UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-33603

The Dolan Company

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		43-2004527 (I.R.S. Employer Identification No.)

222 South Ninth Street, Suite 2300,
Minneapolis, Minnesota 55402
(Address, including zip code, of registrant’s principal executive offices)

(612) 317-9420
(Registrant’s telephone number, including area code)

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

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

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

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company 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

On July 29, 2011, there were 30,576,953 shares of the registrant’s common stock outstanding.

 

 

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2011, (unaudited) and December 31, 2010			1
Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2011, and 2010			2
Unaudited Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the Six Months Ended June 30, 2011			3
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011, and 2010			4
Notes to Unaudited Condensed Consolidated Interim Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3. Quantitative and Qualitative Disclosures about Market Risk			34
Item 4. Controls and Procedures			34
PART II — OTHER INFORMATION			35
Item 1. Legal Proceedings			35
Item 1A. Risk Factors			35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			35
Item 3. Defaults Upon Senior Securities			35
Item 4. Reserved			35
Item 5. Other Information			35
Item 6. Exhibits			36
SIGNATURES			36
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

Item 1.		Financial Statements

The Dolan Company

		June 30,				December 31,
		2011				2010
		(unaudited)
ASSETS
Current assets
Cash and cash equivalents		$	3,305			$	4,862
Accounts receivable, including unbilled services (net of allowances for doubtful accounts of $1,282 and $1,578 as of June 30, 2011, and December 31, 2010, respectively)			66,493				59,801
Unbilled pass-through costs			5,349				7,140
Prepaid expenses and other current assets			3,770				4,186
Income tax receivable			1,455				4,183
Total current assets			80,372				80,172
Investments			12,898				13,808
Property and equipment, net			17,532				17,333
Finite-life intangible assets, net			186,063				195,959
Indefinite-lived intangible assets			226,418				225,373
Other assets			2,816				3,143
Total assets		$	526,099			$	535,788
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt		$	8,992			$	7,578
Accounts payable			15,232				15,589
Accrued pass-through liabilities			11,325				18,271
Accrued compensation			8,332				5,409
Accrued liabilities			4,610				5,537
Due to sellers of acquired businesses			5,630				3,943
Deferred revenue			20,692				21,689
Total current liabilities			74,813				78,016
Long-term debt, less current portion			125,052				131,568
Deferred income taxes			9,338				7,794
Other liabilities			11,723				12,972
Total liabilities			220,926				230,350
Redeemable noncontrolling interest			17,528				26,580
Commitments and contingencies (Note 14)
Stockholders’ equity
Common stock, $0.001 par value; authorized: 70,000,000 shares; outstanding: 30,577,445 and 30,511,408 shares as of June 30, 2011, and December 31, 2010, respectively			30				30
Preferred stock, $0.001 par value; authorized: 5,000,000 shares; designated: 5,000 shares of Series A Junior Participating Preferred Stock; no shares outstanding			—				—
Other comprehensive loss (net of tax)			(1,346	)			(1,298	)
Additional paid-in capital			288,936				286,148
Retained earnings (accumulated deficit)			25				(6,022	)
Total stockholders’ equity			287,645				278,858
Total liabilities and stockholders’ equity		$	526,099			$	535,788

See Notes to Unaudited Condensed Consolidated Interim Financial Statements

The Dolan Company

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Revenues
Professional Services		$	48,416			$	56,454			$	100,372			$	112,480
Business Information			21,023				22,755				41,615				43,707
Total revenues			69,439				79,209				141,987				156,187
Operating expenses
Direct operating: Professional Services			22,936				23,861				46,438				46,051
Direct operating: Business Information			8,373				7,624				16,711				14,540
Selling, general and administrative			26,828				25,639				54,602				50,827
Amortization			4,359				3,973				8,882				7,966
Depreciation			1,803				2,723				3,737				5,459
Total operating expenses			64,299				63,820				130,370				124,843
Equity in earnings of affiliates			441				1,084				1,189				2,512
Operating income			5,581				16,473				12,806				33,856
Non-operating income (expense)
Interest expense, net of interest income			(1,365	)			(1,614	)			(2,973	)			(3,350	)
Non-cash interest income related to interest rate swaps			—				302				286				665
Other income			394				—				394				—
Total non-operating expense			(971	)			(1,312	)			(2,293	)			(2,685	)
Income before income taxes			4,610				15,161				10,513				31,171
Income tax expense			(1,870	)			(5,673	)			(4,079	)			(11,663	)
Net income			2,740				9,488				6,434				19,508
Less: Net income attributable to redeemable noncontrolling interests			(168	)			(856	)			(387	)			(1,719	)
Net income attributable to The Dolan Company		$	2,572			$	8,632			$	6,047			$	17,789
Earnings per share — basic and diluted:
Net income attributable to The Dolan Company		$	0.09			$	0.29			$	0.20			$	0.59
Decrease in redeemable noncontrolling interest in NDeX			0.05				0.04				0.08				0.04
Net income attributable to The Dolan Company common stockholders		$	0.14			$	0.33			$	0.28			$	0.63
Weighted average shares outstanding:
Basic			30,107,025				30,136,567				30,117,924				30,121,831
Diluted			30,210,792				30,240,004				30,252,095				30,217,885

