invest in quality improvements in its radio audience
    measurement services and to develop new revenue sources.
    Additionally, Arbitron believes that a growth opportunity exists
    in the advertiser market and intends to seek to expand its
    customer base of advertisers by developing and marketing new
    information services designed to assist corporate advertisers in
    implementing targeted marketing strategies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Build on Arbitrons experience in the radio audience
    measurement industry and its PPM technology to expand into
    measurement services for other types of media. In some cases,
    the Company plans to enter into agreements with third parties to
    assist with the marketing, technical and financial aspects of
    expanding into measurement services for other types of media.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Develop and commercialize the next-generation data collection
    and processing techniques. Arbitrons businesses require
    sophisticated data collection and processing systems, software
    and other technology. The collection of Arbitrons survey
    respondent information is dependent on individuals keeping track
    of their listening, viewing and reading activities in diaries.
    The technology underlying the media measurement industry is
    undergoing rapid change, and Arbitron will need to continue to
    develop its data collection, processing and software systems to
    accommodate these changes. The development of Arbitrons
    PPM is in response to a growing demand for higher quality and
    more efficient methods for measuring audiences. Arbitron plans
    to use the PPM technology to develop an integrated measurement
    service that will measure multimedia from a single source,
    enabling media buyers to make multimedia decisions in an
    integrated fashion.
|
| |  | Expand international business. Arbitron continues to explore
    opportunities that would further expand the licensing of its PPM
    technology internationally into selected international regions,
    such as Europe and the Asia/ Pacific regions. Arbitron believes
    there is a demand for quality audience information
    internationally from global advertisers and media.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Provide multimedia exposure data combined with single-source
    sales data that will help support the media industrys
    pursuit of increased accountability to advertisers for their
    return on investments made in media. Increased accountability
    relies on demonstrating that the advertisement ran as ordered,
    that the commercial audience was delivered as expected and that
    product sales were linked to such advertisements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            




Customers, Sales and Marketing

Arbitrons customers are primarily radio stations, radio
networks, cable companies, advertising agencies and corporate
advertisers. As of December 31, 2005, Arbitron provided its
radio audience measurement and related services to approximately
4,600 radio stations and 1,500 advertising agencies and
advertisers nationwide under contracts that generally vary in
length from one to seven years. As a result of the consolidation
of United States radio broadcasters in the 1990s, Clear Channel
Communications, Inc. and CBS Radio, formerly known as Infinity
Broadcasting Corp., represented approximately 19 percent
and nine percent, respectively, of Arbitrons revenue in
2005. Although the industry consolidation that has led to the
increased concentration of Arbitrons customer base could
put pressure on the pricing of Arbitrons radio ratings
service, it has also contributed to an increase in the number of
stations subscribing to the ratings service, as stations have
become Arbitron customers upon their acquisition by larger
broadcasting groups. It has also been Arbitrons experience
that stations that are part of larger broadcasting groups are
somewhat more likely to purchase Arbitrons analytical
software applications and other services in addition to the
Radio Market Report. Furthermore, Arbitron believes that it is
well positioned to provide new products and services to meet the
emerging needs of broadcasting groups.

As of December 31, 2005, Arbitron provided its qualitative
measurement and related services to 149 local cable systems and
83 outdoor and out-of-home media plants.

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Arbitron markets its products and services in the United States
through a direct sales force that consisted of 77 sales account
managers and 36 training service consultants, as of
December 31, 2005.

Arbitron has entered into a number of agreements with third
parties to assist in marketing and selling its products and
services in the United States. For example, Marketron
International, Inc. distributes, on an exclusive basis,
Arbitrons Qualitap software to television and cable
outlets in the United States.

Arbitron supports its sales and marketing efforts through the
following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Gathering and publishing studies, which are available for no
    charge on Arbitrons Web site, on emerging trends in the
    radio, Internet broadcasting, outdoor and out-of-home and other
    media industries, as well as the media habits of radio listeners
    and television, cable and Internet viewers;                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Conducting direct-marketing programs directed toward radio
    stations, cable companies, advertising agencies and corporate
    advertisers;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Promoting Arbitron and the industries Arbitron serves through a
    public relations program aimed at the trade press of the
    broadcasting, outdoor and out-of-home media, Internet,
    advertising and marketing industries, as well as select local
    and national consumer and business press;                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Participating in key industry forums and interest groups, such
    as the Advertising Research Foundation, the American Association
    of Advertising Agencies, the National Association of
    Broadcasters, the Association of National Advertisers, the Radio
    Advertising Bureau, European Society for Opinion Marketing and
    Research, the Television Bureau of Advertising, the Cable
    Advertising Bureau, American Women in Radio and Television,
    Women in Cable Television, the Cable &
    Telecommunications Association for Marketing and the Outdoor
    Advertising Association of America, as well as Internet
    roundtables and numerous state and local advertising and
    broadcaster associations;
|
| |  | Maintaining a significant presence at major industry
    conventions, such as those sponsored by the National Association
    of Broadcasters, the Radio Advertising Bureau, the American
    Association of Advertising Agencies, the Cable Advertising
    Bureau and the Outdoor Advertising Association of
    America; and                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Being a founding member of the Radio Advertising Effectiveness
    Lab, an industry not-for-profit organization providing
    information about the effectiveness of radio advertising.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

Internationally, Arbitron markets services through approximately
16 research executives operating through Continental
Researchs office in the United Kingdom.

Arbitron has also continued its international sales and
marketing efforts in other areas, such as Mexico, Europe and the
Asia/ Pacific regions.




Competition

Arbitron believes that the principal competitive factors in its
markets are the credibility and reliability of its audience
research, the ability to provide quality analytical services for
use with the audience information and the end-user experience
with services and price.

Arbitron is a leader in the radio audience measurement business.
Arbitron competes in the radio audience measurement business in
some small markets with Eastlan Resources, a privately held
research company. In Mexico, Arbitron competes in the radio
audience measurement business with INRA International Research
Mexico. Arbitron is also aware of at least five companies,
Telecontrol AG (a GfK AG company), Eurisko S.p.a. (a member of
the international network NOP World), Navigauge, RSL Ipsos and
AgB/ NMR International, that are developing technologies that
could compete with Arbitrons PPM.

Arbitron competes with a large number of other providers of
applications software, qualitative data and proprietary
qualitative studies used by broadcasters, cable companies,
advertising agencies, advertisers, and outdoor and out-of-home
media companies. These competitors include STRATA Marketing
Inc., Telmar Information Services Corp., Marketron Inc.,
Interactive Media Systems, Wicks Broadcast Solutions, LLC

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Arbitron also competes with a number of companies in the
Internet audience measurement industry, including Nielsen//
NetRatings.

Arbitrons Continental Research subsidiary operates in a
highly competitive custom research market in the United Kingdom.

On December 16, 2005, Clear Channel announced seven
finalists for its Request for Proposals to create a
state-of-the-art radio ratings system. The seven proposal
finalists to be evaluated are, in alphabetical order, Arbitron,
Integrated Media Measurement, MediaAudit/ Ipsos, Mediamark
Research, Paladin Adsolutions, RadioStat and Simmons.




Intellectual Property

Arbitrons intellectual property is, in the aggregate, of
material importance to its business. Arbitron relies on a
combination of patents, copyrights, trademarks, service marks
and trade secret laws, license agreements and other contractual
restrictions to establish and protect its proprietary rights in
its products and services. As of December 31, 2005, in the
United States, Arbitron had been granted 22 patents and had 36
patent applications pending. Internationally, Arbitron had been
granted 101 patents and had 182 patent applications pending as
of December 31, 2005. Arbitrons patents primarily
relate to its data collection and processing systems and
software and its PPM. Several patents relating to the PPM, which
expire at various times beginning in 2012, when viewed together
are of material importance to the Companys business.

Arbitrons audience listening estimates are original works
of authorship and are copyrightable under the federal copyright
laws in the United States. The Radio Market Report is published
either quarterly or semiannually, depending on the Arbitron
market surveyed, while the Radio County Coverage Report is
published annually. Arbitron seeks copyright registration for
each Radio Market Report and for each Radio County Coverage
Report published in the United States. Arbitron also seeks
copyright protection for its proprietary software and for
databases comprising the Radio Market Report and other services
containing its audience estimates and respondent-level data.
Prior to the publication of the Arbitron reports and release of
the software containing the respondent-level data, Arbitron
registers its databases under the United States federal
copyright laws. Arbitrons proprietary data regarding
audience size and demographics are provided to customers
generally through multiyear license agreements.

A number of Arbitrons services are marketed under United
States federally registered trademarks that are helpful in
creating recognition in the marketplace. Some of Arbitrons
registered trademarks and service marks include: the Arbitron
name and logo, Maximi$er, RetailDirect and RADAR. The Arbitron
name and logo is of material importance to the Companys
business. Arbitron has a trademark application pending for
Arbitron PPM. Arbitron also has a number of common-law
trademarks, including Media Professional, Qualitap, MediaMaster
and Prospector. Arbitron has registered its name as a trademark
in the United Kingdom, Mexico, the European Community,
Australia, Singapore, Chile and Japan and is exploring the
registration of its marks in other foreign countries.

The laws of some countries might not protect Arbitrons
intellectual property rights to the same extent as the laws of
the United States. Effective patent, copyright, trademark and
trade secret protection may not be available in every country in
which Arbitron markets or licenses its products and services.

Arbitron believes its success depends primarily on the
innovative skills, technical competence, customer service and
marketing abilities of its personnel. Arbitron enters into
confidentiality and assignment-of-inventions agreements with
substantially all of its employees and enters into nondisclosure
agreements with its suppliers and customers to limit access to
and disclosure of its proprietary information.

Arbitron must guard against the unauthorized use or
misappropriation of its audience estimates, databases and
technology by third parties. There can be no assurance that the
copyright laws and other

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In addition, claims by third parties that Arbitrons
current or future products or services infringe upon their
intellectual property rights may harm Arbitrons business.
Intellectual property litigation is complex and expensive, and
the outcome of this litigation is difficult to predict. In the
past, Arbitron has been involved in litigation relating to the
enforcement of its copyrights covering its radio listening
estimates. Although Arbitron has generally been successful in
these cases, there can be no assurance that the copyright laws
and other statutory and contractual arrangements Arbitron
currently depends upon will provide it sufficient protection to
prevent the use or misappropriation of its audience estimates,
databases and technology in the future. Any future litigation,
regardless of outcome, may result in substantial expense to
Arbitron and significant diversion of its management and
technical personnel. Any adverse determination in any litigation
may subject Arbitron to significant liabilities to third
parties, require Arbitron to license disputed rights from other
parties, if licenses to these rights could be obtained, or
require Arbitron to cease using the technology.




Research and Development

Arbitrons research and development activities have related
primarily to the development of new product and customer
software and other technical expenses including maintenance of
legacy operation and reporting systems. Arbitron expects that it
will continue research and development activities on an ongoing
basis, particularly in light of the rapid technological changes
affecting its business. The majority of the investment effort
and spending will be dedicated to improving the quality and
efficiency of Arbitrons data collection and processing
systems, developing new software applications that will assist
Arbitrons customers in realizing the full potential of
Arbitrons audience measurement services, developing
Arbitrons PPM technology, and developing a single-source
service that will be able to measure audience and other
information from a number of different forms of media. Research
and development expenses during fiscal years 2005, 2004 and 2003
totaled $38.6 million, $33.3 million and
$25.8 million, respectively.




Governmental Regulation

Arbitrons PPM has been certified to meet Federal
Communications Commission requirements relating to emissions
standards and standards for modem connectivity. Additionally,
all PPM equipment has been certified to meet the safety
standards of Underwriters Laboratories Inc. (commonly referred
to as UL), as well as Canadian and European safety standards.

Arbitrons media research activities are regulated by the
United States Federal Trade Commission in accordance with a
Decision and Order issued in 1962 to CEIR, Inc., a predecessor
company. This order originally arose in connection with the
television ratings business, and Arbitron believes that today it
applies to Arbitrons radio measurement services. The order
requires full disclosure of the methodologies used by Arbitron
and prohibits Arbitron from making representations in selling or
offering to sell an audience measurement service without proper
qualifications and limitations regarding probability sample,
sampling error and accuracy or reliability of data. It prohibits
Arbitron from making statements that any steps or precautions
are taken to ensure the proper maintenance of diaries unless
such steps or precautions are in fact taken. It also prohibits
Arbitron from making overly broad statements regarding the
viewing a diary reflects. The order further prohibits Arbitron
from representing the data as anything other than estimates and
from making a statement that the data are accurate to any
precise mathematical value. The order requires that Arbitron
make affirmative representations in its reports regarding
nonresponse by survey participants and the effect of this
nonresponse on the data, the hearsay nature of a survey
participants response, the fact that projections have been
made, and the limitations and deficiencies of the techniques or
procedures used. Arbitron believes that it has conducted and
continues to conduct its radio audience measurement services in
compliance with the order.

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Arbitrons Radio Market Report Service is accredited by and
subject to the review of the Media Rating Council
(MRC). The MRC is an industry organization created
to ensure high ethical and operational standards in audience
measurement research. Arbitrons Radio Market Report
Service has been accredited by the MRC since 1968. Additional
Arbitron services that are accredited by the MRC are RADAR,
Maximi$er and Media Professional software, the Custom Survey
Area Report (CSAR) and the Radio County Coverage
services. To merit continued accreditation of its services,
Arbitron must: (1) adhere to the MRCs Minimum
Standards for Media Rating Research; (2) supply full
information to the MRC regarding details of its operations;
(3) conduct its media measurement services substantially in
accordance with representations to its subscribers and the MRC;
and (4) submit to, and pay the cost of, thorough annual
audits of accredited Arbitron services by certified public
accounting firms engaged by the MRC.




Employees

As of December 31, 2005, Arbitron employed approximately
919 people on a full-time basis and 439 people on a
part-time basis in the United States and approximately 38 people
on a full-time basis and 346 people on a part-time basis
internationally. None of Arbitrons employees are covered
by a collective bargaining agreement. Arbitron believes its
employee relations are good.




Seasonality

Arbitron recognizes revenue for products and services over the
terms of license agreements as products and services are
delivered, and expenses are recognized as incurred. Arbitron
gathers radio-listening data in approximately 297 United States
local markets. All 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, all major markets are measured two additional times
per year (January-February-March for the Winter
survey and July-August-September for the Summer
survey). Arbitrons revenue is generally higher in
the first and third quarters as a result of the delivery of the
Fall survey and Spring survey, respectively, to all markets,
compared to revenue in the second and fourth quarters, when
delivery of the Winter survey and Summer survey, respectively,
is only made to major markets. Arbitrons expenses are
generally higher in the second and fourth quarters as the Spring
survey and Fall survey are being conducted.




Available Information

Arbitrons Web site address is www.arbitron.com,and
interested persons may obtain, free of charge, copies of filings
(including Arbitrons annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on
Form 8-K, and any amendments to those reports) that
Arbitron has made with the Securities and Exchange Commission
through a hyperlink at this site to a third-party Securities and
Exchange Commission filings Web site (as soon as reasonably
practicable after they are filed with, or furnished to, the
Securities and Exchange Commission). Also available on
Arbitrons Web site are its Corporate Governance Policies
and Guidelines, Code of Ethics for the Chief Executive Officer
and Financial Managers, Code of Ethics and Conduct, the Audit
Committee Charter, the Nominating Committee Charter, the
Corporate Governance Committee Charter and the Compensation and
Human Resources Committee Charter. Copies of these documents are
also available in print, free of charge, to any stockholder who
requests a copy by contacting Arbitrons treasury manager.






|         |             
|-------- | ------------
|ITEM 1A. | RISK FACTORS

Risk
Factors Relating to Arbitrons Businesses and the Industry
in Which Arbitron Operates

Arbitrons business, financial position and operating
results are dependent on the performance of its radio audience
measurement business.

Arbitrons quantitative radio audience measurement service
and related software sales represented approximately
86 percent of Arbitrons total revenue for 2005.
Arbitron expects that sales of its radio audience measurement
service and related software will continue to represent a
substantial portion of Arbitrons revenue

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Technological change may render Arbitrons products
and services obsolete. If Arbitron is unable to successfully
adapt to changing technologies and customer demands, either
through the development and marketing of new products and
services, or through enhancements to its existing products and
services, its business, financial position and results of
operations would be adversely affected.

Arbitron expects that the market for its products and services
will be characterized by changing technology, evolving industry
standards, frequent new product and service announcements and
enhancements, and changing customer demands. The introduction of
new products and services embodying new technologies and the
emergence of new industry standards could render existing
products and services obsolete and/or challenge current accepted
levels of precision of data measurement. In addition,
advertising-supported media may be challenged by new
technologies that could have an effect on the advertising
industry, Arbitrons customers and Arbitrons products
and services. Arbitrons continued success will depend on
its ability to adapt to changing technologies and to improve the
performance, features and reliability of its products and
services in response to changing customer and industry demands.
Arbitron may experience difficulties that could delay or prevent
the successful design, development, testing, introduction or
marketing of its products and services. Arbitrons new
products and services, such as its proposed PPM service, or
enhancements to its existing products and services, may not
adequately meet the requirements of its current and prospective
customers or achieve any degree of significant market
acceptance. Arbitrons inability to successfully adapt to
changing technologies and customer demands, either through the
development and marketing of new products and services, or
through enhancements to its existing products and services,
would adversely affect its business, financial position and
results of operations.

Consolidation in the radio broadcasting industry has led
to Arbitrons increasing dependence on key customers. The
loss of a key customer would significantly reduce
Arbitrons revenue and operating results.

The consolidation in the radio broadcasting industry has led to
Arbitrons increasing dependence on a limited number of key
customers. The loss of a key customer would significantly reduce
Arbitrons revenue and operating results. In 2005, Clear
Channel and CBS Radio represented approximately 19 percent
and nine percent, respectively, of Arbitrons revenue.

On June 13, 2005, Clear Channel issued a Request for
Proposals to create a state-of-the-art radio ratings
system. On December 16, 2005, Clear Channel issued a press
release in which it announced that Arbitron is one of the seven
finalists in its Request for Proposals process. Clear Channel
has targeted March 3, 2006, as the date for selection of a
final measurement method, with a live test period planned to
begin in the spring.

Arbitron cannot give any assurances that it could replace the
revenue that would be lost if a key customer failed to renew all
or part of its agreements with Arbitron. The loss of a key
customer would materially impact Arbitrons business,
financial position and operating results.

Consolidation in the radio broadcasting industry may put
pressure on the pricing of Arbitrons radio audience
measurement service and related software sales, thereby leading
to decreased earnings growth.

Consolidation in the radio broadcasting industry could put
pressure on the pricing of Arbitrons radio audience
measurement service and related software sales, from which
Arbitron derives a substantial portion of its total revenue.
Arbitron prices its radio audience measurement service and
related software applications on a per radio station, per
service or per product basis, negotiating licenses and pricing
with the owner of each radio station or group of radio stations.
Consolidation in the radio broadcasting industry could have the
effect that the greater the number of radio stations owned and
the greater the number of services and applications purchased by
a radio station owner, the more likely the owner is to seek
price concessions from Arbitron.

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Arbitrons agreements with its customers are not
exclusive and contain no renewal obligations. The failure of
Arbitrons customers to renew all or part of their
contracts could have an adverse effect on Arbitrons
business, financial position and operating results.

Arbitrons customers are not prohibited from entering into
agreements with any other competing service provider, and once
the term of the agreement (usually one to seven years) expires,
there is no automatic renewal feature in the contract. Because
the Arbitron Radio Market Report is delivered on a quarterly or
semiannual basis, it is common for Arbitrons customer
contracts to expire before renewal negotiations are concluded.
Therefore, there may be significant uncertainty as to whether a
particular customer will renew all or part of its contract and,
if so, the particular terms of such renewal. If a customer(s)
owning stations in a significant number of markets does not
renew its contracts, this would have an adverse effect on
Arbitrons business, financial position and operating
results.

Arbitron expects to invest in the continued development
and commercialization of its PPM services, which may not be
successfully developed or commercialized. The commercialization
of these services will adversely affect Arbitrons
operating results, at least in the short term.

Arbitron expects to continue to invest in the development and
commercial deployment of its PPM, which is a technology that
measures radio, broadcast television, cable television, Internet
broadcasts, satellite radio and television audiences, and retail
store video and audio broadcasts. Arbitron continues to believe
that the PPM service represents a viable replacement for its
diary-based ratings service in larger markets, offering
customers considerable incremental value, and, therefore, its
commercialization is an essential component of Arbitrons
future growth.

While Arbitron has preserved its cash and short-term investments
in anticipation of commercialization requirements for PPM, the
continuing development and anticipated commercialization of the
PPM services will require significant capital resources and a
substantial financial investment over the next several years.
Arbitron currently believes that the aggregate capital
investment associated with PPM commercialization for audience
ratings measurement could be in the range of $10.0 million
to $25.0 million for the first two to three years of
commercialization, with the higher range of investment by
Arbitron anticipated in the event Nielsen Media Research does
not join Arbitron in the commercialization of the PPM. In
addition, over the same period, Arbitron anticipates that its
results of operations will be negatively impacted as a result of
the rollout of this PPM service, which impact likely will be
material.

Two significant factors will greatly affect the amount of
capital required for deployment of the PPM and the impact of the
rollout on the Companys results of operations. First,
since Arbitrons primary customers are radio station
owners, the speed with which the radio industry demands PPM
technology will greatly affect the timing of the rollout. If the
radio industry demands electronic measurement sooner rather than
later, Arbitrons capital needs will intensify, and the
near-term negative impact on the Companys results of
operations will be more significant.

Second, a significant variable in determining the ultimate costs
to Arbitron in commercializing the PPM is whether Nielsen Media
Research will join with Arbitron in the commercial deployment of
the PPM. If Nielsen Media Research elects not to join Arbitron
in commercializing the PPM, Arbitron intends to deploy a PPM
service for audience measurement solely to the radio industry,
at least initially. In such case, Arbitron expects that the
financial results in the long-term would be similar to those for
Arbitron under a PPM joint venture. However, this would require
Arbitron to bear higher capital outlay and losses per market
while building the PPM service, which would have a greater
impact on Arbitrons financial position and operating
results in the early years of commercialization. Also, if the
Company does not enter into a joint venture with

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There also can be no assurance that clients will support
Arbitrons conversion to a PPM-based audience measurement
service, which may result in stations refusing to encode their
broadcasts and clients not executing the new PPM service license
agreements that will be required. If there is not widespread
market acceptance of the PPM, Arbitrons operating results
would be materially adversely affected.

The success of Arbitrons commercialization of the
PPM is dependent on contract manufacturers who produce the PPM
equipment according to Arbitrons proprietary design as
well as those who manufacture parts and develop certain software
applications. The failure of Arbitron to obtain, in a timely
manner, sufficient quantities of quality equipment and the
necessary software applications to meet Arbitrons needs
could adversely affect the commercial deployment of the PPM and
therefore could adversely affect Arbitrons operating
results.

Arbitron will need to purchase equipment used in the PPM service
and to obtain certain software reporting applications to use
with the PPM data. The equipment must be produced by the
manufacturer in a timely manner, in the quantities needed and
with the quality necessary to function appropriately in the
market. Certain specialized parts used in the PPM equipment may
impact the manufacturing and the timing of the delivery of the
equipment to Arbitron. In addition, the new European Union
regulations, known as the RoHS and WEEE directives, regarding
the manufacturing of electronic equipment have required Arbitron
to redesign some of its PPM components to remove lead content.
The redesign process may impact the manufacturing and timing of
the delivery of the equipment to Arbitron. The software
applications will also need to be developed in a timely manner.
The failure of Arbitron to obtain, in a timely manner,
sufficient quantities of quality equipment and the necessary
software applications to meet Arbitrons needs could
adversely affect the commercial deployment of the PPM and
therefore could adversely affect Arbitrons operating
results.

Arbitrons inability to obtain Media Rating Council
(MRC) accreditation of the PPM service, in a timely
manner, could delay the commercialization of the PPM service,
which could adversely affect Arbitrons business.

Arbitron expects to vigorously pursue the MRC accreditation for
its PPM audience measurement service. However, accreditation may
not be obtained prior to the anticipated commercialization of
the PPM service. If a critical mass of Arbitrons customers
decide not to move forward before accreditation is formally
granted, the commercialization of the PPM service could be
delayed, which could adversely affect Arbitrons business.

The success of Arbitrons radio audience measurement
business depends on diarykeepers who record their listening
habits in diaries and return these diaries to Arbitron. The
failure of Arbitron to recruit participants and to collect these
diaries could adversely affect Arbitrons business.

Arbitron uses listener diaries to gather radio listening data
from sample households in the United States local markets for
which it currently provides radio ratings. A representative
sample of the population in each local market is randomly
selected for each survey. This sample is recruited by telephone
to keep a diary of their radio listening for one week.
Participants are asked to designate in their diary the
station(s) to which they are listening, when they are listening
and where they are listening, such as home, car, work or other
place. To encourage their participation in the survey, Arbitron
gives diarykeepers a modest cash incentive. Arbitron processes
more than 1.4 million diaries every year to produce its
audience listening estimates. It is increasingly difficult and
more costly to obtain consent from the phone sample to
participate in the surveys, especially among younger demographic
groups. Arbitron must achieve response rates sufficient to
maintain confidence in its ratings, the support of the industry
and accreditation by the Media Rating Council. The failure of
Arbitron to successfully recruit participants and to convince
diarykeepers to record their listening habits and mail in their
diaries could adversely affect Arbitrons radio audience
measurement business.

24



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Arbitrons ability to recruit participants for its
surveys could be adversely affected by governmental
regulations.

There is an increasing concern among the American public
regarding privacy issues. Federal and state governmental
regulations restrict telemarketing to individuals who request to
be included on a do-not-call list. Currently these regulations
do not apply to survey research. If the laws are extended to
include survey research, Arbitrons ability to recruit
participants for its surveys could be adversely affected.
Arbitron is evaluating alternatives to its current methodology,
including using panels for its surveys and recontacting previous
consenters. In addition, federal regulations ban calls made by
auto-dialers to wireless lines where there is no consent from
the party. Effective November 24, 2003, consumers were able
to take their wireless number to their wireline carrier, and
likewise, a wireline number may be taken to a wireless carrier.
This makes it more difficult for Arbitron to identify wireless
numbers in advance of placing an auto-dialed call and could
adversely affect Arbitrons business. Arbitron is using the
services of a third party supplier that tracks wireless numbers
to help identify wireless numbers in its telephone sample.

It may become more difficult for Arbitron to reach and
recruit participants for its audience measurement services,
which could adversely affect Arbitrons business, financial
position and operating results.

Arbitrons success will depend on its ability to reach and
recruit participants and to achieve response rates sufficient to
maintain its radio audience measurement services. As consumers
adopt modes of telecommunication other than telephone landlines,
such as mobile phones and cable or Internet calling, it is
becoming increasingly more difficult for Arbitron to reach and
recruit participants. Recruiting mobile phone-only households to
achieve response rates will demand increased costs, which could
adversely affect Arbitrons business, financial position
and operating results.

Arbitrons
success will depend on its ability to protect its intellectual
property rights.

Arbitron believes that the success of its business will depend,
in part, on:



| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | obtaining patent protection for its technology, products and
    services, in particular its PPM;
|
| |  | defending its patents once obtained;                                                             
|
| |  | preserving its trade secrets;                                                                    
|
| |  | defending its copyrights for its data services and audience
    estimates; and                   
|
| |  | operating without infringing upon patents and proprietary rights
    held by third parties.      

Arbitron relies on a combination of contractual provisions,
confidentiality procedures and patent, copyright, trademark,
service mark and trade secret laws to protect the proprietary
aspects of its technology, data and estimates. These legal
measures afford only limited protection, and competitors may
gain access to Arbitrons intellectual property and
proprietary information. Litigation may be necessary to enforce
Arbitrons intellectual property rights, to protect its
trade secrets and to determine the validity and scope of
Arbitrons proprietary rights. In the past, Arbitron has
been involved in litigation relating to the enforcement of its
copyrights covering its radio listening estimates. Although
Arbitron has generally been successful in these cases, there can
be no assurance that the copyright laws and other statutory and
contractual arrangements Arbitron currently depends upon will
provide it sufficient protection to prevent the use or
misappropriation of its audience estimates, databases and
technology in the future. Any future litigation, regardless of
outcome, could result in substantial expense and diversion of
resources with no assurance of success and could adversely
impact Arbitrons business, financial position and
operating results.

One of Arbitrons strategies is to expand its
international business, which involves unique risks and, if
unsuccessful, could impede the growth of Arbitrons
business.