See Notes to Unaudited Condensed Consolidated Interim Financial Statements

The Dolan Company

														Retained
										Additional				Earnings				Other
		Common Stock								Paid-In				(Accumulated				Comprehensive
		Shares				Amount				Capital				Deficit)				Loss				Total
Balance at December 31, 2009			30,326,437			$	30			$	287,210			$	(38,377	)		$	—			$	248,863
Net income attributable to The Dolan Company			—				—				—				32,355				—				32,355
Decrease in redeemable noncontrolling interest in NDeX, net of tax			—				—				217				—				—				217
Net income attributable to The Dolan Company common stockholders			—				—				—				—				—				32,572
Unrealized loss on interest rate swap, net of tax			—				—				—				—				(1,298	)			(1,298	)
Total comprehensive income																							31,274
Issuance of common stock pursuant to the exercise of stock options			13,848				—				26				—				—				26
Share-based compensation expense, including issuance of restricted stock (shares are net of forfeitures)			171,123				—				3,242				—				—				3,242
Increase in redeemable noncontrolling interest in DiscoverReady, net of tax			—				—				(4,560	)			—				—				(4,560	)
Other			—				—				13				—				—				13
Balance at December 31, 2010			30,511,408			$	30			$	286,148			$	(6,022	)		$	(1,298	)		$	278,858
Net income attributable to The Dolan Company			—				—				—				6,047				—				6,047
Decrease in redeemable noncontrolling interest in NDeX , net of tax			—				—				2,522				—				—				2,522
Net income attributable to The Dolan Company common stockholders			—				—				—				—				—				8,569
Unrealized loss on interest rate swap, net of tax			—				—				—				—				(48	)			(48	)
Total comprehensive income																							8,521
Share-based compensation expense, including issuance of restricted stock (shares are net of forfeitures)			203,537				—				2,033				—				—				2,033
Repurchase of common stock			(137,500	)			—				(1,691	)			—				—				(1,691	)
Increase in redeemable noncontrolling interest in DiscoverReady, net of tax			—				—				(76	)			—				—				(76	)
Balance at June 30, 2011			30,577,445			$	30			$	288,936			$	25			$	(1,346	)		$	287,645

See Notes to Unaudited Condensed Consolidated Interim Financial Statements

The Dolan Company

		Six Months Ended
		June 30,
		2011				2010
Cash flows from operating activities
Net income		$	6,434			$	19,508
Distributions received from The Detroit Legal News Publishing, LLC			2,100				3,500
Distributions paid to holders of noncontrolling interests			(474	)			(1,061	)
Gain on sale of investment			(394	)			—
Non-cash operating activities:
Amortization			8,882				7,966
Depreciation			3,737				5,459
Equity in earnings of affiliates			(1,189	)			(2,512	)
Stock-based compensation expense			2,033				1,358
Deferred income taxes			28				—
Change in value of interest rate swap			(286	)			(665	)
Amortization of debt issuance costs			186				164
Non-cash fair value adjustment on earnouts recorded in connection with acquisitions			358				588
Changes in operating assets and liabilities, net of effects of business combinations:
Accounts receivable and unbilled pass-through costs			(4,850	)			(2,033	)
Prepaid expenses and other current assets			3,198				55
Other assets			—				18
Accounts payable and accrued liabilities			(5,255	)			(605	)
Deferred revenue and other liabilities			(692	)			(370	)
Net cash provided by operating activities			13,816				31,370
Cash flows from investing activities
Acquisitions and investments			(5,071	)			(115	)
Capital expenditures			(3,911	)			(3,326	)
Escrow payment received on sale of investment			394				—
Net cash used in investing activities			(8,588	)			(3,441	)
Cash flows from financing activities
Net payments on senior revolving note			(1,300	)			(8,000	)
Payments on senior long-term debt			(2,500	)			(6,225	)
Payments on unsecured notes payable			(1,193	)			(9,576	)
Payments for repurchase of common stock			(1,691	)			20
Other			(101	)			(100	)
Net cash used in financing activities			(6,785	)			(23,881	)
Net change in cash and cash equivalents			(1,557	)			4,048
Cash and cash equivalents at beginning of the period			4,862				2,894
Cash and cash equivalents at end of the period		$	3,305			$	6,942

See Notes to Unaudited Condensed Consolidated Interim Financial Statements

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Note 1. Basis of Presentation

Basis of Presentation: The condensed consolidated balance sheet as of December 31, 2010, which has been derived from audited financial statements, and the unaudited condensed consolidated interim financial statements of The Dolan Company (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to the quarterly report on Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to these rules and regulations. Accordingly, these unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the year ended December 31, 2010, included in the Company’s annual report on Form 10-K filed on March 11, 2011, with the Securities and Exchange Commission (“SEC”).

In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments necessary for a fair presentation of the Company’s interim financial results. All such adjustments are of a normal and recurring nature. The results of operations for any interim period are not necessarily indicative of results for the full calendar year.

The accompanying unaudited condensed consolidated interim financial statements include the accounts of the Company, its wholly-owned subsidiaries and its majority ownership interests in American Processing Company, LLC d/b/a NDeX (“NDeX”), DiscoverReady LLC (“DiscoverReady”) and Legislative Information Services of America (“LISA”). The Company accounts for the percentage interests in NDeX, DiscoverReady and LISA that it does not own as noncontrolling interest.

All significant intercompany accounts and transactions have been eliminated in consolidation.

When the Company refers to “Albertelli sellers” in these notes, it means James E. Albertelli, P.A., The Albertelli Firm, P.C., Albertelli Title, Inc. and James E. Albertelli, as a group.

New Accounting Pronouncements: In June 2011, the Federal Accounting Standards Board (“FASB”) amended its accounting guidance to increase the prominence of items reported in other comprehensive income (“OCI”). The guidance requires the presentation of the components of net income, the components of OCI and total OCI either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance is effective for the Company beginning with its December 31, 2012 financial statements. The Company plans to elect presentation of a single continuous statement.

Note 2. Basic and Diluted Income Per Share

Basic per share amounts are computed, generally, by dividing net income attributable to The Dolan Company by the weighted-average number of common shares outstanding. The Company has employed the two-class method to calculate earnings per share, as it relates to the redeemable noncontrolling interest in NDeX, based on net income attributable to its common stockholders. At June 30, 2011, and December 31, 2010, there were no shares of preferred stock issued and outstanding. Diluted per share amounts assume the conversion, exercise, or issuance of all potential common stock instruments (see Note 13 for information on stock options and restricted stock) unless their effect is anti-dilutive, thereby reducing the loss per share or increasing the income per share.

The following table computes basic and diluted net income attributable to The Dolan Company per share (in thousands except for per share amounts):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Net income attributable to The Dolan Company		$	2,572			$	8,632			$	6,047			$	17,789
Decrease in redeemable noncontrolling interest in NDeX, net of tax			1,558				1,173				2,522				1,094
Net income attributable to The Dolan Company common stockholders		$	4,130			$	9,805			$	8,569			$	18,883
Basic:
Weighted average common shares outstanding			30,509				30,431				30,482				30,377
Weighted average common shares of unvested restricted stock			(402	)			(294	)			(364	)			(255	)
Shares used in the computation of basic net income per share			30,107				30,137				30,118				30,122
Net income attributable to The Dolan Company common stockholders per share — basic		$	0.14			$	0.33			$	0.28			$	0.63
Diluted:
Shares used in the computation of basic net income per share			30,107				30,137				30,118				30,122
Stock options and restricted stock			104				103				134				96
Shares used in the computation of dilutive net income per share			30,211				30,240				30,252				30,218
Net income attributable to The Dolan Company common stockholders per share — diluted		$	0.14			$	0.33			$	0.28			$	0.63

For both the three and six months ended June 30, 2011, options to purchase approximately 1.8 million weighted shares of common stock were excluded from the computation because their effect would have been anti-dilutive. For both the three and six months ended June 30, 2010, options to purchase approximately 1.6 million weighted shares of common stock, respectively, were excluded from the computation because their effect would have been anti-dilutive.

Note 3. Business Combinations

Management is responsible for determining the fair value of the assets acquired and liabilities assumed at the acquisition date. The fair values of the assets acquired and liabilities assumed represent management’s estimate of fair values. Management determines valuations through a combination of methods, which include internal rate of return calculations, discounted cash flow models, outside valuations and appraisals and market conditions. The results of the business combinations are included in the accompanying consolidated statement of operations from the respective transaction dates forward.

2011 Equity Transaction:

Acquisition of Noncontrolling Interest in DiscoverReady: In May 2011, the Company purchased approximately one-third of the outstanding membership units of DiscoverReady held by its minority partner, DR Holdco LLC, for approximately $5.0 million in cash. The Company accounted for this acquisition as an equity transaction by reducing redeemable noncontrolling interest on the Company’s balance sheet by $5.0 million. No deal costs were incurred on this transaction. As a result of this transaction, the Company’s ownership percentage in DiscoverReady increased from 85.3% to 90.0%, and the noncontrolling interest decreased from 14.7% to 10.0%.

In connection with this purchase, the terms of the DiscoverReady limited liability company agreement were amended. Under the terms of the amended agreement, DR Holdco has the right, for a period of 90 days following November 2, 2012, to require DiscoverReady to repurchase approximately 50% of DR Holdco’s equity interest in DiscoverReady, and for a period of 90 days following November 2, 2013, to require DiscoverReady to purchase DR Holdco’s remaining equity interest in DiscoverReady. In addition, for a period of 90 days following November 2, 2013, DiscoverReady also has the right to require DR Holdco to sell its entire equity interest in DiscoverReady. In each case, if either party timely exercises its right, DiscoverReady would pay DR Holdco an amount based on the fair market value of the equity interest. These rights may be exercised earlier under certain circumstances.

2010 Acquisition:

Acquisition of DataStream Content Solutions, LLC: On December 1, 2010, the Company acquired DataStream Content Solutions, LLC (“DataStream”). In connection with this acquisition, the Company paid the sellers $15.0 million in cash at closing, held back $1.5 million payable 18 months after closing to secure indemnification claims, and is obligated to pay up to an additional $4.0 million in earnouts in two annual installments. The amount of the two annual earnout payments is based upon the acquired business achieving certain EBITDA targets during the years ended December 31, 2011, and 2012. These assets are part of the Company’s Business Information segment. The Company paid approximately $0.3 million in deal costs associated with this transaction.