Arbitron continues to explore opportunities that would
facilitate licensing its PPM technology into selected
international markets in Europe and the Asia/ Pacific regions.
Arbitron believes there is a demand for quality audience
information internationally from global advertisers.

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International business is subject to various additional risks,
which could adversely affect Arbitrons business, including:



| |   |                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | costs of customizing services for foreign customers;                                                                                                                                          
|
| |  | difficulties in managing international operations;                                                                                                                                            
|
| |  | reduced protection for intellectual property rights in some
    countries;                                                                                                                    
|
| |  | longer sales and payment cycles;                                                                                                                                                              
|
| |  | the burdens of complying with a wide variety of foreign laws;                                                                                                                                 
|
| |  | exposure to local economic conditions;                                                                                                                                                        
|
| |  | exposure to local political conditions, including the risks of
    an outbreak of war, the escalation of hostilities, acts of
    terrorism and seizure of assets by a foreign government; and
|
| |  | exposure to foreign currency exchange rate fluctuation.                                                                                                                                       

Audience estimates are used as the basis for advertising
transactions when they achieve credibility and trust in the eyes
of the media marketplace. In some countries, there is little
confidence in the historical measurement services due to the
perception of tampering and fraud. In expanding its
international scope, Arbitron could be at risk of potential
tampering and fraud, or the perception thereof, by broadcasters
or other third parties with Arbitrons methodology.

In countries where there has not been a historical practice of
using audience measurement information in the buying and selling
of advertising time, it may be difficult for Arbitron to
maintain subscribers as the market transitions to using
Arbitrons audience measurement service as the basis for
conducting advertising transactions.

Arbitron is dependent on its proprietary software systems
for data collection, processing and reporting for current and
future business requirements. Significant delays in the
completion of these systems, cost overages and/or inadequate
performance of the systems once completed could adversely affect
Arbitrons business, financial position and operating
results.

Arbitrons success in collecting, processing and reporting
data for its media information services is dependent on the
ability of its proprietary software systems to support current
and future business requirements. The current systems do not
have the capability to accommodate all additional product
enhancements requested by Arbitron clients. Arbitron is engaged
in a major effort to replace its internal processing software
and its client software. Significant delays in the completion of
these systems, cost overages and/or inadequate performance of
the systems once completed could adversely affect
Arbitrons business, financial position and operating
results.

The expansion of services into new areas could be
adversely affected by the customers inability to organize
sales efforts and utilize ratings in the advertising buy-sell
process.

The expansion of Arbitrons services into new areas could
be adversely affected by the inability of the new advertising
media to organize sales efforts and effectuate advertising sales
to more fully realize the benefits of the Arbitron services.

Criticism of the Arbitron audience measurement service by
various industry groups and market segments could adversely
affect Arbitrons business.

Due to the high-profile nature of Arbitrons services in
the media and marketing information service industry, Arbitron
could become the target of criticism by various industry groups
and market segments. Although Arbitron strives to be fair,
reasonable and impartial in the production of its audience
measurement service, criticism of Arbitron by special interest
groups could adversely affect Arbitrons business.

26



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Arbitrons future growth and success will depend on
its ability to successfully compete with companies that may have
financial, marketing, distribution, technical and other
advantages over Arbitron.

Arbitron competes in the radio audience measurement business in
some small markets with Eastlan Resources. In Mexico, Arbitron
competes in the radio audience measurement business with INRA
International Research Mexico. Arbitron is also aware of at
least five companies, Telecontrol AG (a GfK AG company), Eurisko
S.p.a. (a member of the international network NOP World),
Navigauge, RSL Ipsos and AgB/ NMR International, that are
developing technologies that compete with Arbitrons PPM.
Furthermore, certain companies are developing narrow
applications of technology to measure niche audiences of radio
and outdoor and out-of-home media.

Arbitron competes with a large number of other providers of
applications software, qualitative data and proprietary
qualitative studies used by broadcasters, cable companies,
advertising agencies, advertisers, and outdoor and out-of-home
media companies. These competitors include STRATA Marketing
Inc., Telmar Information Services Corp., Marketron Inc.,
Interactive Media Systems, Wicks Broadcast Solutions, LLC and
Donovan in the area of applications software, and The Media
Audit (a division of International Demographics, Inc.),
Mediamark Research Inc. (a NOP World company, a wholly owned
subsidiary of United Business Media plc) and Simmons Research
Bureau in the area of qualitative data.

Arbitron also competes with a number of companies in the
Internet audience measurement industry, including Nielsen//
NetRatings.

On December 16, 2005, Clear Channel announced seven
finalists for its Request for Proposals to create a
state-of-the-art radio ratings system. The seven proposal
finalists to be evaluated are, in alphabetical order, Arbitron,
Integrated Media Measurement, MediaAudit/ Ipsos, Mediamark
Research, Paladin Adsolutions, RadioStat and Simmons. Should a
finalist other than Arbitron be selected to provide this system,
Arbitrons competition with respect to its radio audience
measurement business would increase.

Arbitron believes that its future growth and success will depend
on its ability to successfully compete with other companies that
provide similar services in the same markets, some of which may
have financial, marketing, technical and other advantages, and
its ability to design, develop and commercialize new products
and services that address the industry needs for more efficient
methods of data collection and processing and broader media
measurement techniques. Arbitron cannot provide any assurance
that it will be able to compete successfully, and the failure to
do so could have a material adverse effect on Arbitrons
business, financial position and operating results.

The media research industry is exploring options to
achieve greater influence over the providers of audience
measurement.

The media research industry is exploring options to achieve
greater influence over and accountability from the providers of
audience measurement. Two of the options could include forming
an industry research consortium or a joint industry committee. A
research consortium could potentially conduct independent
research and development on ratings and audience measurement
systems and make recommendations to the provider of audience
measurement research. A joint industry committee could
potentially result in the establishment of a cooperative media
ratings service or an industry committee that would award
contracts for media research. If these efforts to establish a
research consortium or a joint industry committee are directed
at radio, Arbitrons business, financial position and
operating results could be adversely affected.

An economic downturn generally, and in the advertising and
radio industries in particular, could adversely impact
Arbitrons revenue.

Arbitrons clients derive most of their revenue from the
sale or purchase of advertising. During challenging economic
times, advertisers may reduce advertising expenditures,
impacting advertising agencies and media. A shift of advertising
dollars from traditional media, such as radio, to nontraditional
media, such as the Internet, could adversely impact the radio
industry. As a result, advertising agencies and media may be

27



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Advertisers are pursuing increased accountability from the
media industry for their return on investments made in media. As
a result, advertisers may shift advertising expenditures away
from less accountable forms of media, such as radio, which could
have an adverse effect on Arbitrons business, financial
position and operating results.

Advertisers are pursuing increased accountability from the media
industry for their return on investments made in media.
Advertisers may shift advertising expenditures away from less
accountable forms of media, such as radio, to more accountable
forms of media, such as the Internet. As a result, advertising
agencies and radio stations may be less likely to purchase
Arbitrons media information services, which could have an
adverse effect on Arbitrons business, financial position
and operating results.

Arbitron enters into agreements with third parties to use
certain data and services in connection with the provision of
its current services. In addition, Arbitron may need to enter
into agreements with third parties to assist with the marketing,
technical and financial aspects of expanding its services for
other types of media. In the event Arbitron is unable to use
such third party data and services or if Arbitron is unable to
enter into agreements with third parties, when necessary,
Arbitrons business and/or its potential growth could be
adversely affected.

Arbitron relies on third parties to provide certain data and
services for use in connection with the provision of its current
services. In the event that such data and services are
unavailable for Arbitrons use, Arbitrons business
could be adversely affected.

Further, in order for Arbitron to build on its experience in the
radio audience measurement industry and expand into measurement
for other types of media, Arbitron may need to enter into
agreements with third parties. These third parties could provide
the marketing, technical and financial aspects that Arbitron
requires in order to be able to expand into other types of
media. Arbitrons inability to enter into these agreements
with third parties, when necessary, could adversely affect
Arbitrons growth and business.

Long-term disruptions in the mail, telecommunication
infrastructure and/or air service could adversely affect
Arbitrons business.

Arbitrons business is dependent on the use of the mail,
telecommunication infrastructure and air service. Long-term
disruptions in one or more of these services, which could be
caused by events such as natural disasters, the outbreak of war,
the escalation of hostilities, and/or acts of terrorism
(particularly involving cities in which Arbitron has offices,
including Columbia, Maryland, which is in close proximity to
Washington, DC, and government agencies) could adversely affect
Arbitrons business, financial position and operating
results.

Risk
Factors Relating to Arbitrons Indebtedness

As of December 31, 2005, Arbitron had $50.0 million of
indebtedness outstanding in senior secured notes that mature on
January 31, 2008. The senior secured notes bear interest at
a fixed rate of 9.96 percent per annum.

These notes contain noninvestment-grade financial terms,
covenants and operating restrictions that increase
Arbitrons cost of financing its business, restrict its
financial flexibility and could adversely impact its ability to
conduct its business. These include:



| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | the grant of security interests in most of the assets of
    Arbitron and its subsidiaries;
|
| |  | the guarantees of Arbitrons debt by Arbitrons
    subsidiaries;                          
|
| |  | the requirement of Arbitron to maintain certain leverage and
    coverage ratios; and      

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| |   |                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the ability of Arbitron to buy and sell assets, incur additional
    indebtedness, grant or incur liens on its assets, repay senior
    indebtedness, pay cash dividends over a certain amount, make
    certain investments or acquisitions, repurchase or redeem
    capital stock and engage in certain mergers or consolidations.

These restrictions could hinder Arbitrons ability to
finance its future operations or capital needs or make
acquisitions that otherwise may be important to the operation of
Arbitrons business. In addition, Arbitrons ability
to comply with these financial requirements and other
restrictions may be affected by events beyond its control, and
its inability to comply with them could result in a default
under the senior secured notes.

If a default occurs under the notes, either because Arbitron is
unable to generate sufficient cash flow to service the debt or
because Arbitron fails to comply with one or more of the
restrictive covenants, the note holders could elect to declare
that all of the outstanding borrowings, as well as accrued
interest and fees, are due and payable and require Arbitron to
apply all of its available cash to repay such notes. The lenders
under Arbitrons senior secured notes could also proceed
against the pledged collateral, which includes a first-priority
lien on substantially all of the assets of Arbitron and its
domestic subsidiaries and a pledge of the capital stock of all
of its domestic subsidiaries and of 65 percent of the
capital stock of its foreign subsidiaries. In addition, a
default may result in higher interest rates and the inability to
obtain additional capital. The occurrence of any of these events
would have a material adverse effect on Arbitron.

Risk
Factors Relating to Owning Arbitrons Common Stock

Changes
in market conditions could adversely affect the market price of
Arbitrons common stock.

As with other publicly traded securities, the market price of
Arbitrons common stock depends on various market
conditions, which may change from time to time. Among the market
conditions that may affect the market price of Arbitrons
common stock are the following:



| |   |                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the extent of institutional investor interest in Arbitron;                                                                                                                                                                                                  
|
| |  | our financial condition and performance;                                                                                                                                                                                                                    
|
| |  | the markets perception of our growth potential and
    potential future cash dividends;                                                                                                                                                                    
|
| |  | general economic and financial market conditions generally and
    as they relate to Arbitrons industry and its customers;                                                                                                                                 
|
| |  | the outbreak of war, the escalation of hostilities, and/or acts
    of terrorism that could occur in cities in which Arbitron has
    offices, including Columbia, Maryland, which is in close
    proximity to Washington, DC, and government agencies; and
|
| |  | a change in government regulations regarding privacy.                                                                                                                                                                                                       

Sales of a substantial number of shares of Arbitrons
common stock, or the perception that such sales could occur,
also could adversely affect prevailing market prices for
Arbitrons common stock. In addition to the possibility
that Arbitron may sell shares of its common stock in a public
offering at any time, Arbitron also may issue shares of common
stock in connection with grants of restricted stock or upon
exercise of stock options that Arbitron grants to its officers
and employees. All of these shares will be available for sale in
the public markets from time to time.

It may be difficult for a third party to acquire Arbitron,
which could depress the stock price of Arbitrons common
stock.

Delaware corporate law and Arbitrons Amended and Restated
Certificate of Incorporation and Bylaws contain provisions that
could have the effect of delaying, deferring or preventing a
change in control of Arbitron or the removal of existing
management or directors and, as a result, could prevent our
stockholders from being paid a premium for their common stock
over the then-prevailing market price. These provisions

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| |   |                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a stockholders rights plan, which likely will limit,
    through November 21, 2012, the ability of a third party to
    acquire a substantial amount of Arbitrons common stock
    without prior approval by the Board of Directors;                                              
|
| |  | restriction from engaging in a business combination
    with an interested stockholder for a period of three
    years after the date of the transaction in which the person
    became an interested stockholder under Section 203 of the
    Delaware General Corporation Law;
|
| |  | authorization to issue one or more classes of preferred stock,
    which can be created and issued by the Board of Directors
    without prior stockholder approval, with rights senior to common
    stockholders;                                                                 
|
| |  | advance notice requirements for the submission by stockholders
    of nominations for election to the Board of Directors and for
    proposing matters that can be acted upon by stockholders at a
    meeting; and                                                                 
|
| |  | requiring a supermajority vote of 80 percent of the
    stockholders to exercise the stockholders right to amend
    the Bylaws.                                                                                                                                                   

Arbitrons Amended and Restated Certificate of
Incorporation also contains the following provisions, which
provisions could prevent transactions that are in the best
interest of stockholders:



| |   |                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | requiring a supermajority vote of two-thirds of the stockholders
    to approve some mergers and other business combinations; and                                                                                                                                                                                                                     
|
| |  | restriction from engaging in a business combination
    with a controlling person unless either a modified
    supermajority vote is received or the business combination will
    result in the termination of ownership of all shares of
    Arbitrons common stock and the receipt of consideration
    equal to at least fair market value.






|         |                          
|-------- | -------------------------
|ITEM 1B. | UNRESOLVED STAFF COMMENTS

None.






|        |           
|------- | ----------
|ITEM 2. | PROPERTIES

Arbitrons primary locations are in Columbia, Maryland, and
its headquarters are located at 142 West 57th Street,
New York, New York. Arbitrons New York City office serves
as its home base for sales and marketing, while its survey
research, technology and data collection/production operations
are located in its Columbia, Maryland, facility. In addition,
Arbitron has five regional sales offices located in the
metropolitan areas of Atlanta, Georgia; Washington, D.C. /
Baltimore, Maryland; Chicago, Illinois; Dallas, Texas; and Los
Angeles, California; and operations offices in Houston, Texas;
Cranford, New Jersey; Birmingham, Alabama; and Indianapolis,
Indiana. Arbitrons Continental Research subsidiary is
located in London, England. Arbitron conducts all of its
operations in leased facilities. Most of these leases contain
renewal options and require payments for taxes, insurance and
maintenance in addition to base rental payments. Arbitron
believes that its facilities are sufficient for their intended
purposes and are adequately maintained.






|        |                  
|------- | -----------------
|ITEM 3. | LEGAL PROCEEDINGS

Arbitron and its subsidiaries are involved from time to time in
a number of judicial and administrative proceedings considered
ordinary with respect to the nature of their 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 the part of Arbitron. Some of these matters
raise difficult and complex factual and legal issues, and are
subject to many uncertainties, including, 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, Arbitron is

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|        |                                                    
|------- | ---------------------------------------------------
|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of Arbitrons
stockholders during the fourth quarter of 2005.




PART II






|        |                                                                                                                 
|------- | ----------------------------------------------------------------------------------------------------------------
|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
    STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Arbitrons common stock is listed on the New York Stock
Exchange (NYSE) under the symbol ARB. As
of February 21, 2006, there were 31,077,453 shares
outstanding and approximately 7,015 stockholders of record of
Arbitron common stock.

The following table sets forth the high and low sale prices of
Arbitron common stock as reported on the NYSE Composite Tape and
the dividends declared per share of its common stock for each
quarterly period for the past two years ended December 31,
2005 and 2004.

|         |  |    |       |    |  |    |       |    |  |           |       |  |  |   |       |  |  |   |       | 
|-------- |  | -- | ----- | -- |  | -- | ----- | -- |  | --------- | ----- |  |  | - | ----- |  |  | - | ----- | 
|2005     |  | 1Q |       | 2Q |  | 3Q |       | 4Q |  | Full Year
|         |  |    |       |    |  |    |       |    |  |          
|High     |  | $  | 43.29 |    |  | $  | 44.76 |    |  | $         | 43.80 |  |  | $ | 40.78 |  |  | $ | 44.76 | 
|        
|        
|        
|        
|Low      |  | $  | 36.62 |    |  | $  | 38.88 |    |  | $         | 39.14 |  |  | $ | 37.04 |  |  | $ | 36.62 | 
|        
|        
|        
|        
|Dividend |  | $  | 0.10  |    |  | $  | 0.10  |    |  | $         | 0.10  |  |  | $ | 0.10  |  |  | $ | 0.40  | 

|         |  |    |       |    |  |    |       |    |  |           |       |  |  |   |       |  |  |   |       | 
|-------- |  | -- | ----- | -- |  | -- | ----- | -- |  | --------- | ----- |  |  | - | ----- |  |  | - | ----- | 
|2004     |  | 1Q |       | 2Q |  | 3Q |       | 4Q |  | Full Year
|         |  |    |       |    |  |    |       |    |  |          
|High     |  | $  | 45.90 |    |  | $  | 41.26 |    |  | $         | 39.70 |  |  | $ | 39.78 |  |  | $ | 45.90 | 
|        
|        
|        
|        
|Low      |  | $  | 39.01 |    |  | $  | 35.96 |    |  | $         | 31.29 |  |  | $ | 35.52 |  |  | $ | 31.29 | 
|        
|        
|        
|        
|Dividend |  |    |      |    |  |    |      |    |  |           |      |  |  |   |      |  |  |   |      | 

The transfer agent and registrar for the Arbitron common stock
is The Bank of New York.

On June 15, 2005, Arbitron announced that its Board of
Directors authorized a program to repurchase up to
$40.0 million of its outstanding common stock through
November 2005. As of August 22, 2005, the repurchase
program was completed with 948,594 shares repurchased for
an aggregate purchase price of approximately $40.0 million.
As a result, there were no purchases in the fourth quarter of
2005.






|        |                        
|------- | -----------------------
|ITEM 6. | SELECTED FINANCIAL DATA

The selected financial data set forth below should be read
together with the information under the heading
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations and
Arbitrons consolidated financial statements and related
notes included in this Form 10-K. This financial data is
not necessarily indicative of the results of operations or
financial position that would have occurred if Arbitron had been
a separate, independent company during the periods presented in
which Arbitron was a division of Ceridian Corporation, nor is it
necessarily indicative of its future performance. Arbitron was a
division of Ceridian Corporation prior to March 30, 2001.

The Companys statements of income for the years ended
December 31, 2005, 2004, and 2003 and balance sheet data as
of December 31, 2005, and 2004 set forth below are derived
from audited consolidated financial statements included
elsewhere in this Form 10-K. The statement of income data
for the years ended

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|                                                                                       |  |                                            |         |      |  |      |         |      |  |      |         |   |  |   |          |   |  |   |          |  
|-------------------------------------------------------------------------------------- |  | ------------------------------------------ | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | -------- | - |  | - | -------- | -
|                                                                                       |  |                                           
|                                                                                       |  | As of and for the Years Ended December 31,
|                                                                                       |  |                                           
|                                                                                       |  | 2005                                       |         | 2004 |  | 2003 |         | 2002 |  | 2001
|                                                                                       |  |                                            |         |      |  |      |         |      |  |     
|                                                                                       |  |                                           
|                                                                                       |  | (In thousands, except per share data)     
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Statement of Income Data                                                               |  |                                            |         |      |  |      |         |      |  |      |         |   |  |   |          |   |  |   |          |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Revenue                                                                                |  | $                                          | 309,955 |      |  | $    | 296,553 |      |  | $    | 273,550 |   |  | $ | 249,757  |   |  | $ | 227,534  |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Costs and expenses                                                                     |  |                                            | 216,347 |      |  |      | 205,669 |      |  |      | 187,613 |   |  |   | 169,645  |   |  |   | 156,273  |  
|                                                                                       |  |                                            |         |      |  |      |         |      |  |      |         |   |  |   |          |   |  |   |          |  
|Operating income                                                                       |  |                                            | 93,608  |      |  |      | 90,884  |      |  |      | 85,937  |   |  |   | 80,112   |   |  |   | 71,261   |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Equity in net income of affiliate                                                      |  |                                            | 7,829   |      |  |      | 7,552   |      |  |      | 6,754   |   |  |   | 5,627    |   |  |   | 4,285    |  
|                                                                                       |  |                                            |         |      |  |      |         |      |  |      |         |   |  |   |          |   |  |   |          |  
|Income before interest and income tax expense                                          |  |                                            | 101,437 |      |  |      | 98,436  |      |  |      | 92,691  |   |  |   | 85,739   |   |  |   | 75,546   |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Interest expense, net                                                                  |  |                                            | 880     |      |  |      | 6,810   |      |  |      | 11,597  |   |  |   | 16,219   |   |  |   | 15,279   |  
|                                                                                       |  |                                            |         |      |  |      |         |      |  |      |         |   |  |   |          |   |  |   |          |  
|Income before income tax expense                                                       |  |                                            | 100,557 |      |  |      | 91,626  |      |  |      | 81,094  |   |  |   | 69,520   |   |  |   | 60,267   |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Income tax expense                                                                     |  |                                            | 33,249  |      |  |      | 31,061  |      |  |      | 31,221  |   |  |   | 26,765   |   |  |   | 23,805   |  
|                                                                                       |  |                                            |         |      |  |      |         |      |  |      |         |   |  |   |          |   |  |   |          |  
|Net income                                                                             |  | $                                          | 67,308  |      |  | $    | 60,565  |      |  | $    | 49,873  |   |  | $ | 42,755   |   |  | $ | 36,462   |  
|                                                                                       |  |                                            |         |      |  |      |         |      |  |      |         |   |  |   |          |   |  |   |          |  
|Net Income and Pro Forma Net Income Per
    Weighted Average Common Share(1)           |  |                                            |         |      |  |      |         |      |  |      |         |   |  |   |          |   |  |   |          |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Basic                                                                                  |  | $                                          | 2.16    |      |  | $    | 1.96    |      |  | $    | 1.66    |   |  | $ | 1.45     |   |  | $ | 1.25     |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Diluted                                                                                |  | $                                          | 2.14    |      |  | $    | 1.92    |      |  | $    | 1.63    |   |  | $ | 1.42     |   |  | $ | 1.24     |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Cash dividends declared per share                                                      |  | $                                          | 0.40    |      |  | $    |        |      |  | $    |        |   |  | $ |         |   |  | $ |         |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Weighted average and pro forma weighted
    average common shares used in calculations |  |                                            |         |      |  |      |         |      |  |      |         |   |  |   |          |   |  |   |          |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Basic                                                                                  |  |                                            | 31,179  |      |  |      | 30,972  |      |  |      | 30,010  |   |  |   | 29,413   |   |  |   | 29,164   |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Diluted(2)                                                                             |  |                                            | 31,500  |      |  |      | 31,471  |      |  |      | 30,616  |   |  |   | 30,049   |   |  |   | 29,483   |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Balance Sheet Data                                                                     |  |                                            |         |      |  |      |         |      |  |      |         |   |  |   |          |   |  |   |          |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Current assets                                                                         |  | $                                          | 160,926 |      |  | $    | 120,161 |      |  | $    | 116,857 |   |  | $ | 86,422   |   |  | $ | 67,658   |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Total assets                                                                           |  |                                            | 250,880 |      |  |      | 196,121 |      |  |      | 184,194 |   |  |   | 156,038  |   |  |   | 126,841  |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Long-term debt                                                                         |  |                                            | 50,000  |      |  |      | 50,000  |      |  |      | 105,000 |   |  |   | 165,000  |   |  |   | 205,000  |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Stockholders equity (deficit)                                                         |  |                                            | 92,354  |      |  |      | 45,380  |      |  |      | (18,073 | ) |  |   | (100,579 | ) |  |   | (169,109 | )

The Company adopted the provisions of Statement of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assets, as of January 1, 2002, with the
exception of a provision for acquisitions occurring after
June 30, 2001, which was adopted on July 1, 2001.
Goodwill amortization expense for 2001 was $2.2 million.



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | For the year ended December 31, 2001, the computations of
    pro forma net income per weighted average common share are based
    upon Ceridians weighted average common shares and
    potentially dilutive securities outstanding through
    March 31, 2001, adjusted for the one-for-five reverse stock
    split, and Arbitrons weighted average common shares and
    potentially dilutive securities for the remainder of the year.
|   
|(2) | The diluted pro forma weighted average common shares assumes
    that all of Ceridians historical dilutive securities were
    converted into Arbitron securities for the three months ended
    March 31, 2001.                                                                                                                                                                                                                            

32



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with
Arbitrons consolidated financial statements and the notes
thereto that follow in this Form 10-K.




Overview

Arbitron is an international media and marketing research firm
primarily serving radio, cable television, advertising agencies,
advertisers, outdoor and out-of-home media and, through its
Scarborough joint venture, broadcast television and print media.
Arbitron currently has four main services:



| |   |                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | measuring radio audiences in local markets in the United States
    and Mexico;                                                                                                                                                                                                               
|
| |  | measuring national radio audiences and the audience size and
    composition of network radio programs and commercials;                                                                                                                                                                       
|
| |  | providing application software used for accessing and analyzing
    media audience and marketing information data; and                                                                                                                                                                        
|
| |  | providing consumer, shopping and media usage information
    services to radio, cable television, advertising agencies,
    advertisers, retailers, outdoor and out-of-home media, online
    industries and, through its Scarborough joint venture, broadcast
    television and print media.




Significant Customers

Arbitrons quantitative radio audience measurement business
and related software sales accounted for approximately
86 percent and 85 percent of its revenue for 2005 and
2004, respectively. Consolidation in the radio broadcasting
industry has led to Arbitrons dependence on a limited
number of key customers. In 2005, Clear Channel and CBS Radio,
formerly known as Infinity Broadcasting Corp, represented
approximately 19 percent and nine percent, respectively, of
Arbitrons revenue. Arbitrons agreements with these
customers are not exclusive and contain no renewal obligations.
Arbitron currently has license agreements with Clear Channel to
provide radio ratings and software services for Clear
Channels radio stations and networks through the
Companys Fall 2008 survey. Arbitron currently has license
agreements with CBS Radio to provide audience estimates,
software and other ancillary services to CBS Radios radio
stations through the Companys Winter 2008 survey.

Arbitron cannot give any assurances that it could replace the
revenue that would be lost if a key customer failed to renew all
or part of its agreements with Arbitron. The loss of a key
customer would materially impact Arbitrons business,
financial position and operating results.




Portable People Meter

For several years, Arbitron has pursued a strategy of evolving
its data collection business from diaries, which are completed
by hand and mailed in by respondents, to portable electronic
measurement devices, which passively provide measurement
services without additional manual effort by the respondents.
This strategy has been pursued to improve quality by taking
advantage of new technological capabilities and to address the
vast increase in media delivery vehicles, both inside and
outside of the home. Arbitron has developed a Portable People
Meter (PPM) system capable of measuring radio,
broadcast television, cable television, Internet broadcasts,
satellite radio and television audiences, and retail store video
and audio broadcasts. A few significant events occurred during
2005.

In June 2005, Clear Channel, the largest owner of radio stations
in the United States, announced that it was issuing a Request
for Proposals to create a state-of-the-art radio
ratings system to replace the current diary measurement system
to which it subscribes. On December 16, 2005, Clear Channel
issued a press release in which it announced that Arbitron is
one of the seven finalists in their Request for Proposals
process. Clear Channel has targeted March 3, 2006 as the
date for selection of a final measurement method, with a live
test period planned to begin in the spring of 2006.

33



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##### Table of Contents



In July 2005, the results of a PPM economic impact study were
released. This study, which was led by the Radio Advertising
Bureau and funded by Arbitron, reported on the potential impact
to the radio industry of electronic measurement and a move from
diaries to the PPM for radio audience measurement. The results
of the study indicated that advertising expenditures associated
with the radio industry would likely increase with a fully
deployed PPM electronic ratings system and decrease with a
continuation of the existing diary system of radio audience
measurement.

To date, Arbitron has signed a number of national and regional
advertising agencies to PPM contracts. These agencies account
for more than 70 percent of the national advertising
dollars spent on radio advertising. Arbitron believes this is a
significant start in an effort to gain a critical mass of
industry support for deploying the PPM as a local market radio
ratings system.