Management estimated the fair value of the assets acquired and liabilities assumed and was assisted by a business valuation done by an independent third-party valuation firm. The total fair value of $19.8 million was estimated using a discounted cash flow analysis (income approach) using a discount rate of 16.0% and a compound annual growth rate through 2030 of 6.1%. The Company finalized its estimation of fair value in the first quarter of 2011. The fair value of assets acquired was estimated as follows: $0.2 million to fixed assets; $0.4 million to various working capital items; $5.6 million to various technology, including both existing technology and technology in process, to be amortized over five to 15 years; $8.0 million to customer relationships (preliminary allocation at December 31, 2010, was $9.2 million), to be amortized over 12 years; $0.2 million to a license agreement, to be amortized over six months; $1.7 million to trademarks (preliminary allocation at December 31, 2010, was $1.6 million); and $3.6 million to goodwill (preliminary allocation at December 31, 2010, was $2.6 million). The trademarks were determined to have an indefinite life and therefore will not be amortized, but rather will be reviewed annually for impairment. The December 31, 2010, balance sheet and statement of operations were not retroactively adjusted for this measurement period adjustment as the amount of the change was not significant to the 2010 financial statements.

In connection with this acquisition, the Company determined that the earnouts of $4.0 million, in the aggregate, were likely to be achieved and therefore included the present value of these payments, or $3.2 million, in its determination of consideration transferred. The Company has determined that this liability is a Level 3 fair value measurement within the FASB’s fair value hierarchy, and such liability is adjusted to fair value at each reporting date, with the adjustment reflected in selling, general and administrative expenses. See Note 5 for information pertaining to changes in the fair value of this liability during the six months ended June 30, 2011.

The Company paid a premium over the fair value of the net tangible and identified intangible assets acquired in the acquisition (i.e., goodwill) because the Company anticipates revenue synergies and operational efficiencies through combined general and administrative and corporate functions. Such goodwill is deductible for tax purposes, and has been allocated to the Business Information segment.

Pro Forma Information: Actual results of operations reflecting the equity interests acquired in 2011 and 2010 and assets acquired in 2010 are included in the unaudited condensed consolidated interim financial statements from the dates of the applicable business combination. The unaudited pro forma condensed consolidated statement of operations of the Company, set forth below, gives effect to the Company’s 2011 acquisition of noncontrolling interest in DiscoverReady and its 2010 acquisitions of noncontrolling interest in NDeX, as well as its acquisitions of DataStream and Federal News Service, using the purchase method as if they occurred on January 1, 2010. These amounts are not necessarily indicative of the consolidated results of operations for future years or actual results that would have been realized had the business combinations occurred as of the beginning of each such year (in thousands, except per share data):

		Pro Forma
		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Total revenues		$	69,439			$	81,841			$	141,987			$	161,227
Net income attributable to The Dolan Company			2,654				8,257				6,173				17,251
Net income attributable to The Dolan Company per share:
Basic		$	0.09			$	0.27			$	0.20			$	0.57
Diluted		$	0.09			$	0.27			$	0.20			$	0.57
Actual/Pro forma weighted average shares outstanding:
Basic			30,107				30,137				30,118				30,122
Diluted			30,211				30,240				30,252				30,218

Note 4. Derivative Instruments

The Company has entered into an interest rate swap agreement to manage the risk associated with a portion of its floating-rate long-term debt. The Company does not utilize derivative instruments for speculative purposes. The interest rate swap involves the exchange of fixed-rate and variable-rate payments without the exchange of the underlying notional amount on which the interest payments are calculated. The notional amount of the swap agreement is $50 million through December 30, 2012, $35 million from December 31, 2012, through December 30, 2013, and $25 million from December 31, 2013, through June 30, 2014. The Company has designated this swap as a cash flow hedge and has determined that it qualifies for hedge accounting treatment. Changes in fair value of the cash flow hedge are recorded in other comprehensive loss (net of tax) until income or loss from the cash flows of the hedged item is realized. In addition to this swap, the Company held a swap agreement with a notional amount of $25 million, which matured on March 31, 2011. This swap was not designated for hedge accounting treatment and therefore any changes in the fair value were recorded through the statement of operations.

As of June 30, 2011, and December 31, 2010, the Company had $1.3 million in other comprehensive loss related to unrealized losses (net of tax) on the cash flow hedge for both periods. Unrealized gains and losses are reflected in net income attributable to The Dolan Company when the related cash flows or hedged transactions occur and offset the related performance of the hedged item.

This cash flow hedge was highly effective for the six months ended June 30, 2011, and is expected to remain highly effective in future periods. The occurrence of these related cash flows and hedged transaction remains probable.

The Company had liabilities of $2.2 million and $2.4 million resulting from interest rate swaps at June 30, 2011, and December 31, 2010, respectively, which are included in accrued liabilities or other liabilities on the balance sheet, depending on the time of the expiration of the swap agreement. Total floating-rate borrowings not offset by the swap agreements at June 30, 2011, totaled $80.2 million.

By their nature, derivative instruments are subject to market risk. Derivative instruments are also subject to credit risk associated with counterparties to the derivative contracts. Credit risk associated with derivatives is measured based on the replacement cost should the counterparty with a contract in a gain position to the Company fail to perform under the terms of the contract. The Company does not anticipate nonperformance by the counterparty.

Note 5. Fair Value of Financial Instruments

The Company’s financial assets and liabilities are measured at fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company classifies the inputs used to measure fair value into the following hierarchy:

Level 1		Quoted prices in active markets for identical assets or liabilities.
Level 2		Quoted prices in active markets for similar assets or liabilities, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable or can be corroborated by observable market data for the asset or liability.
Level 3		Unobservable inputs for the asset or liability that are supported by little or no market activity. These fair values are determined using pricing models for which the assumptions utilize management’s estimates or market participant assumptions.

Assets and Liabilities Measured at Fair Value on a Recurring Basis. The fair value hierarchy requires the use of observable market data when available. In instances where inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

The fair value of interest rate swaps are determined by the counterparty based on interest rate changes. Interest rate swaps are valued based on observable interest rate yield curves for similar instruments. The fair value of the earnout liability recorded in connection with the NDeX Florida operations acquired from the Albertelli sellers and the earnout liability recorded in connection with the DataStream acquisition are determined by management based on projected financial performance and an estimated discount rate. The fair value of the redeemable noncontrolling interest in DiscoverReady is determined by management using a market approach.

The following table summarizes the balances of liabilities measured at fair value on a recurring basis as of June 30, 2011 (in thousands):

		Level 1				Level 2				Level 3				Total
Interest rate swaps		$	—			$	2,183			$	—			$	2,183
Earnout liability recorded in connection with the NDeX Florida operations acquired from the Albertelli sellers			—				—				5,447				5,447
Earnout liability recorded in connection with the DataStream acquisition			—				—				3,152				3,152
Redeemable noncontrolling interest in DiscoverReady			—				—				9,014				9,014
Total		$	—			$	2,183			$	17,613			$	19,796

The following table summarizes the balances of liabilities measured at fair value on a recurring basis as of December 31, 2010 (in thousands):

		Level 1				Level 2				Level 3				Total
Interest rate swaps		$	—			$	2,400			$	—			$	2,400
Earnout liability recorded in connection with the NDeX Florida operations acquired from the Albertelli sellers			—				—				5,069				5,069
Earnout liability recorded in connection with the DataStream acquisition			—				—				3,171				3,171
Redeemable noncontrolling interest in DiscoverReady			—				—				13,652				13,652
Total		$	—			$	2,400			$	21,892			$	24,292

The following table summarizes the changes in fair value for all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended June 30, 2011 (in thousands):

						Fair Value												Fair Value
						Adjustment												Adjustment
						Included in Net												Included in
						Income				Minority								Additional
		Balance at				Attributable to				Partners’				Distributions to				Paid-in Capital
		March 31,				The Dolan				Share of				Minority Partners /				and Deferred				Balance at June 30,
		2011				Company				Earnings				Redemptions				Taxes				2011
Earnout liability recorded in connection with the NDeX Florida operations acquired from the Albertelli sellers		$	5,258			$	189			$	—			$	—			$	—			$	5,447
Earnout liability recorded in connection with the DataStream Acquisition			3,312				(160	)			—				—				—				3,152
Redeemable noncontrolling interest in DiscoverReady			14,160				—				309				(5,208	)			(247	)			9,014
Total		$	22,730			$	29			$	309			$	(5,208	)		$	(247	)		$	17,613

The following table summarizes the changes in fair value for all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2011 (in thousands):

						Fair Value												Fair Value
						Adjustment												Adjustment
						Included in Net												Included in
						Income				Minority								Additional
		Balance at				Attributable to				Partners’				Distributions to				Paid-in Capital
		December 31,				The Dolan				Share of				Minority Partners /				and Deferred				Balance at June 30,
		2010				Company				Earnings				Redemptions				Taxes				2011
Earnout liability recorded in connection with the NDeX Florida operations acquired from the Albertelli sellers		$	5,069			$	378			$	—			$	—			$	—			$	5,447
Earnout liability recorded in connection with the DataStream acquisition			3,171				(19	)			—				—				—				3,152
Redeemable noncontrolling interest in DiscoverReady			13,652				—				446				(5,208	)			124				9,014
Total		$	21,892			$	359			$	446			$	(5,208	)		$	124			$	17,613

In May 2011, the Company repurchased approximately one-third of the outstanding membership units in DiscoveryReady from DR Holdco (see Note 3 for more information on this transaction). The Company paid approximately $5.0 million for the membership units in DiscoverReady, which is included in Distributions to Minority Partners/Redemptions in the tables above, along with $0.2 million in distributions to minority partners.

Non-Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis. Certain assets and liabilities are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances (e.g., when there is evidence of impairment). No such fair value adjustments were required during the quarter.

Fair Value of Financial Instruments: The carrying value of cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. The carrying value of the Company’s debt is the remaining amount due to its debtors under borrowing arrangements. To estimate the fair value of its variable-rate debt issues that are not quoted on an exchange, the Company estimates an interest rate it would be required to pay if it had to refinance its debt. The Company noted no significant changes in interest rates between December 31, 2010, and June 30, 2011, and as such, the carrying value of variable-rate debt under the Company’s senior credit facility of $130.2 million approximates its estimated fair value.