Although additional milestones remain, critical decision points
for Arbitron in pursuing commercial deployment of the PPM are
likely only a few months away. While the possibility remains
that implementation of commercialization of the PPM could be
delayed, or that a competitor might preempt PPM
commercialization entirely, Arbitron continues to believe that
the PPM service represents a viable replacement for its
diary-based ratings service and is an essential component of the
Companys future growth.

As Arbitron has previously disclosed, commercialization of the
PPM will require a substantial financial investment. While the
Company has preserved its cash and short-term investments in
anticipation of such requirements, the expenditures likely to be
incurred in connection with such commercialization are
significant. The Company currently believes that the aggregate
capital investment associated with PPM commercialization for
audience ratings measurement could be in the range of
$10.0 million to $25.0 million for the first two to
three years of commercialization, with higher ranges of
investment by Arbitron needed in the event Nielsen Media
Research does not join Arbitron in the commercialization of the
PPM. In addition, over the same period, Arbitron anticipates
that its results of operations will be negatively impacted as a
result of the rollout of this PPM service, which impact likely
will be material. Ultimately, the Company believes that, while
commercialization of PPM for the ratings service will have a
near-term negative impact on the Companys results of
operations, its operating margins can be restored to historical
levels by the end of the rollout period, although there can be
no assurance that this will be the case.

Two significant factors will greatly affect the amount of
capital required for deployment of the PPM and the impact of the
rollout on the Companys results of operations. First,
since Arbitrons primary customers are radio station
owners, the speed with which the radio industry requests PPM
technology will greatly affect the timing of the rollout. If the
radio industry is slow to accept electronic measurement as
opposed to the use of diaries, then it will take longer to roll
out the commercialization of the PPM, and the costs associated
with that deployment will be delayed. On the other hand, if the
radio industry asks for electronic measurement sooner rather
than later, Arbitrons capital needs will intensify, and
the near-term negative impact on the Companys results of
operations will be more significant.

Second, a significant variable in determining the ultimate costs
to Arbitron in commercializing the PPM is whether Nielsen Media
Research, Inc., a provider of U.S. television and cable
audience measurement services, will join with Arbitron in the
commercial deployment of the PPM. In May 2000, Arbitron entered
into an agreement with Nielsen Media Research under which
Arbitron granted Nielsen Media Research an option to join
Arbitron in the potential commercial deployment of the PPM for
audience measurement in the United States. Now that Arbitron
believes that the PPMs viability has been demonstrated as
a result of the Houston market test, Arbitron expects that
Nielsen Media Research will make a decision in early 2006 as to
whether to join in the commercialization of the PPM.

If Nielsen Media Research elects to join Arbitron in
commercializing the PPM, the PPM will be deployed to provide
audience measurement for both the television and radio
industries, and the costs of such commercialization will be
shared with Nielsen Media Research in some form to be agreed
upon by the parties. Arbitron and Nielsen Media Research would
each be licensed to use the data generated by the jointly
deployed PPM in their respective media measurement services and
Arbitron would also receive royalties from Nielsen Media
Research.

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##### Table of Contents



If Nielsen Media Research elects not to join Arbitron in
commercializing the PPM, Arbitron intends to deploy a PPM
service for audience measurement solely to the radio industry,
at least initially. This will require Arbitron to bear all of
the costs associated with the rollout of the PPM service.

Arbitron retains the right under the option agreement to, at any
time, license, test and/or implement a commercial deployment of
the PPM and the technology contained in the PPM outside of the
United States. In the event Nielsen Media Research exercises its
option to form the joint venture in the United States, Nielsen
Media Research also has the option to purchase from Arbitron, at
fair value, a portion of Arbitrons interest, up to
49 percent, in all audience measurement business activities
arising out of the commercial deployment of the PPM and the
technology contained in the PPM outside of the United States.




Portable People Meter  National Marketing Panel
(Project Apollo)

Arbitron began testing additional marketing research
applications of the PPM technology in 2003. One application that
Arbitron began testing was the use of the PPM as the media
collection tool for a national marketing-oriented panel designed
to correlate advertising with shopping behavior and sales. The
objective is to provide multimedia exposure data combined with
sales data from a single source to produce a measure of
advertising effectiveness for advertisers, agencies and
broadcasters.

In September 2004, Arbitron announced that Arbitron and VNU,
Inc. (VNU) agreed to jointly explore the development
of a new national marketing research service, called
Project Apollo, that collects multimedia and
purchase information from a common sample of consumers. In April
2005, Arbitron and VNU entered into a cost-sharing agreement to
share costs and capital expenditures associated with the
development and deployment, by year-end 2005, of a pilot panel
of more than 6,000 households as a demonstration of the national
marketing research service, and the parties currently are
discussing entering into a formal joint venture for this
service. Procter & Gamble, one of the countrys
leading consumer products companies, is collaborating with the
two companies to help ensure that the service properly addresses
the needs of marketers. At this time, six advertisers, including
Procter and Gamble, who in the aggregate spend more than
$6.2 billion on advertising on measured media, have signed,
or are in the process of signing, an agreement for the Project
Apollo pilot panel data.

This innovative service would consist of a panel of
participants, each of whom would receive incentives to carry
Arbitrons PPM which would collect the participants
exposure to multiple media sources. Data on consumer preferences
and purchases, with respect to a wide range of services and
products, would also be collected from panelists, electronically
and through surveys, with the expectation of using households
from VNUs ACNielsen Homescan consumer panel, which
currently tracks packaged-goods purchases. Data would be
collected in aggregate form to provide an understanding of
participants media interactions and their resulting
shopping and purchasing behavior. The ultimate objective would
be to provide advertisers with an enhanced ability to determine
the return on investment for their marketing efforts.

The national marketing research service is a new service, for
which market acceptance is not yet known. Like the audience
measurement services for ratings, this service would require
substantial additional expenditures if it ultimately proves to
be a viable commercial service. In 2005, the Company incurred
approximately $9.4 million of incremental expenditures
relating to the national marketing pilot, approximately
$3.3 million of which constituted expenses that had a
direct impact on the Companys operating income and
approximately $6.1 million of which were capitalized.
Arbitron also currently expects to incur incremental expenses of
$6.8 million relating to Project Apollo in 2006 that will
have a direct impact on the Companys operating income. If
a decision is made to commercialize this service, substantial
additional expenditures would be incurred in the next few years.

Since the pilot program for the PPM national marketing service
has just begun and customer response is very preliminary, it is
not yet possible to provide a meaningful assessment of future
costs associated with a potential commercialization of this
service. However, the same general cost pattern would apply as
with the PPM ratings service  substantial costs would
have to be incurred in advance of revenues, which would result
in a negative impact on results of operations in the first two
to three years of commercialization, which impact likely would
be material.

35



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##### Table of Contents






Response Rates and Sample Proportionality

Arbitron uses listener diaries to gather radio listening data
from sample households in the United States local markets for
which it currently provides radio ratings. A representative
sample of the population in each local market is randomly
selected for each survey. This sample is recruited by telephone
to keep a diary of their radio listening for one week.
Participants are asked to designate in their diary the
station(s) to which they are listening, when they are listening
and where they are listening, such as home, car, work or other
place. To encourage their participation in the survey, Arbitron
gives diarykeepers a modest cash incentive. Arbitron processes
more than 1.4 million diaries every year to produce its
audience listening estimates. It is increasingly difficult and
more costly to obtain consent from the phone sample to
participate in the surveys. Arbitron must achieve response rates
sufficient to maintain confidence in its ratings, the support of
the industry and accreditation by the Media Rating Council.
Response rates are a quality measure of survey performance and
an important factor impacting costs associated with data
collection. Overall response rates have declined over the past
several years. If response rates continue to decline further,
Arbitrons radio audience measurement business could be
adversely affected. Arbitron commits extensive efforts and
resources to address the decline of response rates. Despite
additional initiatives, response rates continued to decline in
the Fall 2005 survey.

A measure often used by clients to assess quality in
Arbitrons surveys is proportionality, which refers to how
well the distribution of the sample for any individual survey
matches the distribution of the population in the market. In
recent years, Arbitrons ability to deliver good
proportionality in its surveys among younger demographic groups
has deteriorated, caused in part by the trend among some
households to disconnect their landline phones, effectively
removing these households from the Arbitron sample frame.

Arbitron has conducted a number of research tests over the past
two years addressing this issue, including calling cellular
phones to place diaries. The Company expects to announce a plan
designed to improve young adult response rates and
proportionality by the end of the first quarter of 2006.




Small Market Initiatives

In May 2005, Arbitron announced a program designed to increase
the stability of radio audience estimates in certain small
markets by applying a quarterly rolling-sample approach to
surveys covering 110 small markets. The goal of this
program is to provide quality enhancements for our service in
certain small markets and increase the reliability of reported
data by reducing the fluctuations in audience estimates from
measurement period to measurement period. By combining the
quarterly measurement of the related surveys, the sample size
for analyzing audience demographics for these small markets will
be increased without any increased cost to our customers. This
program is being implemented in two phases beginning with the
release of the Fall 2005 radio survey results in the first
quarter of 2006.




Stock Repurchase

On June 15, 2005, Arbitron announced that its Board of
Directors authorized a program to repurchase up to
$40.0 million of its outstanding common stock through
either periodic open-market or private transactions at the
prevailing market price through November 2005. As of
August 22, 2005, the repurchase program was completed with
948,594 shares repurchased for an aggregate purchase price
of approximately $40.0 million. During January 2006, the
Company announced a new $70.0 million repurchase program to
be conducted through December 31, 2006. As of
February 20, 2006, no shares had been repurchased under
this new program.




Dividends

Arbitron announced on February 28, 2005, that its Board of
Directors approved the payment of the Companys first
quarterly cash dividend of $0.10 per common share. The
dividend was paid on April 1, 2005, to stockholders of
record as of the close of business on March 15, 2005. For
the second, third, and fourth quarters ended June 30, 2005,
September 30, 2005, and December 31, 2005,
respectively, dividends approved in the amount of $0.10 per
common share, were also paid on July 1, 2005,
October 3, 2005, and January 3, 2006, respectively.

36



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##### Table of Contents






Acquisition

On September 20, 2005, Arbitron acquired the assets of
Integrated Radio Systems, L.L.C. (IRS) for
$4.6 million, including $0.1 million in transaction
costs. IRS is a provider of software systems that help radio
stations manage their advertising sales process and automate the
daily tasks in a sales department. The IRS applications combine
a customer relationship management system with scheduling and
research applications and with inventory/pricing management
tools.




Impact of Hurricane Katrina

As a result of the suspension of services in New Orleans and
surrounding areas within the Hurricane Katrina impact zone,
Arbitron issued credits to local customers and will discontinue
billing to stations and advertising agencies in the affected
areas for the cost of local market report services. Arbitron
will continue to monitor the situation in these markets, and as
market conditions improve, will discuss with customers plans for
resuming service. The total loss of revenue due to storm damage
and business interruption is currently estimated at
$0.9 million over the years ended December 31, 2005
and 2006, with $0.6 million of the total expected for 2006.
Arbitron is exploring whether some of these losses are covered
under its current insurance policies.




Critical Accounting Policies and Estimates

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

The Company capitalizes software development costs with respect
to significant internal use software initiatives or
enhancements. The costs are capitalized from the time that the
preliminary project stage is completed and management considers
it probable that the software will be used to perform the
function intended, until the time the software is placed in
service for its intended use. Once the software is placed in
service, the capitalized costs are amortized over periods of
three to five years. Management performs 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 December 31, 2005 and 2004, the Companys
capitalized software developed for internal use had a carrying
amount of $15.2 million and $8.5 million respectively,
including $6.7 million and $5.7 million, respectively,
of PPM software.

Arbitron uses 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 liabilities and assets for the
future tax consequences of events that have been recognized in
an entitys financial statements or tax returns. Management
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. Assumptions, judgments, and
estimates relative to the current provision for income tax 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. Assumptions, judgments and estimates relative to the
value of a deferred tax asset take into account predictions 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 taxes inaccurate. Any of the
assumptions, judgments and estimates mentioned above could cause
actual income tax obligations to differ from estimates, thus
impacting Arbitrons financial position and results of
operations.

During 2005, certain liabilities for tax contingencies related
to prior periods were reversed due to the settlement and
completion of certain income tax audits and returns and the
expiration of audit statutes. Also, the valuation allowance on
certain deferred tax assets was reduced to reflect the estimated
future benefit of

37



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##### Table of Contents








Results of Operations



| |                                                                               
| | ------------------------------------------------------------------------------
| | Comparison of Year Ended December 31, 2005 to Year
    Ended December 31, 2004

The following table sets forth information with respect to the
consolidated statements of income of Arbitron for the years
ended December 31, 2005 and 2004.

Consolidated Statements of Income

(Dollars in thousands, except per share amounts)


|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |      |  
|--------------------------------------------- | ----------------------------------- | ---- | ------- | ------- |  | ------------------- | ------- | ------------- |  | ---- | ------ | ------ | - |  | ---- | ----- | -- |  | ----- | ---- | - |  | ----- | ---- | -
|                                              |                                     |      |         |         |  |                     |         |               |  |     
|                                              |                                     |      |         |         |  |                     |         | Percentage of
|                                              |                                     |      |         |         |  | Increase (Decrease) |         | Revenue      
|                                              |                                     |      |         |         |  |                     |         |              
|                                              |                                     | 2005 |         | 2004    |  | Dollars             |         | Percent       |  | 2005 |        | 2004  
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |       
|Revenue                                       |                                     | $    | 309,955 |         |  | $                   | 296,553 |               |  | $    | 13,402 |        |   |  | 4.5  | %     |    |  | 100.0 | %    |   |  | 100.0 | %   
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|Costs and expenses                            |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|                                             
|                                             
|                                             
|                                             
|                                              | Cost of revenue                     |      |         | 109,672 |  |                     |         | 109,951       |  |      |        | (279   | ) |  |      | (0.3  | )% |  |       | 35.4 | % |  |       | 37.1 | %
|                                             
|                                             
|                                             
|                                             
|                                              | Selling, general and administrative |      |         | 68,112  |  |                     |         | 62,421        |  |      |        | 5,691  |   |  |      | 9.1   | %  |  |       | 22.0 | % |  |       | 21.0 | %
|                                             
|                                             
|                                             
|                                             
|                                              | Research and development            |      |         | 38,563  |  |                     |         | 33,297        |  |      |        | 5,266  |   |  |      | 15.8  | %  |  |       | 12.4 | % |  |       | 11.2 | %
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|                                              | Total costs and expenses            |      |         | 216,347 |  |                     |         | 205,669       |  |      |        | 10,678 |   |  |      | 5.2   | %  |  |       | 69.8 | % |  |       | 69.3 | %
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|Operating income                              |                                     |      | 93,608  |         |  |                     | 90,884  |               |  |      | 2,724  |        |   |  | 3.0  | %     |    |  | 30.2  | %    |   |  | 30.7  | %   
|                                             
|                                             
|                                             
|                                             
|                                              | Equity in net income of affiliate   |      |         | 7,829   |  |                     |         | 7,552         |  |      |        | 277    |   |  |      | 3.7   | %  |  |       | 2.5  | % |  |       | 2.5  | %
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|Income before interest and income tax expense |                                     |      | 101,437 |         |  |                     | 98,436  |               |  |      | 3,001  |        |   |  | 3.0  | %     |    |  | 32.7  | %    |   |  | 33.2  | %   
|                                             
|                                             
|                                             
|                                             
|                                              | Interest income                     |      |         | 3,121   |  |                     |         | 1,099         |  |      |        | 2,022  |   |  |      | 184.0 | %  |  |       | 1.0  | % |  |       | 0.4  | %
|                                             
|                                             
|                                             
|                                             
|                                              | Interest expense                    |      |         | 4,001   |  |                     |         | 7,909         |  |      |        | (3,908 | ) |  |      | (49.4 | )% |  |       | 1.3  | % |  |       | 2.7  | %
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|Income before income tax expense              |                                     |      | 100,557 |         |  |                     | 91,626  |               |  |      | 8,931  |        |   |  | 9.7  | %     |    |  | 32.4  | %    |   |  | 30.9  | %   
|                                             
|                                             
|                                             
|                                             
|                                              | Income tax expense                  |      |         | 33,249  |  |                     |         | 31,061        |  |      |        | 2,188  |   |  |      | 7.0   | %  |  |       | 10.7 | % |  |       | 10.5 | %
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|Net income                                    |                                     | $    | 67,308  |         |  | $                   | 60,565  |               |  | $    | 6,743  |        |   |  | 11.1 | %     |    |  | 21.7  | %    |   |  | 20.4  | %   
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|Net income per weighted average common share  |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|                                             
|                                             
|                                             
|                                             
|                                              | Basic                               |      | $       | 2.16    |  |                     | $       | 1.96          |  |      | $      | 0.20   |   |  |      | 10.1  | %  |  |       |      |   |  |       |      |  
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|                                              | Diluted                             |      | $       | 2.14    |  |                     | $       | 1.92          |  |      | $      | 0.22   |   |  |      | 11.3  | %  |  |       |      |   |  |       |      |  
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|Cash dividends declared per common share      |                                     | $    | 0.40    |         |  | $                   |        |               |  | $    | 0.40   |        |   |  |     |       |    |  |       |      |   |  |       |     
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|Other data                                    |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|                                             
|                                             
|                                             
|                                             
|                                              | EBIT                                |      | $       | 101,437 |  |                     | $       | 98,436        |  |      | $      | 3,001  |   |  |      | 3.0   | %  |  |       |      |   |  |       |      |  
|                                             
|                                             
|                                             
|                                             
|                                              | EBITDA                              |      | $       | 107,256 |  |                     | $       | 104,158       |  |      | $      | 3,098  |   |  |      | 3.0   | %  |  |       |      |   |  |       |      |  
|EBIT and EBITDA Reconciliation                |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|                                             
|                                             
|                                             
|                                             
|                                              | Net income                          |      | $       | 67,308  |  |                     | $       | 60,565        |  |      | $      | 6,743  |   |  |      |       |    |  |       |      |   |  |       |      |  
|                                             
|                                             
|                                             
|                                             
|                                              | Income tax expense                  |      |         | 33,249  |  |                     |         | 31,061        |  |      |        | 2,188  |   |  |      |       |    |  |       |      |   |  |       |      |  
|                                             
|                                             
|                                             
|                                             
|                                              | Interest income                     |      |         | 3,121   |  |                     |         | 1,099         |  |      |        | 2,022  |   |  |      |       |    |  |       |      |   |  |       |      |  
|                                             
|                                             
|                                             
|                                             
|                                              | Interest expense                    |      |         | 4,001   |  |                     |         | 7,909         |  |      |        | (3,908 | ) |  |      |       |    |  |       |      |   |  |       |      |  
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|EBIT                                          |                                     |      | 101,437 |         |  |                     | 98,436  |               |  |      | 3,001  |        |   |  |      |       |    |  |       |      |   |  |       |     
|                                             
|                                             
|                                             
|                                             
|                                              | Depreciation and amortization       |      |         | 5,819   |  |                     |         | 5,722         |  |      |        | 97     |   |  |      |       |    |  |       |      |   |  |       |      |  
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|EBITDA                                        |                                     | $    | 107,256 |         |  | $                   | 104,158 |               |  | $    | 3,098  |        |   |  |      |       |    |  |       |      |   |  |       |     
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     

Revenue. Revenue increased 4.5% to
$310.0 million in 2005 from $296.6 million in 2004.
Approximately $13.7 million of the increase was due to
increases in the ratings and qualitative subscriber base,
analytical

38



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Cost of Revenue.Cost of revenue decreased
slightly by 0.3% to $109.7 million in 2005 from
$110.0 million in 2004, and decreased as a percentage of
revenue to 35.4% in 2005 from 37.1% in 2004. The
$0.3 million decrease was primarily attributed to decreases
in Scarborough royalty costs of $1.2 million caused by the
accelerated delivery of 17 Scarborough markets in 2004 and
decreases in Continental Research costs of $0.7 million,
partially offset by a $0.6 million increase in PPM ratings
costs associated with the national marketing panel service, a
$0.5 million increase in security costs, and a
$0.8 million increase in custom research costs.

Selling, General and Administrative.Selling,
general and administrative expenses increased 9.1% to
$68.1 million in 2005 from $62.4 million in 2004, and
increased as a percentage of revenue to 22.0% in 2005 from 21.0%
in 2004. The $5.7 million increase was due to increased
expenses associated with Arbitrons core quantitative,
qualitative and software application services of
$3.2 million, increased PPM ratings expenses of
$2.8 million, and increased expenses associated with the
MRP and IRS acquisitions of $1.0 million. These increases
were partially offset by a decrease in Internet service expenses
of $1.1 million. Beginning on January 1, 2006,
Arbitron expects that its selling, general and administrative
expenses will increase substantially due to the expensing of
share-based forms of compensation required by
SFAS No. 123R.

Research and Development.Research and development
expenses increased 15.8% to $38.6 million in 2005 from
$33.3 million in 2004, and increased as a percentage of
revenue to 12.4% in 2005 from 11.2% in 2004. Increased spending
associated with Arbitrons core ratings and qualitative
subscriber service of approximately $2.3 million, the
Houston PPM market demonstration and other PPM ratings
initiatives of approximately $1.6 million, and the
deployment of Project Apollos pilot panel of approximately
$1.4 million comprise the $5.3 million increase. The
Company expects that its research and development expenses will
increase in the future as a result of continued deployment costs
associated with Project Apollo and the strategic development of
our ratings business.

Operating Income.Operating income increased 3.0%
to $93.6 million in 2005 from $90.9 million in 2004.
Operating margin decreased to 30.2% in 2005 from 30.7% in 2004.

Equity in Net Income of Affiliate.Equity in net
income of affiliate (relating to the Companys Scarborough
joint venture) increased 3.7% to $7.8 million in 2005 from
$7.6 million in 2004. The increased earnings of Scarborough
resulted mainly from increased revenues that were partially
offset by the accelerated delivery of 17 markets during the
fourth quarter of 2004 discussed previously.

Interest Income. Interest income increased to
$3.1 million in 2005 from $1.1 million in 2004. The
increase was primarily attributed to higher average cash and
short-term investment balances and interest rates for the year
ended December 31, 2005 as compared to the same period in
2004.

Interest Expense. Interest expense decreased to
$4.0 million in 2005 from $7.9 million in 2004. The
decrease is due to the Companys extinguishment of its
credit facility in September 2004. For the year ended
December 31, 2004, the average balance outstanding under
the credit facility was $28.5 million. The interest expense
incurred for the year ended December 31, 2005 is associated
with the Companys 9.96% senior-secured-notes maturing
on January 31, 2008.

39



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##### Table of Contents



Income Tax Expense.Arbitrons effective tax
rate was 33.1% and 33.9% in 2005 and 2004, respectively. During
2005, certain liabilities for tax contingencies related to prior
periods were reversed, due to the settlement and completion of
certain income tax audits and returns and the expiration of
audit statutes. Also, the valuation allowance on certain
deferred tax assets was reduced to reflect the estimated future
benefit of utilizing state net operating loss carryforwards in
certain states. The net benefit of these changes and other items
was $4.7 million in 2005. For the year ended
December 31, 2005, the effective tax rate, exclusive of
these events, decreased to 37.8% primarily due to the benefit of
increased tax-exempt interest income. During 2004, liabilities
for certain tax contingencies were reversed and a valuation
allowance on the deferred tax assets related to certain state
net operating loss carryforwards was reduced. The net benefit of
these changes and other items was $4.2 million in 2004. The
effective tax rate, exclusive of these events, was 38.5% for the
year ended December 31, 2004.

Net Income.Net income increased 11.1% to
$67.3 million in 2005 from $60.6 million in 2004.
Lower interest expense accounted for $3.9 million of the
$6.7 million increase. The Company expects that net income
for 2006 will be adversely impacted by approximately
$5.0 million, due to the SFAS No. 123R expensing
of share-based compensation. The Company also expects that
higher costs in 2006 related to the deployment of Project Apollo
will adversely impact annual net income by approximately
$4.2 million. The Company also expects that significant
increases in PPM ratings expenses will be incurred to build its
fixed costs structure and support future large-scale PPM
commercialization efforts.

EBIT and EBITDA.Earnings before interest and
income taxes (EBIT) increased 3.0% to
$101.4 million and earnings before interest, income taxes,
depreciation and amortization (EBITDA) increased
3.0% to $107.3 million in 2005 from $98.4 million and
$104.2 million, respectively, in 2004. Arbitron has
presented EBIT and EBITDA as supplemental information that
management of Arbitron believes is useful to investors to
evaluate the Companys results because they exclude certain
items that are not directly related to the Companys core
operating performance. EBIT is calculated by adding back net
interest expense and income tax expense to net income. EBITDA is
calculated by adding back net interest expense, income tax
expense, and depreciation and amortization to net income. EBIT
and EBITDA should not be considered substitutes either for net
income, as indicators of Arbitrons operating performance,
or for cash flow, as measures of Arbitrons 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.

40



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##### Table of Contents





| |                                                                               
| | ------------------------------------------------------------------------------
| | Comparison of Year Ended December 31, 2004 to Year
    Ended December 31, 2003

The following table sets forth information with respect to the
consolidated statements of income of Arbitron for the years
ended December 31, 2004 and 2003.