Note 6. Investments

Investments consisted of the following at June 30, 2011, and December 31, 2010 (in thousands):

		Accounting				Percent				June 30,				December 31,
		Method				Ownership				2011				2010
The Detroit Legal News Publishing, LLC		Equity					35.0	%		$	12,271			$	13,154
Other		Equity					19.5	%			627				654
Total										$	12,898			$	13,808

For the three and six months ended June 30, 2011, and 2010 , the equity (loss) in earnings of affiliates is as follows (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
The Detroit Legal News Publishing, LLC		$	459			$	1,084			$	1,216			$	2,512
Other			(18	)			—				(27	)			—
Total		$	441			$	1,084			$	1,189			$	2,512

The Detroit Legal News Publishing, LLC: The Company owns a 35% membership interest in The Detroit Legal News Publishing, LLC, or (“DLNP”). DLNP publishes ten legal newspapers, along with one quarterly magazine, all located in southern Michigan. The Company accounts for this investment using the equity method. Under DLNP’s membership operating agreement, the Company receives quarterly distributions based on its ownership percentage.

The difference between the Company’s carrying value and its 35% share of the members’ equity of DLNP relates principally to an underlying customer list at DLNP that is being amortized over its estimated economic life through 2015.

The following tables summarize certain key information relating to the Company’s investment in DLNP as of June 30, 2011, and December 31, 2010, and for the three and six months ended June 30, 2011, and 2010 (in thousands):

		As of June 30,				As of December 31,
		2011				2010
Carrying value of investment		$	12,271			$	13,154
Underlying finite-lived customer list, net of amortization			6,660				7,143

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Equity in earnings of DLNP, net of amortization of customer list		$	459			$	1,084			$	1,216			$	2,512
Distributions received			700				1,400				2,100				3,500
Amortization expense			377				377				754				754

Note 7. Intangible Assets

Indefinite-Lived Intangible Assets: Indefinite-lived intangible assets consist of trade names and goodwill. The Company has determined that these assets have an indefinite life and therefore will not be amortized. The Company reviews indefinite-lived intangible assets annually on November 30 for impairment or whenever an indicator is identified which suggests an impairment may be present.

The following table represents the balances of indefinite-lived intangible assets by segment as of June 30, 2011, and December 31, 2010 (in thousands):

		June 30,				December 31,
		2011				2010
Goodwill
Mortgage Default Processing Services		$	131,709			$	131,709
Litigation Support Services			23,651				23,651
Business Information			62,844				61,833
Total goodwill			218,204				217,193
Tradenames
Mortgage Default Processing Services			6,537				6,537
Business Information			1,677				1,643
Total tradenames			8,214				8,180
Total indefinite-lived intangible assets		$	226,418			$	225,373

The change in goodwill and tradenames in the Business Information segment resulted from the Company’s finalization in the first quarter of 2011 of its estimate of fair value of the December 2010 Datastream acquisition.

Finite-Life Intangible Assets: Total amortization expense for finite-lived intangible assets for the three months ended June 30, 2011, and 2010, was approximately $4.4 million and $4.0 million, respectively, and for the six months ended June 30, 2011, and 2010, was approximately $8.9 million and $8.0 million, respectively.

Note 8. Long-Term Debt, Capital Lease Obligation

A summary of long-term debt is as follows (in thousands):

		June 30,				December 31,
		2011				2010
Senior secured debt (see below):
Senior variable-rate term note, payable in quarterly installments with a balloon		$	47,500			$	50,000
Senior variable-rate revolving note			82,700				84,000
Total senior secured debt			130,200				134,000
Unsecured notes payable			3,693				4,886
Capital lease obligations			151				260
			134,044				139,146
Less current portion			8,992				7,578
Long-term debt, less current portion		$	125,052			$	131,568

Senior Secured Debt: As of June 30, 2011, the Company and its consolidated subsidiaries have a credit agreement with a syndicate of banks for a $205.0 million senior secured credit facility comprised of a term loan facility in an initial aggregate amount of $50.0 million due and payable in quarterly installments with a final maturity date of December 6, 2015, and a revolving credit facility in an aggregate amount of up to $155.0 million, which may be increased pursuant to an “accordion” feature to up to $200.0 million, with a final maturity date of December 6, 2015.

At June 30, 2011, the Company had net unused available capacity of approximately $72.3 million on its revolving credit facility, after taking into account the senior leverage ratio requirements under the credit facility. The Company expects to use the remaining availability under this credit facility, if needed, for working capital, potential acquisitions, stock buy-backs and other general corporate purposes.

Note 9. Common Stock

In December 2010, the Company’s board of directors approved a stock buy-back plan. This plan allows the Company to repurchase up to 2 million shares of issued and outstanding common stock at prevailing market prices or negotiated prices at any time through December 31, 2013. The number of shares and the timing of the purchases will be determined at the discretion of management. During the six months ended June 30, 2011, the Company repurchased 137,500 shares under this plan at an average price of $12.27 per share, for a total of $1.7 million, all of which were repurchased in the first quarter.

Note 10. Income Taxes

The provision for income taxes for the six months ended June 30, 2011, and 2010, was $4.1 million and $11.7 million, respectively, or 38.8% and 37.4% of income before income taxes. The provision for income taxes during the six months ended June 30, 2011 and 2010 is comprised of federal, state and local income taxes. The primary difference between the Company’s effective tax rate and the statutory federal rate is state income taxes. This difference is partially offset by earnings of the Company’s noncontrolling interests, which are not subject to federal income tax payable by the Company.

Note 11. Major Customers and Related Parties

NDeX has eight law firm customers and, of those customers, Trott & Trott and the Barrett law firm (both related parties) comprised 11.5% and 20.5%, respectively, of the Company’s total revenues for the three months ended June 30, 2011, and 12.3% and 22.4%, respectively, of the Company’s total revenues for the six months ended June 30, 2011.

NDeX has entered into long-term services agreements with its law firm customers, including Trott & Trott and the Barrett law firm, that provide for the exclusive referral of mortgage default and other files for processing, and provide for the possibility of annual increases in the fixed fee per file that NDeX charges its law firm customers.

Note 12. Reportable Segments

The Company has two operating divisions: Professional Services and Business Information. Its Professional Services Division, which provides professional services supporting primarily attorneys and/or their clients, comprises two reporting segments: Mortgage Default Processing Services and Litigation Support Services. The Mortgage Default Processing Services segment generates revenue from NDeX, which provides mortgage default processing and related services to its customers. The Litigation Support Services segment generates revenue by providing discovery management and document review services through DiscoverReady and appellate services through Counsel Press, LLC. Both of these operating segments generate revenues through fee-based arrangements. The Business Information segment provides products, data and certain services through subscription-based products and a variety of media, including court and commercial newspapers, weekly business journals and the Internet. The Business Information segment generates revenues primarily from display and classified advertising (including events), public notices, and subscriptions and other. The Company determined its reportable segments based on the types of products sold and services performed.

The tables below reflect summarized financial information concerning the Company’s reportable segments for the three and six months ended June 30, 2011, and 2010 (in thousands):

		Professional Services
		Mortgage
		Default				Litigation				Business
		Processing				Support				Information				Corporate				Total
Three Months Ended June 30, 2011
Revenues		$	32,689			$	15,727			$	21,023			$	—			$	69,439
Direct operating expenses			16,584				6,352				8,373				—				31,309
Selling, general and administrative expenses			10,594				4,645				9,396				2,193				26,828
Amortization and depreciation			3,401				997				1,596				168				6,162
Equity in earnings of affiliates			—				—				441				—				441
Operating income (loss)		$	2,110			$	3,733			$	2,099			$	(2,361	)		$	5,581
Three Months Ended June 30, 2010
Revenues		$	39,706			$	16,748			$	22,755			$	—			$	79,209
Direct operating expenses			16,830				7,031				7,624				—				31,485
Selling, general and administrative expenses			9,514				4,420				9,398				2,307				25,639
Amortization and depreciation			4,435				858				1,231				172				6,696
Equity in earnings of affiliates			—				—				1,084				—				1,084
Operating income (loss)		$	8,927			$	4,439			$	5,586			$	(2,479	)		$	16,473

		Professional Services
		Mortgage
		Default				Litigation				Business
		Processing				Support				Information				Corporate				Total
Six Months Ended June 30, 2011
Revenues		$	70,544			$	29,828			$	41,615			$	—			$	141,987
Direct operating expenses			34,260				12,178				16,711				—				63,149
Selling, general and administrative expenses			20,924				9,642				19,737				4,299				54,602
Amortization and depreciation			6,944				1,941				3,394				340				12,619
Equity in earnings of affiliates			—				—				1,189				—				1,189
Operating income (loss)		$	8,416			$	6,067			$	2,962			$	(4,639	)		$	12,806
Six Months Ended June 30, 2010
Revenues		$	82,141			$	30,339			$	43,707			$	—			$	156,187
Direct operating expenses			33,805				12,246				14,540				—				60,591
Selling, general and administrative expenses			19,803				8,419				18,254				4,351				50,827
Amortization and depreciation			8,877				1,683				2,519				346				13,425
Equity in earnings of affiliates			—				—				2,512				—				2,512
Operating income (loss)		$	19,656			$	7,991			$	10,906			$	(4,697	)		$	33,856

Note 13. Share-Based Compensation

Total share-based compensation expense for the three months ended June 30, 2011, and 2010, was approximately $1.2 million and $0.8 million, respectively, before income taxes. Total share-based compensation expense for the six months ended June 30, 2011, and 2010, was approximately $2.0 million and $1.4 million, respectively, before income taxes.

The Company has reserved 4.8 million shares of its common stock for issuance under its incentive compensative plan of which there were 1.7 million shares available for issuance as of June 30, 2011.

Stock Options: Share-based compensation expense related to stock options for the three months ended June 30, 2011, and 2010, was approximately $0.7 million and $0.5 million, respectively, before income taxes and for the six months ended June 30, 2011, and 2010, was approximately $1.2 million and $0.9 million, respectively, before income taxes.