Consolidated Statements of Income

(Dollars in thousands, except per share amounts)


|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |      |  
|--------------------------------------------- | ----------------------------------- | ---- | ------- | ------- |  | ------------------- | ------- | ------------- |  | ---- | ------ | ------ | - |  | ---- | ----- | -- |  | ----- | ---- | - |  | ----- | ---- | -
|                                              |                                     |      |         |         |  |                     |         |               |  |     
|                                              |                                     |      |         |         |  |                     |         | Percentage of
|                                              |                                     |      |         |         |  | Increase (Decrease) |         | Revenue      
|                                              |                                     |      |         |         |  |                     |         |              
|                                              |                                     | 2004 |         | 2003    |  | Dollars             |         | Percent       |  | 2004 |        | 2003  
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |       
|Revenue                                       |                                     | $    | 296,553 |         |  | $                   | 273,550 |               |  | $    | 23,003 |        |   |  | 8.4  | %     |    |  | 100.0 | %    |   |  | 100.0 | %   
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|Costs and expenses                            |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|                                             
|                                             
|                                             
|                                             
|                                              | Cost of revenue                     |      |         | 109,951 |  |                     |         | 103,109       |  |      |        | 6,842  |   |  |      | 6.6   | %  |  |       | 37.1 | % |  |       | 37.7 | %
|                                             
|                                             
|                                             
|                                             
|                                              | Selling, general and administrative |      |         | 62,421  |  |                     |         | 58,662        |  |      |        | 3,759  |   |  |      | 6.4   | %  |  |       | 21.0 | % |  |       | 21.4 | %
|                                             
|                                             
|                                             
|                                             
|                                              | Research and development            |      |         | 33,297  |  |                     |         | 25,842        |  |      |        | 7,455  |   |  |      | 28.8  | %  |  |       | 11.2 | % |  |       | 9.5  | %
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|                                              | Total costs and expenses            |      |         | 205,669 |  |                     |         | 187,613       |  |      |        | 18,056 |   |  |      | 9.6   | %  |  |       | 69.3 | % |  |       | 68.6 | %
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|Operating income                              |                                     |      | 90,884  |         |  |                     | 85,937  |               |  |      | 4,947  |        |   |  | 5.8  | %     |    |  | 30.7  | %    |   |  | 31.4  | %   
|                                             
|                                             
|                                             
|                                             
|                                              | Equity in net income of affiliate   |      |         | 7,552   |  |                     |         | 6,754         |  |      |        | 798    |   |  |      | 11.8  | %  |  |       | 2.5  | % |  |       | 2.5  | %
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|Income before interest and income tax expense |                                     |      | 98,436  |         |  |                     | 92,691  |               |  |      | 5,745  |        |   |  | 6.2  | %     |    |  | 33.2  | %    |   |  | 33.9  | %   
|                                             
|                                             
|                                             
|                                             
|                                              | Interest income                     |      |         | 1,099   |  |                     |         | 741           |  |      |        | 358    |   |  |      | 48.3  | %  |  |       | 0.4  | % |  |       | 0.3  | %
|                                             
|                                             
|                                             
|                                             
|                                              | Interest expense                    |      |         | 7,909   |  |                     |         | 12,338        |  |      |        | (4,429 | ) |  |      | (35.9 | )% |  |       | 2.7  | % |  |       | 4.6  | %
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|Income before income tax expense              |                                     |      | 91,626  |         |  |                     | 81,094  |               |  |      | 10,532 |        |   |  | 13.0 | %     |    |  | 30.9  | %    |   |  | 29.6  | %   
|                                             
|                                             
|                                             
|                                             
|                                              | Income tax expense                  |      |         | 31,061  |  |                     |         | 31,221        |  |      |        | (160   | ) |  |      | (0.5  | )% |  |       | 10.5 | % |  |       | 11.4 | %
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|Net income                                    |                                     | $    | 60,565  |         |  | $                   | 49,873  |               |  | $    | 10,692 |        |   |  | 21.4 | %     |    |  | 20.4  | %    |   |  | 18.2  | %   
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|Net income per weighted average common share  |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|                                             
|                                             
|                                             
|                                             
|                                              | Basic                               |      | $       | 1.96    |  |                     | $       | 1.66          |  |      | $      | 0.30   |   |  |      | 18.1  | %  |  |       |      |   |  |       |      |  
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|                                              | Diluted                             |      | $       | 1.92    |  |                     | $       | 1.63          |  |      | $      | 0.29   |   |  |      | 17.8  | %  |  |       |      |   |  |       |      |  
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|Other data                                    |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|                                             
|                                             
|                                             
|                                             
|                                              | EBIT                                |      | $       | 98,436  |  |                     | $       | 92,691        |  |      | $      | 5,745  |   |  |      | 6.2   | %  |  |       |      |   |  |       |      |  
|                                             
|                                             
|                                             
|                                             
|                                              | EBITDA                              |      | $       | 104,158 |  |                     | $       | 97,528        |  |      | $      | 6,630  |   |  |      | 6.8   | %  |  |       |      |   |  |       |      |  
|EBIT and EBITDA Reconciliation                |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|                                             
|                                             
|                                             
|                                             
|                                              | Net income                          |      | $       | 60,565  |  |                     | $       | 49,873        |  |      | $      | 10,692 |   |  |      |       |    |  |       |      |   |  |       |      |  
|                                             
|                                             
|                                             
|                                             
|                                              | Income tax expense                  |      |         | 31,061  |  |                     |         | 31,221        |  |      |        | (160   | ) |  |      |       |    |  |       |      |   |  |       |      |  
|                                             
|                                             
|                                             
|                                             
|                                              | Interest income                     |      |         | 1,099   |  |                     |         | 741           |  |      |        | 358    |   |  |      |       |    |  |       |      |   |  |       |      |  
|                                             
|                                             
|                                             
|                                             
|                                              | Interest expense                    |      |         | 7,909   |  |                     |         | 12,338        |  |      |        | (4,429 | ) |  |      |       |    |  |       |      |   |  |       |      |  
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|EBIT                                          |                                     |      | 98,436  |         |  |                     | 92,691  |               |  |      | 5,745  |        |   |  |      |       |    |  |       |      |   |  |       |     
|                                             
|                                             
|                                             
|                                             
|                                              | Depreciation and amortization       |      |         | 5,722   |  |                     |         | 4,837         |  |      |        | 885    |   |  |      |       |    |  |       |      |   |  |       |      |  
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     
|EBITDA                                        |                                     | $    | 104,158 |         |  | $                   | 97,528  |               |  | $    | 6,630  |        |   |  |      |       |    |  |       |      |   |  |       |     
|                                              |                                     |      |         |         |  |                     |         |               |  |      |        |        |   |  |      |       |    |  |       |      |   |  |       |     

Revenue.Revenue increased 8.4% to
$296.6 million in 2004 from $273.6 million in 2003.
The MRP acquisition accounted for $5.9 million of the
increase. Additional revenue of $2.9 million was recognized
from the delivery of 17 Scarborough markets which were delivered
in December 2004. In previous years, these 17 markets had
been delivered in the first quarter of the following year. The
remainder of the increase was

41



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##### Table of Contents





Cost of Revenue.Cost of revenue increased 6.6% to
$110.0 million in 2004 from $103.1 million in 2003,
but decreased as a percentage of revenue to 37.1% in 2004 from
37.7% in 2003. The $6.8 million increase was mainly
attributed to: increases in royalties of $3.3 million;
increases in indirect PPM costs of $1.0 million; increases
in Continental Research costs of $0.9 million; increases in
computer center, security and facilities costs of
$0.9 million; and the MRP acquisition which accounted for a
$0.6 million increase.

Selling, General and Administrative.Selling,
general and administrative expenses increased 6.4% to
$62.4 million in 2004 from $58.7 million in 2003, but
decreased as a percentage of revenue to 21.0% in 2004 from 21.4%
in 2003. The $3.8 million increase was primarily attributed
to the MRP acquisition, which accounted for $3.6 million of
the increase.

Research and Development.Research and development
expenses increased 28.8% to $33.3 million in 2004 from
$25.8 million in 2003, and increased as a percentage of
revenue to 11.2% in 2004 from 9.5% in 2003. PPM research and
development and the MRP acquisition accounted for
$3.8 million and $1.8 million of the increase,
respectively. The remainder of the increase was attributed to
Arbitrons core quantitative, qualitative and software
application services where there was increased spending related
to maintaining its legacy operating and reporting systems.

Operating Income.Operating income increased 5.8%
to $90.9 million in 2004 from $85.9 million in 2003.
Operating margin decreased to 30.7% in 2004 from 31.4% in 2003.

Equity in Net Income of Affiliate.Equity in net
income of affiliate (relating to the Companys Scarborough
joint venture) increased 11.8% to $7.6 million in 2004 from
$6.8 million in 2003. The equity in net income of affiliate
changes as the net income of Scarborough Research changes. The
increase was primarily attributed to the delivery of 17
Scarborough markets which delivered in December 2004.

Interest Expense. Interest expense decreased to
$7.9 million for the year ended December 31, 2004 from
$12.3 million for the same period in 2003. The decrease was
primarily attributed to a $63.7 million decline in the
average debt principal balance outstanding under the
Companys then existing revolving Credit Facility in 2004
compared to 2003.

Income Tax Expense.Arbitrons effective tax
rate was 33.9% and 38.5% in 2004 and 2003, respectively. Income
tax expense was lower in 2004 primarily because reserves for
certain tax contingencies were reversed during the third quarter
of 2004, due to guidance in an Internal Revenue Service notice.
Also, the valuation allowance on the deferred tax assets related
to state net operating loss carryforwards was reduced, due to
higher actual and projected taxable income in the applicable
states. The net benefit of these changes was $4.2 million.

Net Income.Net income increased 21.4% to
$60.6 million in 2004 from $49.9 million in 2003. Tax
changes amounting to $4.2 million accounted for 39% of the
increase, and lower interest expense of $2.7 million, net
of tax, accounted for 26% of the $10.7 million increase.

EBIT and EBITDA.Earnings before interest and
income tax expense (EBIT) increased 6.2% to
$98.4 million and earnings before interest, income tax
expense, depreciation and amortization (EBITDA)
increased 6.8% to $104.2 million in 2004 from
$92.7 million and $97.5 million, respectively, in
2003. Arbitron has presented EBIT and EBITDA as supplemental
information that management of Arbitron believes is useful to
investors to evaluate the Companys results because they
exclude certain items that are not directly related to the
Companys core operating performance. EBIT is calculated by
adding back net interest expense and income tax expense to net
income. EBITDA is calculated by adding back net interest
expense, income tax expense, and depreciation and amortization
to net income. EBIT and EBITDA should not be considered
substitutes either for net income, as indicators of
Arbitrons operating performance, or for cash flow, as
measures of Arbitrons 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.

42



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##### Table of Contents






Liquidity and Capital Resources

Working capital was $58.8 million, $24.2 million and
$25.0 million as of December 31, 2005, 2004 and 2003,
respectively. Cash and cash equivalents was $40.8 million,
$86.9 million and $68.4 million as of
December 31, 2005, 2004, and 2003, respectively. In
addition, short-term investments and receivables from brokers on
unsettled trades, collectively, were $82.6 million, $0, and
$0, as of December 31, 2005, 2004, and 2003, respectively.
Management expects that its cash position, along with these
readily convertible assets, as of December 31, 2005, and
cash flow generated from operations will be sufficient to
support the Companys operations for the foreseeable future.

Net cash provided by operating activities was
$77.4 million, $98.1 million and $65.4 million
for the years ended December 31, 2005, 2004 and 2003,
respectively. The 2005 decrease of $20.7 million was mainly
attributable to a larger decrease in deferred tax assets of
$21.4 million for the year ended December 31, 2004,
partially offset by a larger increase in payables of
$2.0 million for the year ended December 31, 2005 as
compared to the same period in 2004. In accordance with an
Internal Revenue Service procedure, income taxes of
approximately $21.8 million paid in 2003 were applied
toward the Companys 2004 tax liability, and thereby
reduced cash taxes paid for the year ended December 31,
2004, as compared to the same period in 2005. The increase in
payables for the year ended December 31, 2005, as compared
to the same period in 2004, resulted primarily the increased
contracting of information technology consulting services.

Net cash used in investing activities was $102.4 million,
$19.1 million and $5.4 million for the years ended
December 31, 2005, 2004 and 2003, respectively. The
$83.3 million increase in cash used in investing activities
was driven primarily by the Companys fourth quarter 2005
$82.6 million investment in available-for-sale variable
rate demand notes issued by municipal government agencies. The
increase in investing activities also included increased capital
spending of $5.5 million, related primarily to Project
Apollo equipment purchases and increased software costs. These
increases were partially offset by a $4.8 million reduction
in payments for business acquisitions. For the year ended
December 31, 2005, the Companys cash flow used in
investing activities included $4.2 million related to the
acquisition of IRS. For the year ended December 31, 2004,
$8.9 million was spent related to the MRP acquisition.

Net cash used in financing activities was $20.8 million,
$60.7 million and $34.9 million for the years ended
December 31, 2005, 2004 and 2003, respectively. The
$40.0 million decrease in net cash used in financing
activities resulted primarily from the $55.0 million debt
extinguishment of the Companys credit facility in 2004 and
the $9.3 million increase in cash provided from stock
option and other incentive plan exercises for the year ended
December 31, 2005 as compared to the same period in 2004,
partially offset by a $15.0 million increase in stock
repurchases and $9.4 million of cash dividends paid by the
Company in 2005. Arbitron did not make any dividend payments in
2004.

Arbitrons commitment under its revolving credit facility,
which was $225.0 million at inception, was closed at the
request of the Company on January 31, 2005. Outstanding
debt as of December 31, 2005 consists solely of
Arbitrons senior-secured-notes in the amount of
$50.0 million, which mature on January 31, 2008.

Arbitrons senior-secured-notes contain
non-investment-grade financial terms, covenants and operating
restrictions that increase the cost of financing and restrict
financial flexibility. Under the terms of the
senior-secured-notes, Arbitron is required to maintain certain
leverage and coverage ratios and meet other financial
conditions. The senior-secured-notes limit, among other things,
Arbitrons ability to incur additional indebtedness, grant
or incur liens on its assets, pay cash dividends over a certain
amount, make certain investments or acquisitions, repurchase or
redeem capital stock over a certain amount and engage in certain
mergers or consolidations. On June 10, 2005, the
senior-secured-notes agreement was amended. The amendment
deleted certain requirements to make mandatory offers to prepay,
amended certain notice requirements, deleted
interest-rate-hedging obligations, and eliminated or lessened
the restrictions applicable under various negative covenants,
including those relating to, among other things, acquisitions,
the creation of joint ventures, the payment of dividends and
distributions, and capital expenditures. However, the terms of
the senior-secured-notes may still restrict or prohibit
Arbitrons ability to raise additional capital when needed
or

43



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##### Table of Contents





Arbitron announced on February 28, 2005, that its Board of
Directors approved the payment of the Companys first
quarterly cash dividend of $0.10 per common share. The
dividend was paid on April 1, 2005, to stockholders of
record as of the close of business on March 15, 2005. For
the second, third, and fourth quarters ended June 30, 2005,
September 30, 2005, and December 31, 2005,
respectively, dividends approved in the amount of $0.10 per
common share, were also paid on July 1, 2005,
October 3, 2005, and January 3, 2006, respectively.

During January 2006, the Company announced that its Board of
Directors authorized a new stock repurchase program under which
the Company may repurchase up to $70.0 million of shares of
the Companys common stock. The Company expects that the
shares may be purchased from time to time in either open market
or private transactions at then-prevailing market prices through
December 31, 2006. As of February 20, 2006, no shares
had been repurchased.

In 2005, Clear Channel and CBS Radio represented approximately
19 percent and nine percent, respectively, of
Arbitrons revenue. Arbitrons agreements with these
customers are not exclusive and contain no renewal obligations.
Arbitron currently has license agreements with Clear Channel to
provide radio ratings and software services for Clear
Channels radio stations and networks through the
Companys Fall 2008 survey. Arbitron currently has license
agreements with CBS Radio to provide audience estimates,
software and other ancillary services to CBS Radios radio
stations through the Companys Winter 2008 survey. Arbitron
cannot give any assurances that it will retain current customers
or that it will be able to replace the revenue that is lost if a
key customer fails to renew its agreement with Arbitron.

As discussed above in Portable People Meter,
commercialization of the PPM will require a substantial
financial investment. While the Company has preserved its cash
and short-term investments in anticipation of such requirements,
the expenditures likely to be incurred in connection with such
commercialization are significant. The Company currently
believes that the aggregate capital investment associated with
PPM commercialization for audience ratings measurement could be
in the range of $10.0 million to $25.0 million for the
first two to three years of commercialization, with the higher
range of investment by Arbitron anticipated in the event Nielsen
Media Research does not join Arbitron in the commercialization
of the PPM.

Similarly, as previously discussed, the Company is pursuing a
possible additional application of the PPM technology that
involves use of the PPM as a media collection tool for a
national marketing-oriented panel designed to correlate
advertising with shopping behavior and sales. The Company is
participating with VNU in the development and deployment of a
national marketing pilot panel as a demonstration of this
service. Arbitron also currently expects to incur incremental
expenses of approximately $6.8 million relating to Project
Apollo in 2006. If a decision is made to commercialize this
service, substantial additional expenditures would be incurred
in the next few years.

Arbitron expects to fund the national marketing pilot panel, the
expected commercialization of the PPM ratings service and the
possible commercialization of the PPM marketing research
applications service with its existing cash position and
short-term investments, future excess cash from operations or
through the most advantageous source of capital at the time,
which may include the incurrence of new debt through borrowings,
sales of common and preferred stock and joint venture capital
transactions. Arbitron believes that one or more of these
sources of capital will be available to fund its PPM-related
cash needs, but there can be no assurance that the external
sources of capital will be available on favorable terms, if at
all.

44



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##### Table of Contents



The following table summarizes Arbitrons contractual cash
obligations as of December 31, 2005:

|                         |  |           |        |       |  |       |        |           |  |       |       |  |  |   |       |  |  |   |         | 
|------------------------ |  | --------- | ------ | ----- |  | ----- | ------ | --------- |  | ----- | ----- |  |  | - | ----- |  |  | - | ------- | 
|                         |  | Less Than |        | 1 - 3 |  | 3 - 5 |        | More Than |  |      
|                         |  | 1 Year    |        | Years |  | Years |        | 5 Years   |  | Total
|                         |  |           |        |       |  |       |        |           |  |      
|Long-term debt(A)        |  | $         | 4,980  |       |  | $     | 55,403 |           |  | $     |      |  |  | $ |      |  |  | $ | 60,383  | 
|                        
|                        
|                        
|                        
|Operating leases(B)      |  |           | 8,344  |       |  |       | 13,091 |           |  |       | 9,438 |  |  |   | 6,204 |  |  |   | 37,077  | 
|                        
|                        
|                        
|                        
|Purchase obligations(C)  |  |           | 7,033  |       |  |       |       |           |  |       |      |  |  |   |      |  |  |   | 7,033   | 
|                        
|                        
|                        
|                        
|Pension contributions(D) |  |           | 2,000  |       |  |       |       |           |  |       |      |  |  |   |      |  |  |   | 2,000   | 
|                         |  |           |        |       |  |       |        |           |  |       |       |  |  |   |       |  |  |   |         | 
|                         |  | $         | 22,357 |       |  | $     | 68,494 |           |  | $     | 9,438 |  |  | $ | 6,204 |  |  | $ | 106,493 | 
|                         |  |           |        |       |  |       |        |           |  |       |       |  |  |   |       |  |  |   |         | 



---



|    |  |                                                                                                                                                                                                                                                          
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) |  | See note 9 to consolidated financial statements (includes
    future interest payments of $10.4 million).                                                                                                                                                
|   
|(B) |  | See note 11 to consolidated financial statements.                                                                                                                                                                                                        
|   
|(C) |  | Other than for PPM equipment purchases, Arbitron generally does
    not make unconditional, noncancelable purchase commitments. The
    Company enters into purchase orders in the normal course of
    business, and they do not exceed one-year terms. 
|   
|(D) |  | Amount represents an estimate of its cash contribution for 2006
    to its defined benefit pension plan. Future cash contributions
    will be determined based upon the funded status of the plan. See
    note 13 to consolidated financial statements.

A letter of credit in the amount of $0.1 million was
cancelled effective January 27, 2005. As of
December 31, 2005, the Company had no outstanding letters
of credit.




Off-Balance Sheet Arrangements

Arbitron did not enter into any off-balance sheet arrangements
during 2005 or 2004, nor did Arbitron have any off-balance sheet
arrangements outstanding at December 31, 2005 or 2004.




New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board
(FASB) enacted Statement of Financial Accounting
Standards 123  revised 2004
(SFAS No. 123R), Share-Based
Payment which replaces Statement of Financial
Accounting Standards No. 123
(SFAS No. 123), Accounting for
Stock-Based Compensation and supersedes APB Opinion
No. 25 (APB No. 25), Accounting
for Stock Issued to Employees.
SFAS No. 123R, which is effective January 1,
2006, requires the measurement of share-based payments,
including grants of stock options to employees, using a
fair-value-based method and the recording of such costs in our
consolidated financial statements.

The pro forma disclosures previously permitted under
SFAS No. 123 no longer will be an alternative to
financial statement recognition. See Note 2 in the Notes to
Consolidated Financial Statements for the pro forma net income
and net income per share amounts, for 2005, 2004 and 2003. The
Company adopted SFAS No. 123R on January 1, 2006
using the modified prospective method. In accordance with the
modified prospective method, the fair value of all nonvested
share-based payments and any new grants, which will be measured
using the fair-value-based method, will be recognized in the
results of operations. The Company expects that the recognition
requirements under SFAS No. 123R will be reasonably
similar to the fair value results included in the Companys
pro forma disclosures assuming similar assumptions and stock
prices and a consistent number of stock incentive grants during
2006 as compared to 2005.






|         |                                                           
|-------- | ----------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





| |                   
| | ------------------
| | Interest Rate Risk

The Company holds its cash and cash equivalents in highly liquid
securities. The Company also holds short-term investments, which
consist of investment grade, highly liquid securities classified
as available-for-sale. A hypothetical interest rate change of 1%
would have an impact of approximately $1.2 million on
interest income.

45



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##### Table of Contents



The Company currently has no exposure to interest rate risk with
respect to debt securities because the Companys only
outstanding debt is its senior-secured-notes that bear interest
at a fixed rate of 9.96%. The Company does not use derivatives
for speculative or trading purposes.

Because the Company currently has no outstanding floating rate
debt, a hypothetical market interest rate change of 1% would
have no effect on the Companys results of operations. The
fair values of the senior-secured-notes as of December 31,
2005, and 2004, were $51.8 million and $53.8 million,
respectively, and were estimated using a cash flow valuation
model and available market data for securities with similar
maturity dates. A hypothetical market interest rate change of 1%
would have an impact of approximately $1.0 million on the
fair value of the Companys senior-secured-notes.






| |                      
| | ---------------------
| | Foreign Currency Risk

Arbitrons foreign operations are not significant at this
time, and, therefore, Arbitrons exposure to foreign
currency risk is minimal.






|        |                                            
|------- | -------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The report of the independent registered public accounting firm
and financial statements are set forth below (see
Item 15(a) for list of financial statements and financial
statement schedules):

46



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##### Table of Contents



ARBITRON INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                       |  |      |    | 
|---------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                       |  | Page
|                                                                                                                       |  |     
|Managements Report on
    Internal Control Over Financial Reporting                                                   |  |      | 48 | 
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Reports of Independent
    Registered Public Accounting Firm                                                           |  |      | 49 | 
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Consolidated Balance Sheets
    as of December 31, 2005 and 2004                                                       |  |      | 51 | 
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Consolidated Statements of
    Income for the Years Ended December 31, 2005, 2004 and
    2003                         |  |      | 52 | 
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Consolidated Statements of
    Stockholders Equity (Deficit) for the Years Ended
    December 31, 2005, 2004 and 2003 |  |      | 53 | 
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Consolidated Statements of
    Comprehensive Income for the Years Ended December 31, 2005,
    2004 and 2003           |  |      | 54 | 
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Consolidated Statements of
    Cash Flows for the Years Ended December 31, 2005, 2004 and
    2003                     |  |      | 55 | 
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Notes to Consolidated
    Financial Statements                                                                         |  |      | 56 | 
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Consolidated Schedule of
    Valuation and Qualifying Accounts                                                         |  |      | 74 | 

47



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##### Table of Contents






Managements Report on Internal Control Over Financial
Reporting

Arbitrons management is responsible for establishing and
maintaining adequate internal control over financial reporting
(as defined in Rule 13a-15(f) under the Securities Exchange
Act of 1934, as amended). Our management assessed the
effectiveness of our internal control over financial reporting
as of December 31, 2005. In making this assessment, our
management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in
Internal Control-Integrated Framework. Based upon
that assessment, our management has concluded that, as of
December 31, 2005, our internal control over financial
reporting is effective based on these criteria. Our independent
registered public accounting firm, KPMG LLP, has issued an audit
report on our assessment of our internal control over financial
reporting, which report is included herein.

48



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##### Table of Contents






Report of Independent Registered Public Accounting
Firm

The Board of Directors and Stockholders



We have audited the accompanying consolidated balance sheets of
Arbitron Inc. and subsidiaries as of December 31, 2005 and
2004, and the related consolidated statements of income,
stockholders equity (deficit), comprehensive income and
cash flows for each of the years in the three-year period ended
December 31, 2005. In connection with our audits of the
consolidated financial statements, we also have audited the
financial statement schedule listed under item 15(a)(2).
These consolidated financial statements and financial statement
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Arbitron Inc. and subsidiaries as of
December 31, 2005 and 2004, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2005, in conformity
with U.S. generally accepted accounting principles. Also in
our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Arbitron Inc.s internal control over
financial reporting as of December 31, 2005, based on
criteria established in Internal Control 
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report
dated February 24, 2006 expressed an unqualified opinion on
managements assessment of, and the effective operation of,
internal control over financial reporting.



| |             
| | ------------
| | -s- KPMG LLP

Baltimore, Maryland



49



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##### Table of Contents



Report of Independent Registered Public Accounting
Firm

The Board of Directors and Stockholders



We have audited managements assessment, included in the
accompanying Managements Report on Internal Control over
Financial Reporting, that Arbitron Inc. maintained effective
internal control over financial reporting as of
December 31, 2005, based on criteria established in
Internal Control  Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Arbitron Inc.s management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express an opinion on managements assessment and an
opinion on the effectiveness of the Companys internal
control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.

A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.

In our opinion, managements assessment that Arbitron Inc.
maintained effective internal control over financial reporting
as of December 31, 2005, is fairly stated, in all material
respects, based on criteria established in Internal
Control  Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Also, in our opinion, Arbitron Inc. maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2005, based on criteria
established in Internal Control  Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Arbitron Inc. and subsidiaries as
of December 31, 2005 and 2004, and the related consolidated
statements of income, stockholders equity (deficit),
comprehensive income and cash flows for each of the years in the
three-year period ended December 31, 2005, and our report
dated February 24, 2006, expressed an unqualified opinion
on those consolidated financial statements.



| |             
| | ------------
| | -s- KPMG LLP

Baltimore, Maryland



50



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##### Table of Contents



ARBITRON INC.



Consolidated Balance Sheets


December 31, 2005 and 2004


(In thousands, except par value data)


|                                         |                                                                                                                          |                                            |        |          |         |  |        |          |         | 
|---------------------------------------- | ------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------ | -------- | ------- |  | ------ | -------- | ------- | 
|                                         |                                                                                                                          | 2005                                       |        | 2004    
|                                         |                                                                                                                          |                                            |        |         
|Assets                                   |                                                                                                                          |                                            |        |          |         |  |        |         
|Current assets                           |                                                                                                                          |                                            |        |          |         |  |        |         
|                                        
|                                        
|                                        
|                                        
|                                         | Cash and cash equivalents                                                                                                |                                            | $      | 40,848   |         |  | $      | 86,901   |        
|                                        
|                                        
|                                        
|                                        
|                                         | Receivables from brokers                                                                                                 |                                            |        | 30,000   |         |  |        |         |        
|                                        
|                                        
|                                        
|                                        
|                                         | Short-term investments                                                                                                   |                                            |        | 52,560   |         |  |        |         |        
|                                        
|                                        
|                                        
|                                        
|                                         | Trade accounts receivable, net of allowance for
    doubtful accounts of $1,165 in 2005 and $1,124 in 2004               |                                            |        | 27,708   |         |  |        | 23,369   |        
|                                        
|                                        
|                                        
|                                        
|                                         | Deferred tax assets                                                                                                      |                                            |        | 5,703    |         |  |        | 4,362    |        
|                                        
|                                        
|                                        
|                                        
|                                         | Prepaid expenses and other current assets                                                                                |                                            |        | 4,107    |         |  |        | 5,529    |        
|                                         |                                                                                                                          |                                            |        |          |         |  |        |         
|                                         |                                                                                                                          | Total current assets                       |        |          | 160,926 |  |        |          | 120,161 | 
|                                        
|                                        
|                                        
|                                        
|Investment in affiliate                  |                                                                                                                          |                                            | 12,959 |          |         |  | 12,130 |         
|                                        
|                                        
|                                        
|                                        
|Property and equipment, net              |                                                                                                                          |                                            | 30,875 |          |         |  | 18,536 |         
|                                        
|                                        
|                                        
|                                        
|Goodwill, net                            |                                                                                                                          |                                            | 40,558 |          |         |  | 37,773 |         
|                                        
|                                        
|                                        
|                                        
|Other intangibles, net                   |                                                                                                                          |                                            | 3,578  |          |         |  | 3,381  |         
|                                        
|                                        
|                                        
|                                        
|Noncurrent deferred tax assets           |                                                                                                                          |                                            | 911    |          |         |  | 3,025  |         
|                                        
|                                        
|                                        
|                                        
|Other noncurrent assets                  |                                                                                                                          |                                            | 1,073  |          |         |  | 1,115  |         
|                                         |                                                                                                                          |                                            |        |          |         |  |        |         
|                                         |                                                                                                                          | Total assets                               |        | $        | 250,880 |  |        | $        | 196,121 | 
|                                         |                                                                                                                          |                                            |        |          |         |  |        |         
|                                        
|                                        
|                                        
|                                        
|                                        
|Liabilities and Stockholders
    Equity |                                                                                                                          |                                            |        |          |         |  |        |         
|Current liabilities                      |                                                                                                                          |                                            |        |          |         |  |        |         
|                                        
|                                        
|                                        
|                                        
|                                         | Accounts payable                                                                                                         |                                            | $      | 8,605    |         |  | $      | 5,444    |        
|                                        
|                                        
|                                        
|                                        
|                                         | Accrued expenses and other current liabilities                                                                           |                                            |        | 31,123   |         |  |        | 30,955   |        
|                                        
|                                        
|                                        
|                                        
|                                         | Deferred revenue                                                                                                         |                                            |        | 62,434   |         |  |        | 59,608   |        
|                                         |                                                                                                                          |                                            |        |          |         |  |        |         
|                                         |                                                                                                                          | Total current liabilities                  |        |          | 102,162 |  |        |          | 96,007  | 
|                                         | Noncurrent liabilities                                                                                                   |                                            |        |          |         |  |        |          |        
|                                        
|                                        
|                                        
|                                        
|                                         | Long-term debt                                                                                                           |                                            |        | 50,000   |         |  |        | 50,000   |        
|                                        
|                                        
|                                        
|                                        
|                                         | Other noncurrent liabilities                                                                                             |                                            |        | 6,364    |         |  |        | 4,734    |        
|                                         |                                                                                                                          |                                            |        |          |         |  |        |         
|                                         |                                                                                                                          | Total liabilities                          |        |          | 158,526 |  |        |          | 150,741 | 
|                                         |                                                                                                                          |                                            |        |          |         |  |        |         
|Commitments and contingencies            |                                                                                                                          |                                            |        |          |         |  |        |         
|Stockholders equity                     |                                                                                                                          |                                            |        |          |         |  |        |         
|                                        
|                                        
|                                        
|                                        
|                                         | Preferred stock, $100.00 par value,
    750 shares authorized, no shares issued                                          |                                            |        |         |         |  |        |         |        
|                                        
|                                        
|                                        
|                                        
|                                         | Common stock, $0.50 par value, authorized
    500,000 shares, issued 32,338 shares in 2005 and
    32,336 shares in 2004 |                                            |        | 16,169   |         |  |        | 16,168   |        
|                                        
|                                        
|                                        
|                                        
|                                         | Additional paid-in capital                                                                                               |                                            |        | 94,908   |         |  |        | 101,914  |        
|                                        
|                                        
|                                        
|                                        
|                                         | Accumulated earnings (net distributions to
    Ceridian in excess of accumulated earnings) prior to spin-off             |                                            |        | (242,870 | )       |  |        | (242,870 | )      
|                                        
|                                        
|                                        
|                                        
|                                         | Retained earnings subsequent to spin-off                                                                                 |                                            |        | 228,211  |         |  |        | 173,360  |        
|                                        
|                                        
|                                        
|                                        
|                                         | Common stock held in treasury, 1,294 shares
    in 2005 and 1,376 shares in 2004                                         |                                            |        | (647     | )       |  |        | (688     | )      
|                                        
|                                        
|                                        
|                                        
|                                         | Accumulated other comprehensive loss                                                                                     |                                            |        | (3,417   | )       |  |        | (2,504   | )      
|                                         |                                                                                                                          |                                            |        |          |         |  |        |         
|                                         |                                                                                                                          | Total stockholders equity                 |        |          | 92,354  |  |        |          | 45,380  | 
|                                         |                                                                                                                          |                                            |        |          |         |  |        |         
|                                         |                                                                                                                          | Total liabilities and stockholders equity |        | $        | 250,880 |  |        | $        | 196,121 | 
|                                         |                                                                                                                          |                                            |        |          |         |  |        |         

See accompanying notes to consolidated financial statements.

51



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##### Table of Contents






ARBITRON INC.

Consolidated Statements of Income

Years Ended December 31, 2005, 2004 and 2003


(In thousands, except per share data)


|                                                        |                                     |                          |         |         |         |      |         |         |         |   |         |         |         | 
|------------------------------------------------------- | ----------------------------------- | ------------------------ | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                        |                                     | 2005                     |         | 2004    |         | 2003
|                                                        |                                     |                          |         |         |         |     
|Revenue                                                 |                                     | $                        | 309,955 |         |         | $    | 296,553 |         |         | $ | 273,550 |        
|                                                        |                                     |                          |         |         |         |      |         |         |         |   |         |        
|Costs and expenses                                      |                                     |                          |         |         |         |      |         |         |         |   |         |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Cost of revenue                     |                          |         | 109,672 |         |      |         | 109,951 |         |   |         | 103,109 |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Selling, general and administrative |                          |         | 68,112  |         |      |         | 62,421  |         |   |         | 58,662  |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Research and development            |                          |         | 38,563  |         |      |         | 33,297  |         |   |         | 25,842  |        
|                                                        |                                     |                          |         |         |         |      |         |         |         |   |         |        
|                                                        |                                     | Total costs and expenses |         |         | 216,347 |      |         |         | 205,669 |   |         |         | 187,613 | 
|                                                        |                                     |                          |         |         |         |      |         |         |         |   |         |        
|Operating income                                        |                                     |                          | 93,608  |         |         |      | 90,884  |         |         |   | 85,937  |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Equity in net income of affiliate   |                          |         | 7,829   |         |      |         | 7,552   |         |   |         | 6,754   |        
|                                                        |                                     |                          |         |         |         |      |         |         |         |   |         |        
|Income before interest and income tax expense           |                                     |                          | 101,437 |         |         |      | 98,436  |         |         |   | 92,691  |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Interest income                     |                          |         | 3,121   |         |      |         | 1,099   |         |   |         | 741     |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Interest expense                    |                          |         | 4,001   |         |      |         | 7,909   |         |   |         | 12,338  |        
|                                                        |                                     |                          |         |         |         |      |         |         |         |   |         |        
|Income before income tax expense                        |                                     |                          | 100,557 |         |         |      | 91,626  |         |         |   | 81,094  |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Income tax expense                  |                          |         | 33,249  |         |      |         | 31,061  |         |   |         | 31,221  |        
|                                                        |                                     |                          |         |         |         |      |         |         |         |   |         |        
|Net income                                              |                                     | $                        | 67,308  |         |         | $    | 60,565  |         |         | $ | 49,873  |        
|                                                        |                                     |                          |         |         |         |      |         |         |         |   |         |        
|Net income per weighted average common share            |                                     |                          |         |         |         |      |         |         |         |   |         |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Basic                               |                          | $       | 2.16    |         |      | $       | 1.96    |         |   | $       | 1.66    |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Diluted                             |                          | $       | 2.14    |         |      | $       | 1.92    |         |   | $       | 1.63    |        
|Weighted average common shares used in
    calculations |                                     |                          |         |         |         |      |         |         |         |   |         |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Basic                               |                          |         | 31,179  |         |      |         | 30,972  |         |   |         | 30,010  |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Potentially dilutive securities     |                          |         | 321     |         |      |         | 499     |         |   |         | 606     |        
|                                                        |                                     |                          |         |         |         |      |         |         |         |   |         |        
|                                                        | Diluted                             |                          |         | 31,500  |         |      |         | 31,471  |         |   |         | 30,616  |        
|                                                        |                                     |                          |         |         |         |      |         |         |         |   |         |        
|Dividends per common share outstanding                  |                                     | $                        | 0.40    |         |         | $    |        |         |         | $ |        |        
|                                                        |                                     |                          |         |         |         |      |         |         |         |   |         |        

See accompanying notes to consolidated financial statements.

52



---



##### Table of Contents






ARBITRON INC.

Consolidated Statements of Stockholders Equity
(Deficit)

Years Ended December 31, 2005, 2004 and 2003


|                                                                   |                                                 |                |        |        |  |            |        |                   |  |               |         |          |  |   |          |   |  |   |         |   |  |   |        |   | 
|------------------------------------------------------------------ | ----------------------------------------------- | -------------- | ------ | ------ |  | ---------- | ------ | ----------------- |  | ------------- | ------- | -------- |  | - | -------- | - |  | - | ------- | - |  | - | ------ | - | 
|                                                                   |                                                 |                |        |        |  |            |        | Accumulated       |  |               |         |         
|                                                                   |                                                 |                |        |        |  |            |        | Earnings (Net     |  |               |         |         
|                                                                   |                                                 |                |        |        |  |            |        | Distributions to  |  |               |         |         
|                                                                   |                                                 |                |        |        |  |            |        | Ceridian in       |  |               |         |         
|                                                                   |                                                 |                |        |        |  |            |        | Excess of         |  | Retained      |         | Common  
|                                                                   |                                                 | Number of      |        |        |  | Additional |        | Accumulated       |  | Earnings      |         | Stock   
|                                                                   |                                                 | Shares         |        | Common |  | Paid-In    |        | Earnings)         |  | Subsequent to |         | Held in 
|                                                                   |                                                 | Outstanding    |        | Stock  |  | Capital    |        | Prior to Spin-off |  | Spin-off      |         | Treasury
|                                                                   |                                                 |                |        |        |  |            |        |                   |  |               |         |         
|                                                                   |                                                 |               
|                                                                   |                                                 | (In thousands)
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Balance at December 31, 2002                                       |                                                 |                | 29,611 |        |  | $          | 16,168 |                   |  | $             | 69,187  |          |  | $ | (242,870 | ) |  | $ | 62,922  |   |  | $ | (1,363 | )
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Net income                                                         |                                                 |                |       |        |  |            |       |                   |  |               |        |          |  |   |         |   |  |   | 49,873  |   |  |   |       |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Other comprehensive income (loss) Foreign
    currency translation |                                                 |                |       |        |  |            |       |                   |  |               |        |          |  |   |         |   |  |   |        |   |  |   |       |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Change in additional minimum pension liability  |                |        |       |  |            |        |                  |  |               |         |         |  |   |          |  |  |   |         |  |  |   |        |  | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Change in unrealized loss on interest rate swap |                |        |       |  |            |        |                  |  |               |         |         |  |   |          |  |  |   |         |  |  |   |        |  | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Income tax expense                              |                |        |       |  |            |        |                  |  |               |         |         |  |   |          |  |  |   |         |  |  |   |        |  | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Common stock issued                                                |                                                 |                | 1,099  |        |  |            |       |                   |  |               | 24,790  |          |  |   |         |   |  |   |        |   |  |   | 550    |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Tax benefit from stock option exercises and other
    plans        |                                                 |                |       |        |  |            |       |                   |  |               | 6,047   |          |  |   |         |   |  |   |        |   |  |   |       |  
|                                                                   |                                                 |                |        |        |  |            |        |                   |  |               |         |          |  |   |          |   |  |   |         |   |  |   |        |  
|Balance at December 31, 2003                                       |                                                 |                | 30,710 |        |  |            | 16,168 |                   |  |               | 100,024 |          |  |   | (242,870 | ) |  |   | 112,795 |   |  |   | (813   | )
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Net income                                                         |                                                 |                |       |        |  |            |       |                   |  |               |        |          |  |   |         |   |  |   | 60,565  |   |  |   |       |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Other comprehensive income (loss) Foreign
    currency translation |                                                 |                |       |        |  |            |       |                   |  |               |        |          |  |   |         |   |  |   |        |   |  |   |       |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Change in additional minimum pension liability  |                |        |       |  |            |        |                  |  |               |         |         |  |   |          |  |  |   |         |  |  |   |        |  | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Change in unrealized loss on interest rate swap |                |        |       |  |            |        |                  |  |               |         |         |  |   |          |  |  |   |         |  |  |   |        |  | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Income tax expense                              |                |        |       |  |            |        |                  |  |               |         |         |  |   |          |  |  |   |         |  |  |   |        |  | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Common stock issued                                                |                                                 |                | 916    |        |  |            |       |                   |  |               | 20,908  |          |  |   |         |   |  |   |        |   |  |   | 459    |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Noncash stock compensation                                         |                                                 |                |       |        |  |            |       |                   |  |               | 188     |          |  |   |         |   |  |   |        |   |  |   |       |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Common stock repurchased                                           |                                                 |                | (666   | )      |  |            |       |                   |  |               | (24,692 | )        |  |   |         |   |  |   |        |   |  |   | (334   | )
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Tax benefit from stock option exercises and other
    plans        |                                                 |                |       |        |  |            |       |                   |  |               | 5,486   |          |  |   |         |   |  |   |        |   |  |   |       |  
|                                                                   |                                                 |                |        |        |  |            |        |                   |  |               |         |          |  |   |          |   |  |   |         |   |  |   |        |  
|Balance at December 31, 2004                                       |                                                 |                | 30,960 |        |  |            | 16,168 |                   |  |               | 101,914 |          |  |   | (242,870 | ) |  |   | 173,360 |   |  |   | (688   | )
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Net income                                                         |                                                 |                |       |        |  |            |       |                   |  |               |        |          |  |   |         |   |  |   | 67,308  |   |  |   |       |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Other comprehensive income (loss) Foreign
    currency translation |                                                 |                |       |        |  |            |       |                   |  |               |        |          |  |   |         |   |  |   |        |   |  |   |       |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Change in additional minimum pension liability  |                |        |       |  |            |        |                  |  |               |         |         |  |   |          |  |  |   |         |  |  |   |        |  | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Income tax benefit                              |                |        |       |  |            |        |                  |  |               |         |         |  |   |          |  |  |   |         |  |  |   |        |  | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Dividends declared                                                 |                                                 |                |       |        |  |            |       |                   |  |               |        |          |  |   |         |   |  |   | (12,457 | ) |  |   |       |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Common stock issued                                                |                                                 |                | 1,033  |        |  |            | 1      |                   |  |               | 26,091  |          |  |   |         |   |  |   |        |   |  |   | 515    |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Noncash stock compensation                                         |                                                 |                |       |        |  |            |       |                   |  |               | 426     |          |  |   |         |   |  |   |        |   |  |   |       |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Common stock repurchased                                           |                                                 |                | (949   | )      |  |            |       |                   |  |               | (39,502 | )        |  |   |         |   |  |   |        |   |  |   | (474   | )
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Tax benefit from stock option exercises and other
    plans        |                                                 |                |       |        |  |            |       |                   |  |               | 5,979   |          |  |   |         |   |  |   |        |   |  |   |       |  
|                                                                   |                                                 |                |        |        |  |            |        |                   |  |               |         |          |  |   |          |   |  |   |         |   |  |   |        |  
|Balance at December 31, 2005                                       |                                                 |                | 31,044 |        |  | $          | 16,169 |                   |  | $             | 94,908  |          |  | $ | (242,870 | ) |  | $ | 228,211 |   |  | $ | (647   | )
|                                                                   |                                                 |                |        |        |  |            |        |                   |  |               |         |          |  |   |          |   |  |   |         |   |  |   |        |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                   |                                                 |                |        |               |   |   |          |        |  
|------------------------------------------------------------------ | ----------------------------------------------- | -------------- | ------ | ------------- | - | - | -------- | ------ | -
|                                                                   |                                                 | Accumulated    |        |              
|                                                                   |                                                 | Other          |        | Total        
|                                                                   |                                                 | Comprehensive  |        | Stockholders
|                                                                   |                                                 | Income         |        | Equity       
|                                                                   |                                                 | (Loss)         |        | (Deficit)    
|                                                                   |                                                 |                |        |              
|                                                                   |                                                 |               
|                                                                   |                                                 | (In thousands)
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Balance at December 31, 2002                                       |                                                 | $              | (4,623 | )             |   | $ | (100,579 | )     
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Net income                                                         |                                                 |                |       |               |   |   | 49,873   |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Other comprehensive income (loss) Foreign
    currency translation |                                                 |                | 306    |               |   |   | 306      |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Change in additional minimum pension liability  |                |        | (1,680        | ) |   |          | (1,680 | )
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Change in unrealized loss on interest rate swap |                |        | 3,125         |   |   |          | 3,125  |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Income tax expense                              |                |        | (505          | ) |   |          | (505   | )
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Common stock issued                                                |                                                 |                |       |               |   |   | 25,340   |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Tax benefit from stock option exercises and other
    plans        |                                                 |                |       |               |   |   | 6,047    |       
|                                                                   |                                                 |                |        |               |   |   |          |       
|Balance at December 31, 2003                                       |                                                 |                | (3,377 | )             |   |   | (18,073  | )     
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Net income                                                         |                                                 |                |       |               |   |   | 60,565   |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Other comprehensive income (loss) Foreign
    currency translation |                                                 |                | 230    |               |   |   | 230      |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Change in additional minimum pension liability  |                |        | 168           |   |   |          | 168    |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Change in unrealized loss on interest rate swap |                |        | 1,171         |   |   |          | 1,171  |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Income tax expense                              |                |        | (696          | ) |   |          | (696   | )
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Common stock issued                                                |                                                 |                |       |               |   |   | 21,367   |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Noncash stock compensation                                         |                                                 |                |       |               |   |   | 188      |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Common stock repurchased                                           |                                                 |                |       |               |   |   | (25,026  | )     
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Tax benefit from stock option exercises and other
    plans        |                                                 |                |       |               |   |   | 5,486    |       
|                                                                   |                                                 |                |        |               |   |   |          |       
|Balance at December 31, 2004                                       |                                                 |                | (2,504 | )             |   |   | 45,380   |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Net income                                                         |                                                 |                |       |               |   |   | 67,308   |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Other comprehensive income (loss) Foreign
    currency translation |                                                 |                | (341   | )             |   |   | (341     | )     
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Change in additional minimum pension liability  |                |        | (1,124        | ) |   |          | (1,124 | )
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Income tax benefit                              |                |        | 552           |   |   |          | 552    |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Dividends declared                                                 |                                                 |                |       |               |   |   | (12,457  | )     
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Common stock issued                                                |                                                 |                |       |               |   |   | 26,607   |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Noncash stock compensation                                         |                                                 |                |       |               |   |   | 426      |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Common stock repurchased                                           |                                                 |                |       |               |   |   | (39,976  | )     
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Tax benefit from stock option exercises and other
    plans        |                                                 |                |       |               |   |   | 5,979    |       
|                                                                   |                                                 |                |        |               |   |   |          |       
|Balance at December 31, 2005                                       |                                                 | $              | (3,417 | )             |   | $ | 92,354   |       
|                                                                   |                                                 |                |        |               |   |   |          |       

See accompanying notes to consolidated financial statements.

53



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##### Table of Contents



ARBITRON INC.



Consolidated Statements of Comprehensive Income


Years Ended December 31, 2005, 2004, and 2003


(In thousands)


|                                                                                                     |  |      |        |      |  |      |        |  |  |   |        |  
|---------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | -
|                                                                                                     |  | 2005 |        | 2004 |  | 2003
|                                                                                                     |  |      |        |      |  |     
|Net income                                                                                           |  | $    | 67,308 |      |  | $    | 60,565 |  |  | $ | 49,873 |  
|Other comprehensive (loss) income, net of tax                                                        |  |      |        |      |  |      |        |  |  |   |        |  
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Foreign currency translation adjustment, net of
    tax benefit of $131, $183, and $, respectively  |  |      | (210   | )    |  |      | 47     |  |  |   | 306    |  
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Fair value of interest rate swap, net of tax
    expense of $, $(449), and $(1,173), respectively   |  |      |       |      |  |      | 722    |  |  |   | 1,952  |  
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Minimum pension liabilities, net of tax benefit
    (expense) of $421, $(64), and $668, respectively |  |      | (703   | )    |  |      | 104    |  |  |   | (1,012 | )
|                                                                                                     |  |      |        |      |  |      |        |  |  |   |        |  
|Other comprehensive (loss) income                                                                    |  |      | (913   | )    |  |      | 873    |  |  |   | 1,246  |  
|                                                                                                     |  |      |        |      |  |      |        |  |  |   |        |  
|Comprehensive income                                                                                 |  | $    | 66,395 |      |  | $    | 61,438 |  |  | $ | 51,119 |  
|                                                                                                     |  |      |        |      |  |      |        |  |  |   |        |  

See accompanying notes to consolidated financial statements.

54



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##### Table of Contents



ARBITRON INC.



Consolidated Statements of Cash Flows


Years Ended December 31, 2005, 2004 and 2003


(In thousands)


|                                                                 |                                                                                      |                                                                                             |                                               |          |          |        |        |         |         |        |        |         |         |       |  
|---------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------- | --------------------------------------------- | -------- | -------- | ------ | ------ | ------- | ------- | ------ | ------ | ------- | ------- | ----- | -
|                                                                 |                                                                                      | 2005                                                                                        |                                               | 2004     |          | 2003  
|                                                                 |                                                                                      |                                                                                             |                                               |          |          |       
|Cash flows from operating activities                             |                                                                                      |                                                                                             |                                               |          |          |        |        |         |         |        |        |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Net income                                                                           |                                                                                             | $                                             | 67,308   |          |        | $      | 60,565  |         |        | $      | 49,873  |        
|                                                                 | Adjustments to reconcile net income to net cash
    provided by operating activities |                                                                                             |                                               |          |          |        |        |         |         |        |        |         |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                                                                      | Depreciation and amortization of property and
    equipment                                 |                                               |          | 4,162    |        |        |         | 4,334   |        |        |         | 3,953   |      
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                                                                      | Amortization of intangible assets                                                           |                                               |          | 1,657    |        |        |         | 1,388   |        |        |         | 884     |      
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                                                                      | Loss on asset disposals                                                                     |                                               |          | 347      |        |        |         | 541     |        |        |         | 434     |      
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                                                                      | Asset impairment charges                                                                    |                                               |          |         |        |        |         | 328     |        |        |         | 178     |      
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                                                                      | Deferred income taxes                                                                       |                                               |          | 1,326    |        |        |         | 22,748  |        |        |         | (1,935  | )    
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                                                                      | Equity in net income of affiliate                                                           |                                               |          | (7,829   | )      |        |         | (7,552  | )      |        |         | (6,754  | )    
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                                                                      | Distributions from affiliate                                                                |                                               |          | 7,000    |        |        |         | 6,375   |        |        |         | 6,050   |      
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                                                                      | Bad debt expense                                                                            |                                               |          | 426      |        |        |         | 305     |        |        |         | 324     |      
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                                                                      | Tax benefit from stock option exercises                                                     |                                               |          | 5,979    |        |        |         | 5,486   |        |        |         | 6,047   |      
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                                                                      | Non-cash stock compensation                                                                 |                                               |          | 426      |        |        |         | 188     |        |        |         |        |      
|                                                                 |                                                                                      | Changes in operating assets and liabilities,
    excluding effects of business acquisitions |                                               |          |          |        |        |         |         |        |        |         |         |      
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                                                                      |                                                                                             | Trade accounts receivable                     |          |          | (4,982 | )      |         |         | (1,231 | )      |         |         | (999  | )
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                                                                      |                                                                                             | Prepaid expenses and other assets             |          |          | (522   | )      |         |         | 490    |        |         |         | 471   |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                                                                      |                                                                                             | Accounts payable                              |          |          | 2,054  |        |         |         | 42     |        |         |         | 757   |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                                                                      |                                                                                             | Accrued expense and other current liabilities |          |          | (2,853 | )      |         |         | 2,721  |        |         |         | 3,276 |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                                                                      |                                                                                             | Deferred revenue                              |          |          | 2,827  |        |         |         | 705    |        |         |         | 3,614 |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                                                                      |                                                                                             | Other noncurrent liabilities                  |          |          | 56     |        |         |         | 649    |        |         |         | (818  | )
|                                                                 |                                                                                      |                                                                                             |                                               |          |          |        |        |         |         |        |        |        
|                                                                 |                                                                                      | Net cash provided by operating activities                                                   |                                               |          | 77,382   |        |        |         | 98,082  |        |        |         | 65,355  |      
|                                                                 |                                                                                      |                                                                                             |                                               |          |          |        |        |         |         |        |        |        
|Cash flows from investing activities                             |                                                                                      |                                                                                             |                                               |          |          |        |        |         |         |        |        |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Additions to property and equipment                                                  |                                                                                             |                                               | (15,615  | )        |        |        | (10,164 | )       |        |        | (5,350  | )      
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Purchases of short-term investments                                                  |                                                                                             |                                               | (224,070 | )        |        |        |        |         |        |        |        |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Proceeds from sales of short-term investments                                        |                                                                                             |                                               | 141,510  |          |        |        |        |         |        |        |        |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Payments for business acquisitions                                                   |                                                                                             |                                               | (4,176   | )        |        |        | (8,928  | )       |        |        |        |        
|                                                                 |                                                                                      |                                                                                             |                                               |          |          |        |        |         |         |        |        |        
|                                                                 |                                                                                      | Net cash used in investing activities                                                       |                                               |          | (102,351 | )      |        |         | (19,092 | )      |        |         | (5,350  | )    
|                                                                 |                                                                                      |                                                                                             |                                               |          |          |        |        |         |         |        |        |        
|Cash flows from financing activities                             |                                                                                      |                                                                                             |                                               |          |          |        |        |         |         |        |        |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Proceeds from stock option exercises and stock
    purchase plan                     |                                                                                             |                                               | 28,549   |          |        |        | 19,287  |         |        |        | 25,051  |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Stock repurchases                                                                    |                                                                                             |                                               | (39,976  | )        |        |        | (25,026 | )       |        |        |        |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Dividends paid to stockholders                                                       |                                                                                             |                                               | (9,358   | )        |        |        |        |         |        |        |        |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Payment of long-term debt                                                            |                                                                                             |                                               |         |          |        |        | (55,000 | )       |        |        | (60,000 | )      
|                                                                 |                                                                                      |                                                                                             |                                               |          |          |        |        |         |         |        |        |        
|                                                                 |                                                                                      | Net cash used in financing activities                                                       |                                               |          | (20,785  | )      |        |         | (60,739 | )      |        |         | (34,949 | )    
|                                                                 |                                                                                      |                                                                                             |                                               |          |          |        |        |         |         |        |        |        
|Effect of exchange rate changes on cash and cash
    equivalents |                                                                                      |                                                                                             | (299                                          | )        |          |        | 217    |         |         |        | 282    |        
|                                                                 |                                                                                      |                                                                                             |                                               |          |          |        |        |         |         |        |        |        
|Net (decrease) increase in cash and cash
    equivalents         |                                                                                      |                                                                                             | (46,053                                       | )        |          |        | 18,468 |         |         |        | 25,338 |        
|                                                                
|                                                                
|                                                                
|                                                                
|Cash and cash equivalents at beginning of year                   |                                                                                      |                                                                                             | 86,901                                        |          |          |        | 68,433 |         |         |        | 43,095 |        
|                                                                 |                                                                                      |                                                                                             |                                               |          |          |        |        |         |         |        |        |        
|Cash and cash equivalents at end of year                         |                                                                                      | $                                                                                           | 40,848                                        |          |          | $      | 86,901 |         |         | $      | 68,433 |        
|                                                                 |                                                                                      |                                                                                             |                                               |          |          |        |        |         |         |        |        |        

See accompanying notes to consolidated financial statements.

55



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##### Table of Contents



ARBITRON INC.



Notes to Consolidated Financial Statements




|   |                      
|-- | ---------------------
|1. | Basis of Presentation



| |                       
| | ----------------------
| | Basis of Consolidation

The consolidated financial statements of Arbitron reflect the
consolidated financial position, results of operations and cash
flows of Arbitron Inc. and its subsidiaries: Arbitron Holdings
Inc., Audience Research Bureau S.A. de C.V., Ceridian Infotech
(India) Private Limited, CSW Research Limited and Euro Fieldwork
Limited. All significant intercompany balances and transactions
have been eliminated in consolidation.



| |                        
| | -----------------------
| | Description of Business

Arbitron Inc. (Arbitron or the Company)
is an international media and marketing research firm primarily
serving radio, cable, advertising agencies, advertisers, outdoor
and out-of-home media and, through its Scarborough joint
venture, broadcast television and print media.

Arbitron currently has four main services: measuring radio
audiences in local markets in the United States and Mexico;
measuring national radio audiences and the audience size of
network radio programs and commercials in the United States;
providing application software used for accessing and analyzing
media audience and marketing information data; and providing
consumer and media usage information services to radio, cable,
retailers, advertising agencies, advertisers, outdoor and
out-of-home media, online industries and, through its
Scarborough joint venture, broadcast television and print media.



|   |                                           
|-- | ------------------------------------------
|2. | Summary of Significant Accounting Policies



| |                    
| | -------------------
| | Revenue Recognition

Syndicated or recurring products and services are licensed on a
contractual basis. Revenues for such products and services are
recognized over the term of the license agreement as products or
services are delivered. Customer billings in advance of delivery
are recorded as deferred revenue in the accompanying
consolidated balance sheets. Deferred revenue relates primarily
to quantitative radio measurement surveys which are delivered to
customers in the quarter following the respective year-end.
Software revenue is recognized ratably over the life of the
agreement in accordance with Statement of Position 97-2,
Software Revenue Recognition. Customer agreements with
multiple licenses are reviewed for separation under the
provisions of EITF No. 00-1 Accounting for Revenue
Arrangements with Multiple Deliverables.



| |                    
| | -------------------
| | Expense Recognition

Direct costs associated with the Companys data collection
and diary processing are recognized when incurred and are
included in cost of revenue. Research and development expenses
consist primarily of expenses associated with the development of
new products and customer software and other technical expenses
including maintenance of legacy operations and reporting systems.



| |                 
| | ----------------
| | Cash Equivalents

Cash equivalents consist primarily of highly liquid investments
with insignificant interest rate risk and original maturities of
three months or less.



| |                                                    
| | ---------------------------------------------------
| | Short-term Investments and Receivables from Brokers

Short-term investments as of December 31, 2005 consisted of
municipal and other government-issued variable rate demand notes
recorded by the Company at fair value. These investments are
classified as available-for-sale securities, which in accordance
with Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities
(SFAS No. 115), are stated at fair value.
Under SFAS 115, unrealized gains and temporary losses for
available-for-sale

56



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##### Table of Contents



ARBITRON INC.


Notes to Consolidated Financial
Statements  (Continued)

securities are to be reported in accumulated other comprehensive
income (loss) and realized gains and losses on settled trades
are to be recognized in earnings. Because the Companys
short-term investments are traded at par, the amount of realized
gains and losses included in earnings is zero. Due to the
short-term duration of these investments, there is no change in
fair value subsequent to the record date of purchase and
therefore, the amount of unrealized gain and loss recorded in
accumulated other comprehensive income (loss) is zero.

Purchases and sales of these short-term investments consisted of
the buying and selling of variable rate demand notes and auction
rate securities. These investments are investment grade, highly
liquid securities. The Company conducts these transactions
through various financial institutions which are evaluated for
their credit quality.

Receivables from brokers are recognized for the amount of
unsettled sales of these securities pending the receipt of the
related proceeds in the subsequent reporting period.



| |                          
| | -------------------------
| | Trade Accounts Receivable

Trade accounts receivable are recorded at invoiced amounts. The
allowance of doubtful accounts is estimated based on historical
trends of past due accounts and write-offs.



| |                       
| | ----------------------
| | Property and Equipment

Property and equipment are recorded at cost and depreciated or
amortized on a straight-line basis over the estimated useful
lives of the assets, which are as follows:

|                                         |  |  |                                         | 
|---------------------------------------- |  |  | --------------------------------------- | 
|                                        
|                                        
|                                        
|                                        
|Computer equipment                       |  |  | 3 years                                 | 
|                                        
|                                        
|                                        
|                                        
|Purchased software and development costs |  |  | 3  5 years                             | 
|                                        
|                                        
|                                        
|                                        
|Leasehold improvements                   |  |  | Shorter of useful life or life of lease | 
|                                        
|                                        
|                                        
|                                        
|Machinery, furniture and fixtures        |  |  | 3  6 years                             | 

Repairs and maintenance are charged to expense as incurred.
Gains and losses on dispositions are included in the
consolidated results of operations at the date of disposal.

Expenditures for significant software purchases and software
developed for internal use are capitalized. For software
developed for internal use, all external direct costs for
materials and services and certain payroll and related fringe
benefit costs are capitalized in accordance with Statement of
Position 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. The
costs are capitalized from the time that the preliminary project
stage is completed and management considers it probable that the
software will be used to perform the function intended until the
time the software is placed in service for its intended use.
Management performs 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.



| |                        
| | -----------------------
| | Investment in Affiliate

Investment in affiliate is accounted for using the equity method
where the Company has an ownership interest of 50% or less and
the ability to exercise significant influence or has a majority
ownership interest but does not have the ability to exercise
effective control.



| |                               
| | ------------------------------
| | Goodwill and Other Intangibles

Goodwill represents the excess of costs over fair value of
assets of businesses acquired. Goodwill and intangible assets
acquired in a purchase business combination and determined to
have an indefinite useful life are not amortized, but instead
tested for impairment at least annually in accordance with the
provisions of

57



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##### Table of Contents



ARBITRON INC.


Notes to Consolidated Financial
Statements  (Continued)

SFAS No. 142, Goodwill and Other Intangible
Assets, (SFAS No. 142). The Company
performs its annual impairment test at the reporting unit level
as of January 1st for each fiscal year.
SFAS No. 142 also requires that intangible assets with
estimable useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with
SFAS No. 144, Accounting for Impairment or Disposal
of Long-Lived Assets.

Goodwill and intangible assets not subject to amortization are
tested annually for impairment, and are tested for impairment
more frequently if events and circumstances indicate that the
asset might be impaired. An impairment loss is recognized to the
extent that the carrying amount exceeds the assets fair
value.



| |                                
| | -------------------------------
| | Impairment of Long-Lived Assets

Long-lived assets, such as property, plant, and equipment, and
purchased intangibles subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized in the
amount by which the carrying amount of the asset exceeds the
fair value of the asset. Assets to be disposed of would be
separately presented in the balance sheet and reported at the
lower of the carrying amount or fair value less costs to sell,
and would be no longer depreciated. The assets and liabilities
of a disposal group classified as held for sale would be
presented separately in the appropriate asset and liability
sections of the balance sheet.



| |             
| | ------------
| | Income Taxes

Income taxes are accounted for using the asset and liability
method. Deferred tax assets and liabilities are recognized based
on the future tax consequences attributable to differences
between financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rate
is recognized in income in the period that includes the
enactment date.



| |                                                  
| | -------------------------------------------------
| | Pro Forma Disclosures of Stock-Based Compensation

The Company applies the intrinsic-value-based method of
accounting prescribed by Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock
Issued to Employees, (APB No. 25)and
related interpretations including Financial Accounting Standards
Board (FASB) Interpretation No. 44,
Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25,
issued in March 2000, to account for its fixed-plan stock
options. Under this method, compensation expense is recorded on
the date of grant only if the current market price of the
underlying stock exceeds the exercise price of the options. In
the case of issuances of stock awards, compensation expense is
recorded based upon the quoted market value of shares of common
stock on the date of grant. Any resulting compensation expense
is recognized ratably over the vesting period.
SFAS No. 123, Accounting for Stock-Based
Compensation, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation-Transitions and
Disclosure(SFAS No. 123), established
accounting and disclosure requirements using a fair-value-based
method of accounting for stock-based employee compensation
plans. As allowed by SFAS No. 123, the Company has
elected to continue to apply the intrinsic-value-based method of
accounting described above, and has adopted only the disclosure
requirements of SFAS No. 123. The following table
illustrates the effect on net income and

58



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##### Table of Contents



ARBITRON INC.


Notes to Consolidated Financial
Statements  (Continued)

net income per share if the fair-value-based method had been
applied to all outstanding share-based awards in each year
(dollars in thousands, except per share data):

|                                                                                          |                         |      |         |      |   |      |         |      |   |   |         |      |  
|----------------------------------------------------------------------------------------- | ----------------------- | ---- | ------- | ---- | - | ---- | ------- | ---- | - | - | ------- | ---- | -
|                                                                                          |                         | 2005 |         | 2004 |   | 2003
|                                                                                          |                         |      |         |      |   |     
|Net income, as reported                                                                   |                         | $    | 67,308  |      |   | $    | 60,565  |      |   | $ | 49,873  |     
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Add: Nonemployee stock-based compensation
    expense, net of tax                         |                         |      | 263     |      |   |      | 116     |      |   |   |        |     
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Less: Stock-based compensation expense determined
    under fair value method, net of tax |                         |      | 5,537   |      |   |      | 3,042   |      |   |   | 3,168   |     
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Pro forma net income                                                                      |                         | $    | 62,034  |      |   | $    | 57,639  |      |   | $ | 46,705  |     
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Basic net income per weighted average common
    share, as reported                       |                         | $    | 2.16    |      |   | $    | 1.96    |      |   | $ | 1.66    |     
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Pro forma basic net income per weighted average
    common share                          |                         | $    | 1.99    |      |   | $    | 1.86    |      |   | $ | 1.56    |     
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Diluted net income per weighted average common
    share, as reported                     |                         | $    | 2.14    |      |   | $    | 1.92    |      |   | $ | 1.63    |     
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Pro forma diluted net income per weighted average
    common share                        |                         | $    | 1.98    |      |   | $    | 1.83    |      |   | $ | 1.52    |     
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Options granted to employees and directors                                                |                         |      | 591,961 |      |   |      | 485,393 |      |   |   | 585,437 |     
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Weighted-average exercise price                                                           |                         | $    | 40.80   |      |   | $    | 37.96   |      |   | $ | 34.79   |     
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Weighted-average fair value                                                               |                         | $    | 13.72   |      |   | $    | 13.09   |      |   | $ | 7.57    |     
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Weighted-average assumptions:                                                             |                         |      |         |      |   |      |         |      |   |   |         |     
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Expected lives in years |      |         | 6.5  |   |      |         | 6.0  |   |   |         | 4.0  |  
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Expected volatility     |      |         | 28.5 | % |      |         | 27.3 | % |   |         | 23.9 | %
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Expected dividend rate  |      |         | 1    | % |      |         |     |   |   |         |     |  
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Risk-free interest rate |      |         | 3.89 | % |      |         | 3.69 | % |   |         | 2.77 | %



| |                                             
| | --------------------------------------------
| | Net Income per Weighted Average Common Share

The computations of basic and diluted net income per
weighted-average common share for 2005, 2004, and 2003 are based
on Arbitron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. Options totaling 621,148 in 2005, 402,538 in 2004
and 14,084 in 2003, were not included in the computation of
diluted net income per common share because the options
exercise prices exceeded the average market price of the
Companys common stock.



| |                                  
| | ---------------------------------
| | Translation of Foreign Currencies

Financial statements of foreign subsidiaries are translated into
United States dollars at current rates at the end of the period
except that revenue and expenses are translated at average
current exchange rates during each reporting period. Net
translation exchange gains or losses and the effect of exchange
rate changes on intercompany transactions of a long-term nature
are accumulated and charged directly to a separate component of
other comprehensive income and accumulated other comprehensive
loss in stockholders equity. Gains and losses from
translation of assets and liabilities denominated in other than
the functional currency of the operation are recorded in income
as incurred.

59



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##### Table of Contents



ARBITRON INC.


Notes to Consolidated Financial
Statements  (Continued)



| |                    
| | -------------------
| | Advertising Expense

The Company recognizes advertising expense the first time
advertising takes place. Advertising expense for the years ended
December 31, 2005, 2004 and 2003 was $1.9 million,
$1.5 million and $1.9 million, respectively.



| |                     
| | --------------------
| | Accounting Estimates

The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting
period. Significant items subject to such estimates and
assumptions include: valuation allowances for receivables and
deferred income tax assets; loss contingencies; and assets and
obligations related to employee benefits. Actual results could
differ from those estimates.



| |              
| | -------------
| | Legal Matters

The Company is involved, from time to time, in litigation and
proceedings 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.



| |       
| | ------
| | Leases

Arbitron conducts all of its operations in leased facilities and
leases certain equipment which have minimum lease obligations
under noncancelable operating leases. Certain of these leases
contain rent escalations based on specified percentages. Most of
the leases contain renewal options and require payments for
taxes, insurance and maintenance. Rent expense is charged to
operations as incurred except for escalating rents, which are
charged to operations on a straight-line basis over the life of
the lease.



| |                              
| | -----------------------------
| | New Accounting Pronouncements

In December 2004, the FASB enacted SFAS No. 123R,
Share-Based Payment
(SFAS No. 123R) which replaces
SFAS No. 123 and supersedes APB No. 25.
SFAS No. 123R, which is effective January 1,
2006, requires the measurement of share-based payments,
including grants of stock options to employees, using a
fair-value-based method and the recording of such costs in our
consolidated financial statements.

Arbitron is required to adopt SFAS No. 123R in the
first quarter of 2006. The pro forma disclosures noted above,
and previously permitted under SFAS No. 123, no longer
will be an alternative to financial statement recognition. The
Company adopted SFAS No. 123R on January 1, 2006
using the modified prospective method. In accordance with the
modified prospective method, the fair value of all nonvested
share-based payments and any new grants, which will be measured
using the fair-value-based method, will be recognized in the
results of operations. The Company expects that the recognition
requirements under SFAS No. 123R will be reasonably
similar to the fair-value results included in the Companys
pro forma disclosures assuming similar assumptions and stock
prices and a consistent number of stock incentive grants during
2006 as compared to 2005.



|   |                       
|-- | ----------------------
|3. | Short-term Investments

Short-term investments as of December 31, 2005 consisted of
$52.6 million in municipal and other government-issued
variable rate demand notes recorded by the Company at fair
value. All of the Companys short-term investment assets
are classified as available-for-sale securities in accordance
with SFAS 115. There were no short-term investments held as
of December 31, 2004.

60



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##### Table of Contents



ARBITRON INC.


Notes to Consolidated Financial
Statements  (Continued)

For the year ended December 31, 2005, gross purchases of
available-for-sale securities was $224.1 million and gross
sales of available-for-sale securities were $171.5 million,
which includes $141.5 million in proceeds and a
$30.0 million receivable from brokers on unsettled trades
as of December 31, 2005. There were no purchases or sales
of short-term investments in 2004 and 2003.



|   |                        
|-- | -----------------------
|4. | Investment in Affiliate

Investment in affiliate consists of the Companys 49.5%
interest in Scarborough Research (Scarborough), a
syndicated, qualitative local market research partnership, which
is accounted for using the equity method of accounting.

Under the Scarborough partnership agreement, the Company has the
exclusive right to license Scarboroughs services to radio
stations, cable companies, and outdoor media, and a nonexclusive
right to license Scarboroughs services to advertising
agencies and advertisers. The Company pays a royalty fee to
Scarborough based on a percentage of revenues. Royalties of
approximately $21.7 million, $22.8 million and
$19.6 million for 2005, 2004 and 2003, respectively, are
included in cost of revenue in the Companys consolidated
statements of income. Accrued royalties due to Scarborough as of
December 31, 2005 and 2004 of $5.5 million and are
included in accrued expenses and other current liabilities in
the consolidated balance sheets.

Scarboroughs revenue was $55.9 million,
$54.9 million and $49.7 million in 2005, 2004 and
2003, respectively. Scarboroughs total assets and
liabilities were $32.9 million and $2.3 million and
$31.3 million and $2.4 million, as of
December 31, 2005 and 2004, respectively. The
Companys equity in net income of Scarborough was
$7.8 million, $7.6 million and $6.8 million in
2005, 2004 and 2003, respectively. The Company received
distributions from Scarborough in 2005, 2004 and 2003 of
$7.0 million, $6.4 million and $6.1 million,
respectively.



|   |                       
|-- | ----------------------
|5. | Property and Equipment

Property and equipment as of December 31, 2005 and 2004
consist of the following (in thousands):

|                                          |  |      |         |      |  |   |         |  
|----------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                          |  | 2005 |         | 2004
|                                          |  |      |         |     
|Computer equipment                        |  | $    | 9,381   |      |  | $ | 8,519   |  
|                                         
|                                         
|                                         
|                                         
|Purchased software and development costs  |  |      | 22,043  |      |  |   | 14,756  |  
|                                         
|                                         
|                                         
|                                         
|Leasehold improvements                    |  |      | 7,343   |      |  |   | 7,133   |  
|                                         
|                                         
|                                         
|                                         
|Machinery, furniture and fixtures         |  |      | 5,720   |      |  |   | 4,830   |  
|                                         
|                                         
|                                         
|                                         
|Portable People Meter equipment           |  |      | 9,204   |      |  |   | 2,754   |  
|                                          |  |      |         |      |  |   |         |  
|                                          |  |      | 53,691  |      |  |   | 37,992  |  
|                                         
|                                         
|                                         
|                                         
|Accumulated depreciation and amortization |  |      | (22,816 | )    |  |   | (19,456 | )
|                                          |  |      |         |      |  |   |         |  
|Property and equipment, net               |  | $    | 30,875  |      |  | $ | 18,536  |  
|                                          |  |      |         |      |  |   |         |  

Depreciation and amortization expense for 2005, 2004 and 2003
was $4.2 million, $4.3 million and $4.0 million,
respectively. Capitalized interest costs for 2005 and 2004 were
$1.2 million and $0.4 million, respectively.



|   |                                     
|-- | ------------------------------------
|6. | Goodwill and Other Intangible Assets

Under SFAS No. 142, the Company is no longer required
to amortize goodwill. Goodwill is measured for impairment
annually on January 1 under the guidance set forth in the
standard. During 2005, 2004 and 2003,

61



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##### Table of Contents



ARBITRON INC.


Notes to Consolidated Financial
Statements  (Continued)

the Company tested its goodwill in accordance with the standard
and concluded no impairment charge was required.

Intangible assets, which consist primarily of acquired software,
customer lists and noncompete agreements, with finite lives are
being amortized to expense over their estimated useful lives. As
of December 31, 2005, the Companys intangible assets
with finite lives acquired in 2005 had a weighted average useful
life of 8.3 years. As of December 31, 2005, the
Company had no intangible assets with indefinite useful lives.
Amortization expense for intangible assets for 2005, 2004 and
2003 was $1.7 million, $1.4 million and
$0.9 million, respectively. Amortization expense for
intangible assets is estimated to be $1.6 million in 2006,
$0.8 million in 2007, $0.3 million in 2008,
$0.1 million in 2009, $0.1 million in 2010, and
$0.7 million thereafter.

Changes in goodwill for the years ended December 31, 2005
and 2004 were as follows (in thousands):

|                          |  |      |        |      |  |   |        | 
|------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                          |  | 2005 |        | 2004
|                          |  |      |        |     
|Beginning of year balance |  | $    | 37,773 |      |  | $ | 32,937 | 
|                         
|                         
|                         
|                         
|MRP acquisition           |  |      |       |      |  |   | 4,836  | 
|                         
|                         
|                         
|                         
|IRS acquisition           |  |      | 2,785  |      |  |   |       | 
|                          |  |      |        |      |  |   |        | 
|End of year balance       |  | $    | 40,558 |      |  | $ | 37,773 | 
|                          |  |      |        |      |  |   |        | 



|   |                                               
|-- | ----------------------------------------------
|7. | Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities as of
December 31, 2005 and 2004 consist of the following (in
thousands):

|                                   |  |      |        |      |  |   |        | 
|---------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                   |  | 2005 |        | 2004
|                                   |  |      |        |     
|Employee compensation and benefits |  | $    | 18,289 |      |  | $ | 17,307 | 
|                                  
|                                  
|                                  
|                                  
|Federal and state income taxes     |  |      |       |      |  |   | 5,078  | 
|                                  
|                                  
|                                  
|                                  
|Dividend payable                   |  |      | 3,099  |      |  |   |       | 
|                                  
|                                  
|                                  
|                                  
|Royalties due to Scarborough       |  |      | 5,483  |      |  |   | 5,484  | 
|                                  
|                                  
|                                  
|                                  
|Other                              |  |      | 4,252  |      |  |   | 3,086  | 
|                                   |  |      |        |      |  |   |        | 
|                                   |  | $    | 31,123 |      |  | $ | 30,955 | 
|                                   |  |      |        |      |  |   |        | 



|   |                     
|-- | --------------------
|8. | Purchase Acquisition

On September 20, 2005, Arbitron acquired the net assets of
Integrated Radio Systems, L.L.C. (IRS)SM
for $4.6 million, including $0.1 million in
transaction costs. IRS is a provider of software systems that
help radio stations manage their advertising sales process and
automate the daily tasks in a sales department. The IRS
applications combine a customer relationship management system
with scheduling and research applications and with
inventory/pricing management tools. The $4.6 million
purchase price was allocated to $1.8 million in
identifiable intangible assets and tangible net assets and
$2.8 million in goodwill. The purchase price includes a
deferred cash payment of $0.5 million, which is due in
September 2008. Pro forma results as if the IRS acquisition
occurred on January 1, 2004, would not be materially
different than actual results.

On March 11, 2004, Arbitron acquired certain assets of
Marketing Resources Plus from Interactive Market Systems, Inc.,
part of the VNU Media Measurement and Information Group, for
$8.9 million in cash. The $8.9 million purchase price
was allocated as follows: $0.5 million in tangible net
assets, $3.6 million in identifiable intangible assets and
$4.8 million in goodwill.

62



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##### Table of Contents



ARBITRON INC.


Notes to Consolidated Financial
Statements  (Continued)



|   |               
|-- | --------------
|9. | Long-term Debt

On January 31, 2001, the Company entered into a
$225.0 million five-year revolving credit agreement with a
consortium of banks (Credit Facility). In connection
with the Companys spin-off of Ceridian Corporation
(Ceridian) in March 2001, $200.0 million was
drawn on the Credit Facility and distributed to Ceridian. Upon
consummation of the spin-off, the Company issued
$50.0 million of senior-secured-notes due January 31,
2008, and distributed the proceeds to Ceridian.

On September 30, 2004, Arbitron paid the remaining
$25.0 million outstanding under the Credit Facility. On
January 31, 2005, the Credit Facility was terminated at the
request of Arbitron.

Long-term debt as of December 31, 2005 and 2004 consisted
of $50.0 million in senior-secured-notes. The notes bear
interest at a fixed rate of 9.96%. The senior-secured-notes
agreement contains covenants. The agreement also contains a
make-whole provision that applies in the event of early
prepayment of principal. The fair value of the
senior-secured-notes as of December 31, 2005 and 2004 was
$51.8 million and $53.8 million, respectively, and was
estimated using a cash flow valuation model and available market
data for securities with similar maturity dates. Under the terms
of the senior-secured-notes, the Company is required to maintain
certain other financial ratios, in addition to the leverage
ratio, and meet other financial conditions. The
senior-secured-notes limits, among other things, the
Companys ability to buy or sell assets, incur additional
indebtedness, grant or incur liens on its assets, make
investments or acquisitions, repurchase or redeem capital stock
and engage in certain mergers or consolidations. On
June 10, 2005, the senior-secured-notes agreement was
amended. The amendment deleted certain requirements to make
mandatory prepayment offers, amended certain notice
requirements, deleted interest rate hedging obligations, and
eliminated or lessened the restrictions applicable under various
negative covenants, including those relating to, among other
things, acquisitions, the creation of joint ventures, the
payment of dividends and distributions, and capital
expenditures. The Company was in compliance with its covenants
as of December 31, 2005 and December 31, 2004.

If a default occurs under the terms of Arbitrons
senior-secured-notes, the lenders could proceed against the
pledged collateral, which includes a first priority lien on
substantially all of the assets of Arbitron and its domestic
subsidiaries and a pledge of the capital stock of all of its
domestic subsidiaries and of 65% of the capital stock of its
foreign subsidiaries. In addition, a default may result in
higher rates of interest and the inability to obtain additional
financing.

Interest paid in 2005, 2004 and 2003 was $5.0 million,
$7.4 million and $11.8 million, respectively. Non-cash
amortization of deferred financing costs classified as interest
expense in 2005, 2004 and 2003 was $0.2 million,
$0.9 million and $0.6 million, respectively.

The Companys long-term debt based on contractual payment
is due in 2008. As of December 31, 2005, the Company had no
outstanding letters of credit.



|    |                                     
|--- | ------------------------------------
|10. | Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss as of
December 31, 2005 and 2004 were as follows (in thousands):

|                                        |  |      |        |      |  |   |        |  
|--------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                                        |  | 2005 |        | 2004
|                                        |  |      |        |     
|Foreign currency translation adjustment |  | $    | 77     |      |  | $ | 287    |  
|                                       
|                                       
|                                       
|                                       
|Additional minimum pension liability    |  |      | (3,494 | )    |  |   | (2,791 | )
|                                        |  |      |        |      |  |   |        |  
|Accumulated other comprehensive loss    |  | $    | (3,417 | )    |  | $ | (2,504 | )
|                                        |  |      |        |      |  |   |        |  

63



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##### Table of Contents



ARBITRON INC.


Notes to Consolidated Financial
Statements  (Continued)



|    |                              
|--- | -----------------------------
|11. | Commitments and Contingencies



| |       
| | ------
| | Leases

Arbitron conducts all of its operations in leased facilities and
leases certain equipment which have minimum lease obligations
under noncancelable operating leases. Certain of these leases
contain rent escalations based on specified percentages. Most of
the leases contain renewal options and require payments for
taxes, insurance and maintenance. Rent expense is charged to
operations as incurred except for escalating rents, which are
charged to operations on a straight-line basis over the life of
the lease. Rent expense was $9.6 million, $9.1 million
and $8.5 million in 2005, 2004 and 2003, respectively.

Future minimum lease commitments under noncancelable operating
leases having an initial term of more than one year, are as
follows (in thousands):

|           |  |   |        | 
|---------- |  | - | ------ | 
|          
|          
|          
|          
|2006       |  | $ | 8,344  | 
|          
|          
|          
|          
|2007       |  |   | 6,673  | 
|          
|          
|          
|          
|2008       |  |   | 6,418  | 
|          
|          
|          
|          
|2009       |  |   | 6,163  | 
|          
|          
|          
|          
|2010       |  |   | 3,275  | 
|          
|          
|          
|          
|Thereafter |  |   | 6,204  | 
|           |  |   |        | 
|           |  | $ | 37,077 | 
|           |  |   |        | 



| |              
| | -------------
| | Legal Matters

The Company is involved, from time to time, in litigation and
proceedings 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. During
2005, the Pennsylvania Department of Revenue concluded a sales
tax audit and notified the Company of an assessment of
$3.6 million. The Pennsylvania Department of Revenue
reversed its prior audit position, which held that the Company
provides nontaxable services to customers in the Commonwealth,
and, as a result, the Commonwealth intends to collect the taxes
on Arbitrons Pennsylvania sales. The assessment includes
outstanding sales tax of $3.1 million on revenue and
$0.5 million of accumulated interest since 2001.

Currently, the Company is in the appeals process with the
Pennsylvania Commonwealth, requesting a reassessment of the
proposed tax liability. The Company contends that it continues
to provide non-taxable services to its Pennsylvania customers
and intends to vigorously defend this position during the
appeals process. Although the Company anticipates a successful
outcome; it cannot guarantee that a favorable settlement will
occur. Given the nature of this uncertainty, no loss has been
recognized as of December 31, 2005.



|    |             
|--- | ------------
|12. | Income Taxes

The provision for income taxes is based on income recognized for
consolidated financial statement purposes and includes the
effects of permanent and temporary differences between such
income and income recognized for income tax return purposes. As
a result of the spin-off, deferred tax assets consisting of net
operating loss and credit carryforwards were transferred from
Ceridian to Arbitron, along with temporary differences related
to the Arbitron business. The net operating loss carryforwards
will expire in varying amounts from 2006 to 2025.

64



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##### Table of Contents



ARBITRON INC.


Notes to Consolidated Financial
Statements  (Continued)

The components of income before income tax expense and a
reconciliation of the statutory federal income tax rate to the
income tax rate on income before income tax expense for the
years ended December 31, 2005, 2004 and 2003 are as follows
(dollars in thousands):

|                                                |                    |                                  |        |         |        |      |        |        |        |   |        |        |        |  
|----------------------------------------------- | ------------------ | -------------------------------- | ------ | ------- | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | -
|                                                |                    | 2005                             |        | 2004    |        | 2003
|                                                |                    |                                  |        |         |        |     
|Income before income tax expense:               |                    |                                  |        |         |        |      |        |        |        |   |        |       
|                                               
|                                               
|                                               
|                                               
|                                                | U.S.               |                                  | $      | 100,575 |        |      | $      | 91,469 |        |   | $      | 80,357 |       
|                                               
|                                               
|                                               
|                                               
|                                                | International      |                                  |        | (18     | )      |      |        | 157    |        |   |        | 737    |       
|                                                |                    |                                  |        |         |        |      |        |        |        |   |        |       
|                                                | Total              |                                  | $      | 100,557 |        |      | $      | 91,626 |        |   | $      | 81,094 |       
|                                                |                    |                                  |        |         |        |      |        |        |        |   |        |       
|Income tax expense:                             |                    |                                  |        |         |        |      |        |        |        |   |        |       
|                                               
|                                               
|                                               
|                                               
|                                                | Current:           |                                  |        |         |        |      |        |        |        |   |        |        |       
|                                               
|                                               
|                                               
|                                               
|                                                |                    | U.S.                             |        | $       | 30,841 |      |        | $      | 10,553 |   |        | $      | 28,925 |  
|                                               
|                                               
|                                               
|                                               
|                                                |                    | State, local and foreign         |        |         | 1,082  |      |        |        | (2,240 | ) |        |        | 4,231  |  
|                                                |                    |                                  |        |         |        |      |        |        |        |   |        |       
|                                                |                    |                                  | 31,923 |         |        |      | 8,313  |        |        |   | 33,156 |       
|                                                |                    |                                  |        |         |        |      |        |        |        |   |        |       
|                                                | Deferred:          |                                  |        |         |        |      |        |        |        |   |        |        |       
|                                               
|                                               
|                                               
|                                               
|                                                |                    | U.S.                             |        |         | (975   | )    |        |        | 18,455 |   |        |        | (1,729 | )
|                                               
|                                               
|                                               
|                                               
|                                                |                    | State, local and foreign         |        |         | 3,231  |      |        |        | 6,500  |   |        |        | (206   | )
|                                               
|                                               
|                                               
|                                               
|                                                |                    | Reduction in valuation allowance |        |         | (930   | )    |        |        | (2,207 | ) |        |        |       |  
|                                                |                    |                                  |        |         |        |      |        |        |        |   |        |       
|                                                |                    | Total                            |        |         | 1,326  |      |        |        | 22,748 |   |        |        | (1,935 | )
|                                                |                    |                                  |        |         |        |      |        |        |        |   |        |       
|                                                |                    | $                                | 33,249 |         |        | $    | 31,061 |        |        | $ | 31,221 |       
|                                                |                    |                                  |        |         |        |      |        |        |        |   |        |       
|U.S. statutory rate                             |                    |                                  | 35.0   | %       |        |      | 35.0   | %      |        |   | 35.0   | %     
|                                                |                    |                                  |        |         |        |      |        |        |        |   |        |       
|Income tax expense at U.S. statutory rate       |                    | $                                | 35,196 |         |        | $    | 32,069 |        |        | $ | 28,383 |       
|                                               
|                                               
|                                               
|                                               
|State income taxes, net of federal benefit      |                    |                                  | 3,208  |         |        |      | 2,769  |        |        |   | 2,616  |       
|                                               
|                                               
|                                               
|                                               
|Tax-exempt interest income                      |                    |                                  | (524   | )       |        |      |       |        |        |   |       |       
|                                               
|                                               
|                                               
|                                               
|Meals and entertainment                         |                    |                                  | 264    |         |        |      | 295    |        |        |   | 261    |       
|                                               
|                                               
|                                               
|                                               
|Reduction in valuation allowance for State NOLs |                    |                                  | (930   | )       |        |      | (2,207 | )      |        |   |       |       
|                                               
|                                               
|                                               
|                                               
|Adjustments to tax liabilities                  |                    |                                  | (3,854 | )       |        |      | (1,718 | )      |        |   |       |       
|                                               
|                                               
|                                               
|                                               
|Other                                           |                    |                                  | (111   | )       |        |      | (147   | )      |        |   | (39    | )     
|                                                |                    |                                  |        |         |        |      |        |        |        |   |        |       
|                                                | Income tax expense |                                  | $      | 33,249  |        |      | $      | 31,061 |        |   | $      | 31,221 |       
|                                                |                    |                                  |        |         |        |      |        |        |        |   |        |       
|Effective tax rate                              |                    |                                  | 33.1   | %       |        |      | 33.9   | %      |        |   | 38.5   | %     
|                                                |                    |                                  |        |         |        |      |        |        |        |   |        |       

The effective tax rate was 33.1% for the year ended
December 31, 2005. During 2005, certain liabilities for tax
contingencies related to prior periods were reversed due to the
settlement and completion of certain income tax audits and
returns and the expiration of audit statues. Also, the valuation
allowance on certain deferred tax assets was reduced to reflect
the estimated future benefit of utilizing state net operating
loss carryforwards in certain states. The net benefit of these
changes and other items was $4.7 million in 2005. The
effective tax rate of 33.9% in 2004 reflected a net benefit of
$4.2 million primarily due to changes in liabilities for
tax contingencies and a change in the valuation allowance
related to state net operating loss carryforwards. The effective
tax rate decreased in 2005 primarily due to the Companys
tax benefit for investments in tax-exempt securities made during
the year.

65



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##### Table of Contents



ARBITRON INC.


Notes to Consolidated Financial
Statements  (Continued)

As the Company is subject to federal and state audits throughout
the normal course of operations, losses for tax contingencies
are recognized for unasserted contingent claims when such
matters are probable and reasonably estimable.

Pursuant to an Internal Revenue Service Revenue Procedure issued
during the second quarter of 2004, the Company changed its tax
method of accounting for advanced customer payments. Primarily
as a result of the method change, income taxes of approximately
$21.8 million paid in 2003 were applied toward the
Companys 2004 tax liability, and the deferred tax assets
no longer include a temporary difference for deferred revenue.

Temporary differences and the resulting deferred income tax
assets as of December 31, 2005 and 2004 were as follows (in
thousands):

|                          |                                            |      |        |        |   |   |        |        |  
|------------------------- | ------------------------------------------ | ---- | ------ | ------ | - | - | ------ | ------ | -
|                          |                                            | 2005 |        | 2004  
|                          |                                            |      |        |       
|Deferred tax assets:      |                                            |      |        |        |   |   |        |       
|                         
|                         
|                         
|                         
|                          | Alternative minimum pension liability      |      | $      | 2,113  |   |   | $      | 1,568  |  
|                         
|                         
|                         
|                         
|                          | Depreciation                               |      |        | 1,126  |   |   |        | 752    |  
|                         
|                         
|                         
|                         
|                          | Accruals                                   |      |        | 6,155  |   |   |        | 3,335  |  
|                         
|                         
|                         
|                         
|                          | Net operating loss carryforwards           |      |        | 3,824  |   |   |        | 6,273  |  
|                         
|                         
|                         
|                         
|                          | Other                                      |      |        | 390    |   |   |        | 615    |  
|                          |                                            |      |        |        |   |   |        |       
|                          |                                            |      | 13,608 |        |   |   | 12,543 |       
|                         
|                         
|                         
|                         
|                          | Less valuation allowance                   |      |        | (264   | ) |   |        | (1,194 | )
|                          |                                            |      |        |        |   |   |        |       
|                          | Total deferred tax assets                  |      |        | 13,344 |   |   |        | 11,349 |  
|                         
|                         
|                         
|                         
|Deferred tax liabilities: |                                            |      |        |        |   |   |        |       
|                         
|                         
|                         
|                         
|                          | Goodwill and other intangible amortization |      | $      | (4,200 | ) |   | $      | (3,078 | )
|                         
|                         
|                         
|                         
|                          | Defined benefit pension liability          |      |        | (1,308 | ) |   |        |        |  
|                         
|                         
|                         
|                         
|                          | Other                                      |      |        | (1,222 | ) |   |        | (884   | )
|                          |                                            |      |        |        |   |   |        |       
|                          | Total deferred tax liabilities             |      |        | (6,730 | ) |   |        | (3,962 | )
|                          |                                            |      |        |        |   |   |        |       
|Net deferred tax assets   |                                            | $    | 6,614  |        |   | $ | 7,387  |       
|                          |                                            |      |        |        |   |   |        |       

In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that
some portion or all of the deferred tax assets will be realized.
The ultimate realization of the deferred tax assets is dependent
upon the generation of future taxable income during periods in
which the temporary differences become deductible and before tax
credits or net operating loss carryforwards expire. Management
considered historical results of Arbitron during the previous
three years and projected future taxable income and determined
that a valuation allowance of $0.3 million and
$1.2 million was required as of December 31, 2005 and
2004, respectively, for state net operating loss carryforwards.

Income taxes paid in 2005 and 2004 were $31.4 million and
$5.6 million, respectively.



|    |                 
|--- | ----------------
|13. | Retirement Plans



| |                 
| | ----------------
| | Pension Benefits

Arbitrons United States employees participate in a defined
benefit pension plan that closed to new participants effective
January 1, 1995. Benefits under the plan for most eligible
employees are calculated using the final five year average
salary of the employee. Employees participate in this plan by
means of salary reduction contributions. Retirement plan funding
amounts are based on independent consulting actuaries
determination of the Employee Retirement Income Security Act of
1974 funding requirements.

66



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##### Table of Contents



ARBITRON INC.


Notes to Consolidated Financial
Statements  (Continued)

The Companys discount rate on its actuarially determined
benefit obligations is 5.5% as of December 31, 2005. The
discount rate was determined using Moodys AA Corporate
bond yields, which closely approximated the duration of the
Companys benefit obligation. Due primarily to a drop in
the discount rate and the effect of the plans investment
experience as of the September 30, 2005 and 2004
measurement dates on the valuation of plan assets, the accrued
benefit obligation of the plan exceeded the fair value of plan
assets. Pension expense was $1.3 million, $1.2 million
and $1.0 million for 2005, 2004 and 2003, respectively. The
Companys pension obligations exceeded plan assets by
$5.2 million and $5.1 million as of September 30,
2005 and 2004, respectively.

The Companys overall expected long-term rate of return on
assets is 8.0%. Arbitron employs a total return investment
approach whereby a mix of equities and fixed income investments
is used to maximize the long-term return of plan assets for a
prudent level of risk. The intent of this strategy is to
minimize plan expenses by outperforming plan liabilities over
the long run. Risk tolerance is established through careful
consideration of plan liabilities, plan funded status, and
corporate financial condition. The investment portfolio contains
a diversified blend of equity and fixed income investments.
Furthermore, equity investments are diversified across U.S. and
non-U.S. stocks as well as growth and value stocks.
Investment risk is measured and monitored on an ongoing basis
through annual liability measurements, periodic asset/liability
studies and periodic investment performance reviews.

Arbitrons pension plan weighted-average asset allocations
as of September 30, 2005 and 2004, by asset category were
as follows:

|                          |       |                |    |      |   |  |    |     |  
|------------------------- | ----- | -------------- | -- | ---- | - |  | -- | --- | -
|                          |       |               
|                          |       | Plan Assets as
|                          |       | of            
|                          |       | September 30, 
|                          |       |               
|Asset Category            |       | 2005           |    | 2004
|                          |       |                |    |     
|Equity securities         |       |                | 59 | %    |   |  | 59 | %  
|                         
|                         
|                         
|                         
|Debt securities           |       |                | 40 | %    |   |  | 39 | %  
|                         
|                         
|                         
|                         
|Cash and cash equivalents |       |                | 1  | %    |   |  | 2  | %  
|                          |       |                |    |      |   |  |    |    
|                          | Total |                |    | 100  | % |  |    | 100 | %
|                          |       |                |    |      |   |  |    |    

Arbitrons investment strategy is to diversify assets so
that adverse results from one asset or asset class will not have
an unduly detrimental effect on the entire portfolio.
Diversification includes by type, by characteristic, and by
number of investments, as well as by investment style of
management organization. Cash held and intended to pay benefits
is considered to be a residual asset in the asset mix, and
therefore, compliance with the ranges and targets specified
shall be calculated excluding such assets. Assets of the plan do
not include securities issued by Arbitron. The target allocation
for each asset class is 60% equity securities and 40% debt
securities.

Arbitrons estimate for contributions to be paid in 2006 is
$2.0 million. The expected benefit payments are as follows
(in thousands):

|          |  |   |        | 
|--------- |  | - | ------ | 
|         
|         
|         
|         
|2006      |  | $ | 1,279  | 
|         
|         
|         
|         
|2007      |  |   | 1,583  | 
|         
|         
|         
|         
|2008      |  |   | 1,604  | 
|         
|         
|         
|         
|2009      |  |   | 1,769  | 
|         
|         
|         
|         
|2010      |  |   | 1,870  | 
|         
|         
|         
|         
|2011-2015 |  |   | 10,506 | 
|          |  |   |        | 
|          |  | $ | 18,611 | 
|          |  |   |        | 

67



---



##### Table of Contents



ARBITRON INC.


Notes to Consolidated Financial
Statements  (Continued)

The funded status of the plan as of the measurement dates of
September 30, 2005 and 2004, and change in funded status
for the annual period ended September 30, 2005 and 2004 are
shown in the accompanying table, along with the net periodic
pension cost and assumptions used in calculations.



| |                        
| | -----------------------
| | Postretirement Benefits

Arbitron provides health care benefits for eligible retired
employees who participate in the pension plan and were hired
before January 1, 1992. These postretirement benefits are
provided by several health care plans in the United States for
both pre-age 65 retirees and certain grandfathered
post-age 65 retirees. Employer contributions to these plans
differ for various groups of retirees and future retirees.
Employees hired before January 1, 1992 and retiring after
that date may enroll in plans for which a company subsidy is
provided through age 64. Assets of the plans do not include
securities issued by Arbitron.

The Companys postretirement benefit liability was
$0.8 million and $0.7 million, as of December 31,
2005 and 2004, respectively. The Companys postretirement
benefit expense was $0.1 million in each of the years ended
December 31, 2005, 2004, and 2003. The plan is unfunded.

Arbitron does not expect to make contributions in 2006. The
expected benefit payments are as follows (in thousands):

|          |  |   |     | 
|--------- |  | - | --- | 
|         
|         
|         
|         
|2006      |  | $ | 24  | 
|         
|         
|         
|         
|2007      |  |   | 40  | 
|         
|         
|         
|         
|2008      |  |   | 53  | 
|         
|         
|         
|         
|2009      |  |   | 66  | 
|         
|         
|         
|         
|2010      |  |   | 77  | 
|         
|         
|         
|         
|2011-2015 |  |   | 475 | 
|          |  |   |     | 
|          |  | $ | 735 | 
|          |  |   |     | 

68



---



##### Table of Contents



ARBITRON INC.


Notes to Consolidated Financial
Statements  (Continued)

The accompanying table presents the balances of and changes in
the aggregate benefit obligation as of the measurement dates of
September 30, 2005 and 2004, and the components of net
periodic postretirement benefit cost.

|                                                   |  |                        |        |                     |  |      |        |      |  |   |        |   |  |   |        |  
|-------------------------------------------------- |  | ---------------------- | ------ | ------------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                   |  |                        |        |                     |  |     
|                                                   |  | Defined Benefit        |        |                    
|                                                   |  | Pension Plan           |        | Postretirement Plan
|                                                   |  | September 30,          |        | September 30,      
|                                                   |  |                        |        |                    
|                                                   |  | 2005                   |        | 2004                |  | 2005 |        | 2004
|                                                   |  |                        |        |                     |  |      |        |     
|                                                   |  |                       
|                                                   |  | (Dollars in thousands)
|                                                  
|                                                  
|                                                  
|                                                  
|Change in benefit obligation during the
    period |  |                        |        |                     |  |      |        |      |  |   |        |   |  |   |        |  
|                                                  
|                                                  
|                                                  
|                                                  
|At beginning of period                             |  | $                      | 25,658 |                     |  | $    | 22,330 |      |  | $ | 1,338  |   |  | $ | 802    |  
|                                                  
|                                                  
|                                                  
|                                                  
|Service cost                                       |  |                        | 809    |                     |  |      | 742    |      |  |   | 36     |   |  |   | 31     |  
|                                                  
|                                                  
|                                                  
|                                                  
|Interest cost                                      |  |                        | 1,549  |                     |  |      | 1,415  |      |  |   | 73     |   |  |   | 63     |  
|                                                  
|                                                  
|                                                  
|                                                  
|Plan participants contributions                   |  |                        | 364    |                     |  |      | 343    |      |  |   | 13     |   |  |   | 7      |  
|                                                  
|                                                  
|                                                  
|                                                  
|Actuarial loss (gain)                              |  |                        | 2,448  |                     |  |      | 1,222  |      |  |   | (253   | ) |  |   | 451    |  
|                                                  
|                                                  
|                                                  
|                                                  
|Benefits paid                                      |  |                        | (542   | )                   |  |      | (394   | )    |  |   | (48    | ) |  |   | (16    | )
|                                                   |  |                        |        |                     |  |      |        |      |  |   |        |   |  |   |        |  
|At end of period                                   |  | $                      | 30,286 |                     |  | $    | 25,658 |      |  | $ | 1,159  |   |  | $ | 1,338  |  
|                                                   |  |                        |        |                     |  |      |        |      |  |   |        |   |  |   |        |  
|Change in fair value of plan assets                |  |                        |        |                     |  |      |        |      |  |   |        |   |  |   |        |  
|                                                  
|                                                  
|                                                  
|                                                  
|At beginning of period                             |  | $                      | 20,597 |                     |  | $    | 17,630 |      |  | $ |       |   |  | $ |       |  
|                                                  
|                                                  
|                                                  
|                                                  
|Actual return on plan assets                       |  |                        | 2,197  |                     |  |      | 1,940  |      |  |   |       |   |  |   |       |  
|                                                  
|                                                  
|                                                  
|                                                  
|Employer contribution                              |  |                        | 2,508  |                     |  |      | 1,078  |      |  |   | 35     |   |  |   | 9      |  
|                                                  
|                                                  
|                                                  
|                                                  
|Plan participants contributions                   |  |                        | 364    |                     |  |      | 343    |      |  |   | 13     |   |  |   | 7      |  
|                                                  
|                                                  
|                                                  
|                                                  
|Benefits paid                                      |  |                        | (542   | )                   |  |      | (394   | )    |  |   | (48    | ) |  |   | (16    | )
|                                                   |  |                        |        |                     |  |      |        |      |  |   |        |   |  |   |        |  
|At end of period                                   |  | $                      | 25,124 |                     |  | $    | 20,597 |      |  | $ |       |   |  | $ |       |  
|                                                   |  |                        |        |                     |  |      |        |      |  |   |        |   |  |   |        |  
|Funded status of plan                              |  |                        |        |                     |  |      |        |      |  |   |        |   |  |   |        |  
|                                                  
|                                                  
|                                                  
|                                                  
|Funded status                                      |  | $                      | (5,162 | )                   |  | $    | (5,061 | )    |  | $ | (1,159 | ) |  | $ | (1,338 | )
|                                                  
|                                                  
|                                                  
|                                                  
|Unrecognized net actuarial loss                    |  |                        | 9,756  |                     |  |      | 8,390  |      |  |   | 331    |   |  |   | 616    |  
|                                                  
|                                                  
|                                                  
|                                                  
|Unrecognized prior service cost                    |  |                        | 94     |                     |  |      | 116    |      |  |   |       |   |  |   |       |  
|                                                  
|                                                  
|                                                  
|                                                  
|Fourth quarter participant contributions           |  |                        |       |                     |  |      |       |      |  |   | 3      |   |  |   | 19     |  
|                                                  
|                                                  
|                                                  
|                                                  
|Intangible asset                                   |  |                        | (94    | )                   |  |      | (116   | )    |  |   |       |   |  |   |       |  
|                                                  
|                                                  
|                                                  
|                                                  
|Amount included in comprehensive income            |  |                        | (5,459 | )                   |  |      | (4,527 | )    |  |   |       |   |  |   |       |  
|                                                   |  |                        |        |                     |  |      |        |      |  |   |        |   |  |   |        |  
|Net liability                                      |  | $                      | (865   | )                   |  | $    | (1,198 | )    |  | $ | (825   | ) |  | $ | (703   | )
|                                                   |  |                        |        |                     |  |      |        |      |  |   |        |   |  |   |        |  
|Net periodic cost                                  |  |                        |        |                     |  |      |        |      |  |   |        |   |  |   |        |  
|                                                  
|                                                  
|                                                  
|                                                  
|Service cost of benefits                           |  | $                      | 809    |                     |  | $    | 742    |      |  | $ | 36     |   |  | $ | 31     |  
|                                                  
|                                                  
|                                                  
|                                                  
|Interest cost                                      |  |                        | 1,549  |                     |  |      | 1,415  |      |  |   | 73     |   |  |   | 63     |  
|                                                  
|                                                  
|                                                  
|                                                  
|Expected return on plan assets                     |  |                        | (1,674 | )                   |  |      | (1,486 | )    |  |   |       |   |  |   |       |  
|                                                  
|                                                  
|                                                  
|                                                  
|Amortization of net actuarial loss                 |  |                        | 559    |                     |  |      | 469    |      |  |   | 32     |   |  |   | 23     |  
|                                                  
|                                                  
|                                                  
|                                                  
|Amortization of prior service cost                 |  |                        | 22     |                     |  |      | 22     |      |  |   |       |   |  |   |       |  
|                                                   |  |                        |        |                     |  |      |        |      |  |   |        |   |  |   |        |  
|Total                                              |  | $                      | 1,265  |                     |  | $    | 1,162  |      |  | $ | 141    |   |  | $ | 117    |  
|                                                   |  |                        |        |                     |  |      |        |      |  |   |        |   |  |   |        |  

69



---



##### Table of Contents



ARBITRON INC.


Notes to Consolidated Financial
Statements  (Continued)

|                               |                     |                        |      |                     |   |      |      |      |   |  |      |      |   |  |      |      |  
|------------------------------ | ------------------- | ---------------------- | ---- | ------------------- | - | ---- | ---- | ---- | - |  | ---- | ---- | - |  | ---- | ---- | -
|                               |                     |                        |      |                     |   |     
|                               |                     | Defined Benefit        |      |                    
|                               |                     | Pension Plan           |      | Postretirement Plan
|                               |                     | September 30,          |      | September 30,      
|                               |                     |                        |      |                    
|                               |                     | 2005                   |      | 2004                |   | 2005 |      | 2004
|                               |                     |                        |      |                     |   |      |      |     
|                               |                     |                       
|                               |                     | (Dollars in thousands)
|                              
|                              
|                              
|                              
|Weighted-average assumptions   |                     |                        |      |                     |   |      |      |      |   |  |      |      |   |  |      |     
|Discount rate                  |                     |                        |      |                     |   |      |      |      |   |  |      |      |   |  |      |     
|                              
|                              
|                              
|                              
|                               | Components of cost  |                        |      | 6.00                | % |      |      | 6.25 | % |  |      | 6.00 | % |  |      | 6.25 | %
|                              
|                              
|                              
|                              
|                               | Benefit obligations |                        |      | 5.50                | % |      |      | 6.00 | % |  |      | 5.50 | % |  |      | 6.00 | %
|                              
|                              
|                              
|                              
|Expected return on plan assets |                     |                        | 8.00 | %                   |   |      | 8.00 | %    |   |  |     |      |   |  |     |     
|                              
|                              
|                              
|                              
|Rate of compensation increase  |                     |                        | 4.00 | %                   |   |      | 4.00 | %    |   |  | 4.00 | %    |   |  | 4.00 | %   

The accumulated benefit obligation for the defined benefit
pension plan was $26.0 million and $21.8 million as of
September 30, 2005 and 2004, respectively.

The assumed health care cost trend rate used in measuring the
postretirement benefit obligation was 10.0% for pre-age 65
and post-age 65 in 2005, with pre-age and post-age 65
rates declining to an ultimate rate of 5.75% in 2010. A 1%
change in this rate would change the benefit obligation by
approximately $0.1 million and the aggregate service and
interest cost by less than $0.1 million.



| |                        
| | -----------------------
| | Supplemental Retirement

Arbitron also sponsors two nonqualified supplemental retirement
plans. The projected benefit obligation at September 30,
2005 and 2004 was $2.7 million and $2.0 million,
respectively. The accumulated benefit obligation at
September 30, 2005 and 2004 was $1.5 million and
$1.2 million, respectively. Net periodic pension costs were
$0.2 million for 2005, $0.5 million for 2004 and
$0.2 million for 2003. As of December 31, 2005 and
2004, prepaid pension costs of $0.4 million and
$0.4 million, respectively, held in benefit protection
trusts were included in other noncurrent assets in the
consolidated balance sheets. The change in additional minimum
liability for the years ended December 31, 2005 and 2004,
was $0.1 million and $(0.4) million, respectively.



| |            
| | -----------
| | 401(k) Plan

Arbitron employees may also participate in a defined
contribution plan that is sponsored by the Company. The plan
generally provides for employee salary deferral contributions of
up to 17% of eligible employee compensation. Under the terms of
the plan, Arbitron contributes a matching contribution of 50% up
to a maximum of 3% to 6% of eligible employee compensation. The
employer may also make an additional discretionary matching
contribution of up to 30% up to a maximum of 3% to 6% of
eligible employee compensation. Arbitrons costs with
respect to its contributions to the defined contribution plan
were $2.0 million, $1.9 million and $1.5 million
in 2005, 2004 and 2003, respectively.



|    |                         
|--- | ------------------------
|14. | Stock-Based Compensation

The Company has two stock incentive plans (SIP) from
which awards of stock options, stock awards and performance unit
awards are authorized to be granted to eligible participants:
the 1999 SIP, which was approved by the Companys
stockholders, and the 2001 SIP, which was not approved by the
Companys stockholders. Eligible participants in the 1999
and 2001 SIPs include all employees of the Company and any
nonemployee director, consultant and independent contractor of
the Company. As of December 31, 2005, shares available for
grant were 699,722 and 154,324 under the 1999 and 2001 SIPs,
respectively.

70



---



##### Table of Contents



ARBITRON INC.


Notes to Consolidated Financial
Statements  (Continued)



| |              
| | -------------
| | Stock Options

Stock options awarded to employees under the 1999 and 2001 SIPs
generally vest annually over a three-year period, have five-year
and ten-year terms and have an exercise price that may not be
less than the fair market value of the underlying stock at the
date of grant. Stock options granted to directors under the 1999
SIP generally vest immediately upon the date of grant, are
exercisable in six months, have 10-year terms and have an
exercise price that may not be less than the fair market value
of the underlying stock at the date of grant.

Stock option activity and options outstanding for the years
ended December 31, 2005, 2004 and 2003 were as follows:

|                                             |  |                |                |             |  |                  |            |   |  |   |       | 
|-------------------------------------------- |  | -------------- | -------------- | ----------- |  | ---------------- | ---------- | - |  | - | ----- | 
|                                             |  |                |                |             |  | Weighted        
|                                             |  | Exercise price |                |             |  | average exercise
|                                             |  | per share      |                | Outstanding |  | price of options
|                                             |  |                |                |             |  |                 
|Options in Arbitron stock, December 31, 2002 |  | $              | 8.62  $42.71  |             |  |                  | 3,823,283  |   |  | $ | 24.95 | 
|                                            
|                                            
|                                            
|                                            
|Granted                                      |  |                | 31.25  41.72  |             |  |                  | 585,437    |   |  |   | 34.79 | 
|                                            
|                                            
|                                            
|                                            
|Exercised                                    |  |                | 8.62   34.61  |             |  |                  | (1,069,818 | ) |  |   | 22.86 | 
|                                            
|                                            
|                                            
|                                            
|Canceled                                     |  |                | 20.95   35.08 |             |  |                  | (55,970    | ) |  |   | 27.33 | 
|                                             |  |                |                |             |  |                  |            |   |  |   |       | 
|Options in Arbitron stock, December 31, 2003 |  | $              | 13.92  $42.71 |             |  |                  | 3,282,932  |   |  | $ | 27.34 | 
|                                             |  |                |                |             |  |                  |            |   |  |   |       | 
|Granted                                      |  | $              | 36.38  $43.90 |             |  |                  | 490,393    |   |  | $ | 38.03 | 
|                                            
|                                            
|                                            
|                                            
|Exercised                                    |  |                | 13.92   35.08 |             |  |                  | (887,297   | ) |  |   | 22.97 | 
|                                            
|                                            
|                                            
|                                            
|Canceled                                     |  |                | 14.21   35.08 |             |  |                  | (37,039    | ) |  |   | 34.64 | 
|                                             |  |                |                |             |  |                  |            |   |  |   |       | 
|Options in Arbitron stock, December 31, 2004 |  | $              | 18.85  $43.90 |             |  |                  | 2,848,989  |   |  | $ | 30.45 | 
|                                             |  |                |                |             |  |                  |            |   |  |   |       | 
|Granted                                      |  | $              | 37.13  $42.90 |             |  |                  | 596,961    |   |  | $ | 40.81 | 
|                                            
|                                            
|                                            
|                                            
|Exercised                                    |  |                | 20.88   35.08 |             |  |                  | (995,275   | ) |  |   | 25.57 | 
|                                            
|                                            
|                                            
|                                            
|Canceled                                     |  |                | 20.95   42.71 |             |  |                  | (33,942    | ) |  |   | 33.98 | 
|                                             |  |                |                |             |  |                  |            |   |  |   |       | 
|Options in Arbitron stock, December 31, 2005 |  | $              | 18.85  $43.90 |             |  |                  | 2,416,733  |   |  | $ | 34.97 | 
|                                             |  |                |                |             |  |                  |            |   |  |   |       | 

Weighted average characteristics of outstanding and exercisable
stock options by exercise price range as of December 31,
2005 were as follows:

|                |  |           |  |             |           |                   |  |                        |      |          |  |   |       |  |  |  |           |  |  |   |       | 
|--------------- |  | --------- |  | ----------- | --------- | ----------------- |  | ---------------------- | ---- | -------- |  | - | ----- |  |  |  | --------- |  |  | - | ----- | 
|                |  |           |  |             |           |                   |  |                        |      |          |  |  
|                |  |           |  |             |           |                   |  |                       
|                |  |           |  |             |           |                   |  |                       
|                |  |           |  |             |           | Outstanding Optio |  | ns Exercisable Options
|                |  | Number of |  |             |           |                  
|Range of        |  | options   |  |             |           | Weighted          |  |                        |      | Weighted
|exercise price  |  |           |  | Average     |           | average           |  |                        |      | average 
|                |  |           |  | remaining   |           | exercise          |  | Number of              |      | exercise
|                |  |           |  | contractual |           | price             |  | options                |      | price   
|                |  |           |  | Life        |           |                   |  |                        |      |         
|                |  |           |  |             |           |                   |  |                        |      |         
|$18.85  $34.21 |  |           |  |             | 672,966   |                   |  |                        | 3.08 |          |  | $ | 27.29 |  |  |  | 646,800   |  |  | $ | 27.32 | 
|               
|               
|               
|               
|34.22   36.70  |  |           |  |             | 613,102   |                   |  |                        | 2.98 |          |  |   | 34.99 |  |  |  | 424,347   |  |  |   | 34.98 | 
|               
|               
|               
|               
|36.71   39.85  |  |           |  |             | 527,541   |                   |  |                        | 8.33 |          |  |   | 37.90 |  |  |  | 299,050   |  |  |   | 37.73 | 
|               
|               
|               
|               
|39.86   43.90  |  |           |  |             | 603,124   |                   |  |                        | 9.04 |          |  |   | 40.95 |  |  |  | 150,325   |  |  |   | 41.11 | 
|                |  |           |  |             |           |                   |  |                        |      |          |  |   |       |  |  |  |           |  |  |   |       | 
|$18.85  $43.90 |  |           |  |             | 2,416,733 |                   |  |                        | 5.69 |          |  | $ | 34.97 |  |  |  | 1,520,522 |  |  | $ | 32.87 | 
|                |  |           |  |             |           |                   |  |                        |      |          |  |   |       |  |  |  |           |  |  |   |       | 



| |                        
| | -----------------------
| | Non-vested Stock Awards

Non-vested stock awards granted to employees under the 1999 SIP
generally vest monthly over a five-year period. Compensation
expense is recognized on a straight-line basis using the market
price on the date of grant as the awards vest. During the year
ended December 31, 2005, Arbitron granted
15,000 shares of non-

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ARBITRON INC.


Notes to Consolidated Financial
Statements  (Continued)

vested stock awards with a grant date fair value of
$40.90 per share and less than $0.1 million in
non-cash compensation expense was recognized. No non-vested
stock awards were granted in 2004 and 2003. The annual non-cash
compensation expense for the 2005 grants is estimated to be
$0.1 million for the years ended December 31, 2006
through 2010.



| |                             
| | ----------------------------
| | Employee Stock Purchase Plan

The Companys Employee Stock Purchase Plan
(ESPP) provides for the issuance of up to
600,000 shares of newly issued or treasury common stock of
Arbitron. The purchase price of the stock to ESPP participants
is 85% of the lesser of the fair market value on either the
first day or the last day of the applicable three-month offering
period.



|    |                                                       
|--- | ------------------------------------------------------
|15. | Significant Customers and Concentration of Credit Risk

Arbitrons quantitative radio audience measurement service
and related software sales accounted for approximately 86% of
its revenue in 2005, the largest portion of which is provided to
radio broadcasters. Arbitron has one customer that individually
represents 19% or more of its revenue for 2005. For the years
2004 and 2003, Arbitron had two customers that individually
represented 10% or more of its revenue. Those customers
represented 21% and 10% of the Companys revenue for both
2004 and 2003. Although the industry consolidation has led to a
concentration of Arbitrons customer base, the Company
believes that the consolidating enterprises are well financed,
publicly held companies with whom it has good relationships.
Arbitron routinely assesses the financial strength of its
customers and has experienced only nominal losses on its trade
accounts receivable.



|    |                      
|--- | ---------------------
|16. | Financial Instruments

Fair values of short-term investments, accounts receivable and
accounts payable approximate carrying values due to their
short-term nature. The fair value of the senior-secured-notes as
of December 31, 2005 and 2004 was $51.8 million and
$53.8 million, respectively, and was estimated using a cash
flow valuation model and available market data for securities
with similar maturity dates. The carrying amount of the
senior-secured-notes as of December 31, 2005 and 2004 was
$50.0 million.



|    |                 
|--- | ----------------
|17. | Stock Repurchase

On June 15, 2005, the Company announced that its Board of
Directors authorized a program to repurchase up to
$40.0 million of its outstanding common stock through
either periodic open-market or private transactions through
November 2005. As of August 22, 2005, the repurchase
program was completed with 948,594 shares repurchased for
an aggregate purchase price of approximately $40.0 million.



|    |                 
|--- | ----------------
|18. | Subsequent Event

On January 24, 2006, the Company announced that its Board
of Directors authorized a stock repurchase program under which
the Company may buy back up to $70.0 million in shares of
the Companys common stock. The Company expects that the
shares may be purchased from time to time in either open market
or private transactions at then-prevailing market prices through
December 31, 2006.

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ARBITRON INC.


Notes to Consolidated Financial
Statements  (Continued)



|    |                                                                                    
|--- | -----------------------------------------------------------------------------------
|19. | Quarterly Information (Unaudited) (dollars in thousands,
    except per share data)

|                                             |         |                    |        |            |  |              |        |             |  |             |        |      |  |   |        |      |  |   |         |      | 
|-------------------------------------------- | ------- | ------------------ | ------ | ---------- |  | ------------ | ------ | ----------- |  | ----------- | ------ | ---- |  | - | ------ | ---- |  | - | ------- | ---- | 
|                                             |         |                    |        |           
|                                             |         | Three Months Ended |        |           
|                                             |         |                    |        | Year Ended
|                                             |         | March 31           |        | June 30    |  | September 30 |        | December 31 |  | December 31
|                                             |         |                    |        |            |  |              |        |             |  |            
|2005                                         |         |                    |        |            |  |              |        |             |  |             |        |      |  |   |        |      |  |   |         |     
|                                            
|                                            
|                                            
|                                            
|Revenue                                      |         | $                  | 79,195 |            |  | $            | 69,816 |             |  | $           | 85,615 |      |  | $ | 75,329 |      |  | $ | 309,955 |     
|                                            
|                                            
|                                            
|                                            
|Operating income                             |         |                    | 34,786 |            |  |              | 14,380 |             |  |             | 32,924 |      |  |   | 11,518 |      |  |   | 93,608  |     
|                                            
|                                            
|                                            
|                                            
|Net income                                   |         |                    | 19,836 |            |  |              | 15,395 |             |  |             | 20,901 |      |  |   | 11,176 |      |  |   | 67,308  |     
|Net income per weighted average common share |         |                    |        |            |  |              |        |             |  |             |        |      |  |   |        |      |  |   |         |     
|                                            
|                                            
|                                            
|                                            
|                                             | Basic   |                    | $      | 0.64       |  |              | $      | 0.49        |  |             | $      | 0.67 |  |   | $      | 0.36 |  |   | $       | 2.16 | 
|                                            
|                                            
|                                            
|                                            
|                                             | Diluted |                    | $      | 0.63       |  |              | $      | 0.48        |  |             | $      | 0.66 |  |   | $      | 0.36 |  |   | $       | 2.14 | 
|                                            
|                                            
|                                            
|                                            
|Dividends per common share                   |         | $                  | 0.10   |            |  | $            | 0.10   |             |  | $           | 0.10   |      |  | $ | 0.10   |      |  | $ | 0.40    |     
|                                            
|                                            
|                                            
|                                            
|2004                                         |         |                    |        |            |  |              |        |             |  |             |        |      |  |   |        |      |  |   |         |     
|                                            
|                                            
|                                            
|                                            
|Revenue                                      |         | $                  | 76,585 |            |  | $            | 65,084 |             |  | $           | 81,965 |      |  | $ | 72,919 |      |  | $ | 296,553 |     
|                                            
|                                            
|                                            
|                                            
|Operating income                             |         |                    | 33,234 |            |  |              | 12,019 |             |  |             | 34,836 |      |  |   | 10,795 |      |  |   | 90,884  |     
|                                            
|                                            
|                                            
|                                            
|Net income                                   |         |                    | 18,104 |            |  |              | 8,615  |             |  |             | 24,228 |      |  |   | 9,618  |      |  |   | 60,565  |     
|Net income per weighted average common share |         |                    |        |            |  |              |        |             |  |             |        |      |  |   |        |      |  |   |         |     
|                                            
|                                            
|                                            
|                                            
|                                             | Basic   |                    | $      | 0.59       |  |              | $      | 0.28        |  |             | $      | 0.78 |  |   | $      | 0.31 |  |   | $       | 1.96 | 
|                                            
|                                            
|                                            
|                                            
|                                             | Diluted |                    | $      | 0.57       |  |              | $      | 0.27        |  |             | $      | 0.77 |  |   | $      | 0.31 |  |   | $       | 1.92 | 
|                                            
|                                            
|                                            
|                                            
|Dividends per common share                   |         | $                  |       |            |  | $            |       |             |  | $           |       |      |  | $ |       |      |  | $ |        |     

Net income per share are computed independently for each of the
quarters presented. Therefore, the sum of the quarterly net
income per share will not necessarily equal the total for the
year.

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Arbitron Inc.




Consolidated Schedule of Valuation and Qualifying Accounts


For the Years Ended December 31, 2005, 2004 and 2003




|                                                  |                               |                        |   |       |       |      |   |       |       |  |   |       |       | 
|------------------------------------------------- | ----------------------------- | ---------------------- | - | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                                                  |                               | 2005                   |   | 2004  |       | 2003
|                                                  |                               |                        |   |       |       |     
|Allowance for doubtful trade accounts receivable: |                               |                        |   |       |       |      |   |       |       |  |   |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Balance at beginning of year  |                        | $ | 1,124 |       |      | $ | 1,081 |       |  | $ | 1,043 |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Additions charged to expenses |                        |   | 426   |       |      |   | 305   |       |  |   | 324   |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Write-offs net of recoveries  |                        |   | (385  | )     |      |   | (262  | )     |  |   | (286  | )    
|                                                  |                               |                        |   |       |       |      |   |       |       |  |   |      
|                                                  |                               | Balance at end of year |   | $     | 1,165 |      |   | $     | 1,124 |  |   | $     | 1,081 | 
|                                                  |                               |                        |   |       |       |      |   |       |       |  |   |      

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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
    AND FINANCIAL DISCLOSURE

There have been no changes in, or disagreements with,
accountants on accounting and financial disclosure.






|         |                        
|-------- | -----------------------
|ITEM 9A. | 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
Rule 13a-15(e) of the rules promulgated under the
Securities Exchange Act of 1934, as amended) as of the end of
the most recent fiscal year. 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.




Managements Report on Internal Control Over Financial
Reporting

Managements report on internal control over financial
reporting and the attestation report of KPMG LLP, our
independent registered public accounting firm, on
managements assessment of our internal control over
financial reporting are set forth on pages 50 and 52,
respectively, of this Annual Report on Form 10-K, and are
incorporated herein by reference.




Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial
reporting during the quarter ended December 31, 2005 that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.






|         |                  
|-------- | -----------------
|ITEM 9B. | OTHER INFORMATION

None noted.




PART III






|         |                                                   
|-------- | --------------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Arbitron has adopted a Code of Ethics for the Chief Executive
Officer and Financial Managers (Code of Ethics),
which applies to the Chief Executive Officer, the Chief
Financial Officer and all managers in the Financial Organization
of Arbitron. The Code of Ethics is available on Arbitrons
Web site at www.arbitron.com. The Company intends to disclose
any amendment to, or a waiver from, a provision of its Code of
Ethics on its Web site within four business days following the
date of the amendment or waiver.

Biographical information of Directors and Executive Officers
required by this item is included in the sections entitled
Election of Directors and Executive
Compensation and Other Information of the definitive proxy
statement for the Annual Stockholders Meeting to be held in 2006
(the proxy statement), which is incorporated herein
by reference and will be filed with the Securities and Exchange
Commission not later than 120 days after the close of
Arbitrons fiscal year ended December 31, 2005.

Information regarding compliance with Section 16(a) of the
Securities Exchange Act of 1934 required by this item is
included in the section entitled Other Matters 
Section 16(a) Beneficial Ownership Reporting
Compliance of the proxy statement, which is incorporated
herein by reference.

75



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##### Table of Contents








|         |                       
|-------- | ----------------------
|ITEM 11. | EXECUTIVE COMPENSATION

Information required by this item is included in the sections
entitled Election of Directors  Director
Compensation and Executive Compensation and Other
Information of the proxy statement, which is incorporated
herein by reference.






|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information required by this item regarding security ownership
of certain beneficial owners and management is included in the
section entitled Stock Ownership Information of
the proxy statement, which is incorporated herein by reference.

The following table summarizes the equity compensation plans
under which Arbitrons common stock may be issued as of
December 31, 2005.

|                                                               |  |                   |           |                  |  |                      |       |  |  |  |         | 
|-------------------------------------------------------------- |  | ----------------- | --------- | ---------------- |  | -------------------- | ----- |  |  |  | ------- | 
|                                                               |  |                   |           |                  |  | Number of           
|                                                               |  |                   |           |                  |  | securities          
|                                                               |  | Number of         |           | Weighted-        |  | remaining available 
|                                                               |  | securities to be  |           | average exercise |  | for future issuance 
|                                                               |  | issued upon       |           | price of         |  | under equity        
|                                                               |  | exercise of       |           | outstanding      |  | compensation        
|                                                               |  | outstanding       |           | options,         |  | plans (excluding    
|                                                               |  | options, warrants |           | warrants and     |  | securities reflected
|                                                               |  | and rights        |           | rights           |  | in column(a))       
|Plan Category                                                  |  | (a)               |           | (b)              |  | (c)                 
|                                                               |  |                   |           |                  |  |                     
|Equity compensation plans approved by security
    holders     |  |                   | 2,207,783 |                  |  | $                    | 35.52 |  |  |  | 699,722 | 
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|Equity compensation plans not approved by
    security holders |  |                   | 235,285   |                  |  | $                    | 30.11 |  |  |  | 154,324 | 
|                                                               |  |                   |           |                  |  |                      |       |  |  |  |         | 
|                                                              
|Totals                                                         |  |                   | 2,443,068 |                  |  | $                    | 34.99 |  |  |  | 854,046 | 
|                                                               |  |                   |           |                  |  |                      |       |  |  |  |         | 






|         |                                               
|-------- | ----------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this item is included in the section
entitled Certain Relationships and Related
Transactions of the proxy statement, which is incorporated
herein by reference.






|         |                                       
|-------- | --------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required by this item is included in the section
entitled Independent Auditors and Audit Fees of the
proxy statement, which is incorporated herein by reference.




PART IV






|         |                                           
|-------- | ------------------------------------------
|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Documents filed as part of this report



| |                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) Financial Statements: The following financial
    statements, together with the report thereon of independent
    auditors, are included in this Report:



| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | Independent Registered Public Accounting Firm Reports                                                             
|
| |  | Consolidated Balance Sheets as of December 31, 2005 and 2004                                                      
|
| |  | Consolidated Statements of Income for the Years Ended
    December 31, 2005, 2004 and 2003                        
|
| |  | Consolidated Statements of Stockholders Equity (Deficit)
    for the Years Ended December 31, 2005, 2004 and 2003

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| |   |                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------
| |  | Consolidated Statements of Cash Flows for the Years Ended
    December 31, 2005, 2004 and 2003     
|
| |  | Notes to Consolidated Financial Statements for the Years Ended
    December 31, 2005, 2004 and 2003



| |                                                                                       
| | --------------------------------------------------------------------------------------
| | (2) Consolidated Financial Statement Schedule of Valuation
    and Qualifying Accounts
|
| | (3) Exhibits:                                                                         

|            |    |             |  |                                                                                                                                                                                                                                                                                                                                                                  
|----------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 3  | .1          |  | Restated Certificate of Incorporation of Arbitron
    Inc. (formerly known as Ceridian Corporation) (Filed as
    Exhibit 4.01 to Ceridians Registration Statement on
    Form S-8 (File No. 33-54379) and incorporated herein
    by reference).                                                                                                               
|           
|            | 3  | .2          |  | Certificate of Amendment of Restated Certificate
    of Incorporation of Arbitron Inc. (formerly known as Ceridian
    Corporation) (Filed as Exhibit 3 to Ceridians
    Quarterly Report on Form 10-Q for the quarter ended
    June 30, 1996 and incorporated herein by reference).                                                                           
|           
|            | 3  | .3          |  | Certificate of Amendment of Restated Certificate
    of Incorporation of Arbitron Inc. (formerly known as Ceridian
    Corporation) (Filed as Exhibit 3.01 to Ceridians
    Quarterly Report on Form 10-Q for the quarter ended
    June 30, 1999 and incorporated herein by reference).                                                                        
|           
|            | 3  | .4          |  | Certificate of Amendment to Restated Certificate
    of Incorporation of Arbitron Inc. (formerly known as Ceridian
    Corporation) (Filed as Exhibit 3.4 to Arbitrons
    Annual Report on Form 10-K for the year ended
    December 31, 2000 and incorporated herein by reference).                                                                           
|           
|            | 3  | .5          |  | First Amended and Restated Bylaws of Arbitron
    Inc., effective as of August 29, 2002 (Filed as
    Exhibit 3.1 to Arbitrons Quarterly Report on
    Form 10-Q for the quarter ended September 30, 2002 and
    incorporated herein by reference).                                                                                                            
|           
|            | 4  | .1          |  | Specimen of Common Stock Certificate (Filed as
    Exhibit 4.1 to Arbitrons Annual Report on
    Form 10-K for the year ended December 31, 2000 and
    incorporated herein by reference).                                                                                                                                                                      
|           
|            | 10 | .1          |  | Distribution Agreement, dated as of
    February 14, 2001, between Arbitron Inc. (formerly known as
    Ceridian Corporation) and Ceridian Corporation (formerly known
    as New Ceridian Corporation) (Filed as Exhibit 10.1 to New
    Ceridians Registration Statement on Form 10 (SEC File
    No. 001-16149) and incorporated herein by reference).       
|           
|            | 10 | .2          |  | Personnel Agreement, dated as of
    February 14, 2001, between Arbitron Inc. (formerly known as
    Ceridian Corporation) and Ceridian Corporation (formerly known
    as New Ceridian Corporation) (Filed as Exhibit 10.2 to New
    Ceridians Registration Statement on Form 10 (SEC File
    No. 001-16149) and incorporated herein by reference).          
|           
|            | 10 | .3          |  | Tax Matters Agreement, dated as of
    February 14, 2001, between Arbitron Inc. (formerly known as
    Ceridian Corporation) and Ceridian Corporation (formerly known
    as New Ceridian Corporation) (Filed as Exhibit 10.3 to New
    Ceridians Registration Statement on Form 10 (SEC File
    No. 001-16149) and incorporated herein by reference).        
|           
|            | 10 | .4          |  | Transition Services Agreement, dated as of
    February 14, 2001, between Arbitron Inc. (formerly known as
    Ceridian Corporation) and Ceridian Corporation (formerly known
    as New Ceridian Corporation) (Filed as Exhibit 10.4 to New
    Ceridians Registration Statement on Form 10 (SEC File
    No. 001-16149) and incorporated herein by reference).
|           
|            | 10 | .5          |  | Sublease Agreement, dated as of February 14,
    2001, between Arbitron Inc. (formerly known as Ceridian
    Corporation) and Ceridian Corporation (formerly known as New
    Ceridian Corporation) (Filed as Exhibit 10.5 to New
    Ceridians Registration Statement on Form 10 (SEC File
    No. 001-16149) and incorporated herein by reference).           
|           
|            | 10 | .6          |  | Note Purchase Agreement, January 31,
    2001, by and among Arbitron Inc. and the Note Holders
    referred to therein (Filed as Exhibit 10.7 to
    Arbitrons Annual Report on Form 10-K for the year
    ended December 31, 2000 and incorporated herein by
    reference).                                                                                   
|           
|            | 10 | .7          |  | First Amendment to Note Purchase Agreement,
    dated as of March 29, 2001 (Filed as Exhibit 10.1 to
    Arbitrons Quarterly Report on Form 10-Q for the
    quarter ended June 30, 2005 and incorporated herein by
    reference),                                                                                                                             

77



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|            |    |             |  |                                                                                                                                                                                                                                                                                                                                                                             
|----------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|           
|            | 10 | .8          |  | Second Amendment to Note Purchase Agreement,
    dated as of June 10, 2002 (Filed as Exhibit 10.2 to
    Arbitrons Quarterly Report on Form 10-Q for the
    quarter ended June 30, 2005 and incorporated herein by
    reference).                                                                                                                                        
|           
|            | 10 | .9          |  | Third Amendment to Note Purchase Agreement,
    dated as of June 2, 2005 (Filed as Exhibit 99.1 to
    Arbitrons Current Report on Form 8-K, dated
    June 16, 2005 and incorporated herein by reference).                                                                                                                                                                
|           
|            | 10 | .10         |  | Secured Subordinated Promissory Notes maturing
    January 31, 2008 of Arbitron Inc. (Filed as
    Exhibit 10.8 to Arbitrons Annual Report on
    Form 10-K for the year ended December 31, 2000 and
    incorporated herein by reference).                                                                                                                                
|           
|            | 10 | .11         |  | Subsidiary Guaranty, dated as of January 31,
    2001, of Arbitron Holdings Inc. in favor of the Lenders referred
    to therein, the Swap Provider referred to therein and the
    Note Holders referred to therein (Filed as
    Exhibit 10.9 to Arbitrons Annual Report on
    Form 10-K for the year ended December 31, 2000 and
    incorporated herein by reference).
|           
|            | 10 | .12         |  | Arbitron Executive Investment Plan (Filed as
    Exhibit 10.10 to Arbitrons Annual Report on
    Form 10-K for the year ended December 31, 2004 and
    incorporated herein by reference).*                                                                                                                                                                                
|           
|            | 10 | .13         |  | Arbitron Inc. 1999 Stock Incentive Plan (Filed as
    Exhibit 10.10 to Arbitrons Annual Report on
    Form 10-K for the year ended December 31, 2000 and
    incorporated herein by reference).*                                                                                                                                                                           
|           
|            | 10 | .14         |  | Form of Non-Qualified Stock Option Agreement
    (Filed as Exhibit 10.1 to Arbitrons Current Report on
    Form 8-K, dated February 23, 2005 and incorporated
    herein by reference).*                                                                                                                                                                                   
|           
|            | 10 | .15         |  | Form of Non-Qualified Stock Option Agreement for
    Annual Non-Employee Director Stock Option Grants (Filed as
    Exhibit 10.2 to Arbitrons Current Report on
    Form 8-K, dated February 23, 2005 and incorporated
    herein by reference).*                                                                                                                          
|           
|            | 10 | .16         |  | Form of Non-Qualified Stock Option Agreement for
    Initial Non-Employee Director Stock Option Grants (Filed as
    Exhibit 10.3 to Arbitrons Current Report on
    Form 8-K, dated February 23, 2005 and incorporated
    herein by reference).*                                                                                                                         
|           
|            | 10 | .17         |  | Form of Non-Qualified Stock Option Agreement in
    Lieu of Fees Grants (Filed as Exhibit 10.4 to
    Arbitrons Current Report on Form 8-K, dated
    February 23, 2005 and incorporated herein by reference).*                                                                                                                                                            
|           
|            | 10 | .18         |  | Amended and Restated Arbitron Inc. Director
    Deferred Compensation Procedures.*                                                                                                                                                                                                                                                                                          
|           
|            | 10 | .19         |  | Form of Deferred Stock Unit Agreement for
    Non-Employee Directors (Non-Employee Director Post-2005
    Stock-for-Fees Deferred Stock Unit).*                                                                                                                                                                                                                             
|           
|            | 10 | .20         |  | Director Compensation Schedule (Filed as
    Exhibit 10.18 to Arbitrons Annual Report on
    Form 10-K for the year ended December 31, 2004 and
    incorporated herein by reference).*                                                                                                                                                                                    
|           
|            | 10 | .21         |  | Schedule of 2004 Bonuses and 2005 Bonus
    Parameters for Named Executive Officers (Filed as
    Exhibit 10.19 to Arbitrons Annual Report on
    Form 10-K for the year ended December 31, 2004 and
    incorporated herein by reference).*                                                                                                                               
|           
|            | 10 | .22         |  | Arbitron Inc. Benefit Equalization Plan (Filed as
    Exhibit 10.20 to Arbitrons Annual Report on
    Form 10-K for the year ended December 31, 2004 and
    incorporated herein by reference).*                                                                                                                                                                           
|           
|            | 10 | .23         |  | Arbitron Inc. 2001 Broad Based Stock Incentive
    Plan (Filed as Exhibit 10.14 to Arbitrons Quarterly
    Report on Form 10-Q for the quarter ended March 31,
    2002 and incorporated herein by reference).                                                                                                                                                             
|           
|            | 10 | .24         |  | Executive Employment Agreement, dated
    April 1, 2001, by and between Arbitron Inc. and Stephen B.
    Morris (Filed as Exhibit 10.15 to Arbitrons Quarterly
    Report on Form 10-Q for the quarter ended March 31,
    2001 and incorporated herein by reference).*                                                                                                    
|           
|            | 10 | .25         |  | Amendment No. 1 to the Executive Employment
    Agreement between Arbitron Inc. and Stephen B. Morris
    (Filed as Exhibit 10.18 to Arbitrons Annual Report on
    Form 10-K for the year ended December 31, 2001 and
    incorporated herein by reference).*                                                                                                             
|           
|            | 10 | .26         |  | Amendment No. 2 to the Executive Employment
    Agreement between Arbitron Inc. and Stephen B. Morris
    (Filed as Exhibit 10.19 to Arbitrons Annual Report on
    Form 10-K for the year ended December 31, 2001 and
    incorporated herein by reference).*                                                                                                             

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##### Table of Contents



|            |    |             |  |                                                                                                                                                                                                                                                                                       
|----------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|           
|            | 10 | .27         |  | Form of Executive Retention Agreement (Filed as
    Exhibit 10.20 to Arbitrons Annual Report on
    Form 10-K for the year ended December 31, 2001 and
    incorporated herein by reference).*                                                                                       
|           
|            | 10 | .28         |  | Customer Contract, dated as of December 27,
    2004, by and between Arbitron Inc. and Clear Channel
    Communications, Inc. (Filed as Exhibit 10.26 to
    Arbitrons Annual Report on Form 10-K for the year
    ended December 31, 2004 and incorporated herein by
    reference).
|           
|            | 21 |             |  | Subsidiaries of Arbitron Inc.                                                                                                                                                                                                                                                         
|           
|            | 23 |             |  | Consent of Independent Registered Public
    Accounting Firm.                                                                                                                                                                                                                         
|           
|            | 24 |             |  | Power of Attorney.                                                                                                                                                                                                                                                                    
|           
|            | 31 | .1          |  | Certification of the Chief Executive Officer
    pursuant to 2002.                                                                                                                                                                                                                    
|           
|            | 31 | .2          |  | Section 302 of the Sarbanes-Oxley Act of
    Certification of the Chief Financial Officer pursuant to 2002.                                                                                                                                                                           
|           
|            | 32 | .1          |  | Section 302 of the Sarbanes-Oxley Act of
    Certification of the Chief Executive Officer and Chief Financial
    Officer pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.                                                                                              



---



|  |                                                                                                                    
|- | -------------------------------------------------------------------------------------------------------------------
|* | Indicates management contract or compensatory plan, contract or
    arrangement required to be filed as an Exhibit.

(b) Exhibits



| |                   
| | ------------------
| | See (a)(3), above.

(c) Financial Statement Schedules



| |                   
| | ------------------
| | See (a)(2), above.

79



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, we have duly caused this report
to be signed on behalf by the undersigned, thereunto duly
authorized.



| |              
| | -------------
| | ARBITRON INC.



| |     |                      
| | --- | ---------------------
| | By: | /s/ Stephen B. Morris

| |                                      
| | -------------------------------------
| |                                      
| | Stephen B. Morris                    
| | Chief Executive Officer and President

Date: February 27, 2006

Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the Company in the capacities and on the dates
indicated.

|                                       |  |                                                                                                                                             |  |                   |  |                  
|-------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- |  | -----------------
|                                       |  |                                                                                                                                             |  |                  
|Signature                              |  | Title                                                                                                                                       |  | Date             
|                                       |  |                                                                                                                                             |  |                  
|                                      
|/s/ STEPHEN B. MORRISStephen B. Morris |  | Chief Executive Officer, President and Director
    (Principal Executive Officer)                                                           |  | February 27, 2006
|                                      
|/s/ SEAN R. CREAMERSean R. Creamer     |  | Executive Vice President of Finance and Planning
    and Chief Financial Officer (Principal Financial and Principal
    Accounting Officer) |  | February 27, 2006
|                                      
|*Alan W. Aldworth                      |  | Director                                                                                                                                    |  |                  
|                                      
|*Shellye L. Archambeau                 |  | Director                                                                                                                                    |  |                  
|                                      
|*Erica Farber                          |  | Director                                                                                                                                    |  |                  
|                                      
|*Philip Guarascio                      |  | Director                                                                                                                                    |  |                  
|                                      
|*Larry E. Kittelberger                 |  | Director                                                                                                                                    |  |                  
|                                      
|*Luis B. Nogales                       |  | Director                                                                                                                                    |  |                  
|                                      
|*Lawrence Perlman                      |  | Director                                                                                                                                    |  |                  
|                                      
|*Richard A. Post                       |  | Director                                                                                                                                    |  |                  
|                                      
|                                      
|                                      
|                                      
|                                      
|*By:                                   |  | /s/ DOLORES L. CODYDolores L. Cody
    Attorney-in-Fact                                                                                     |  |                   |  | February 27, 2006

80