The following weighted average assumptions were used to estimate the fair value of stock options granted in 2011:

Dividend yield			0.0	%
Expected volatility			47 – 50	%
Risk free interest rate			1.8 – 2.1	%
Expected term of options		4.25 – 5.5		years
Weighted average grant date fair value		$	4.36 – 5.15

The following table represents stock option activity for the six months ended June 30, 2011:

														Weighted
						Weighted				Weighted				Average
						Average Grant				Average				Remaining
		Number				Date Fair				Exercise				Contractual
		of Shares				Value				Price				Life (in years)
Outstanding options at December 31, 2010			1,945,770			$	4.83			$	13.50				4.82
Granted			453,885				4.61				10.48				—
Canceled or forfeited			(55,384	)			4.99				13.44				—
Outstanding options at June 30, 2011			2,344,271			$	4.79			$	12.91				4.81
Options exercisable at June 30, 2011			1,140,691			$	4.67			$	13.59				4.00

At June 30, 2011, the aggregate intrinsic value of both options outstanding and options exercisable was approximately $0.5 million. At June 30, 2011, there was approximately $4.4 million of unrecognized compensation cost related to outstanding options, which is expected to be recognized over a weighted-average period of 2.9 years.

Restricted Stock Grants: Share-based compensation expense related to grants of restricted stock for the three months ended June 30, 2011, and 2010, was approximately $0.5 million and $0.3 million, respectively, before income taxes and for the six months ended June 30, 2011, and 2010, was approximately $0.9 million and $0.5 million, respectively, before income taxes.

The following table represents a summary of nonvested restricted stock activity for the six months ended June 30, 2011:

						Weighted Average
		Number of Shares				Grant Date Fair Value
Nonvested, December 31, 2010			324,906			$	12.62
Granted			212,437				10.48
Vested			(95,250	)			12.44
Canceled or forfeited			(8,900	)		$	12.87
Nonvested, June 30, 2011			433,193			$	11.60

Total unrecognized compensation expense for unvested restricted shares of common stock as of June 30, 2011, was approximately $4.0 million, which is expected to be recognized over a weighted-average period of 3.1 years.

Note 14. Contingencies and Commitments

Litigation: From time to time, the Company is subject to certain claims and lawsuits that have arisen in the ordinary course of its business. Although the outcome of such existing matters cannot presently be determined, it is management’s opinion that the ultimate resolution of such existing matters will not have a material adverse effect on the Company’s results of operations or financial position.

Note 15. Subsequent Events

On July 25, 2011, the Company, through DiscoverReady, completed the acquisition of substantially all of the assets of ACT Litigation Services, Inc. (“ACT”) for (i) an upfront payment of approximately $60.0 million in cash that was paid in full at closing, plus (ii) up to $5.0 million in potential additional purchase price that will be held back by the Company for a period of 20 months (subject to partial early release) to secure certain obligations of ACT and its shareholders, plus (iii) an earnout payment based primarily upon the extent to which an agreed-upon multiple of ACT’s pro forma EBITDA for the year ended December 31, 2011, exceeds the base purchase price of $65.0 million, plus (iv) two additional earnout payments of up to a maximum of $15.0 million in the aggregate that are contingent upon reaching certain revenue milestones for the years ended December 31, 2012, and 2013. All of the earnout payments are subject to certain set-off rights of the Company under the purchase agreement.

Due to the timing of the acquisition, the Company has not yet completed, and therefore it is not practical to include, its estimate of the fair value of the assets acquired, liabilities assumed or contingent consideration. Accordingly, it is also not practical to include proforma financial statements. The acquired assets will become part of the Company’s Litigation Support Services segment within its Professional Services Division. Goodwill, while not yet estimated, will be fully deductible for tax purposes, and will be allocated to the DiscoverReady reporting unit as part of the Litigation Support Services segment. Deal costs associated with this acquisition are expected to be approximately $0.5 million.

ACT specializes in providing technology and process solutions to clients with electronic discovery needs, and also provides hosting and review services. The Company completed this acquisition because it is a strategic fit with DiscoverReady. ACT generated revenues of $19.9 million for the year ended December 31, 2010, and on a trailing 12 month basis for the 12 months ended June 30, 2011, has generated $30.5 million in revenues.

The Company borrowed $60.0 million under its revolving credit facility to fund the closing payments in connection with this acquisition and, after giving effect to this borrowing, has $142.0 million outstanding on its revolving credit facility.

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

We recommend that you read the following discussion and analysis in conjunction with our unaudited condensed consolidated interim financial statements and the related notes included in this report.

In this quarterly report on Form 10-Q, unless the context requires otherwise, the terms “we,” “us,” and “our” refer to The Dolan Company and its consolidated subsidiaries. When we refer to “National Default Exchange” or “NDeX” in this report, we mean all of our mortgage default processing operations in Michigan, Indiana and Minnesota and at Barrett-NDEx (collectively referred to as the “existing NDeX business”), as well as the Florida mortgage default and related title operations acquired from the Albertelli sellers in October 2009. When we refer to “Barrett-NDEx” in this report, it means the entities that constitute the mortgage default processing operations serving the Texas, California and Georgia markets that NDeX acquired on September 2, 2008. The term “Barrett law firm” refers to Barrett Daffin Frappier Turner & Engel, LLP and its two law firm affiliates. When we refer to the “Albertelli sellers” in this report, it means James E. Albertelli, P.A., The Albertelli Firm, P.C., Albertelli Title, Inc. and James E. Albertelli, as a group. We also refer to James E. Albertelli, P.A. and The Albertelli Firm, P.C., together, as the “Albertelli law firm.” The term “Trott sellers” in this report means David A. Trott, Ellen Coon, Trustee of the Ellen Coon Living Trust u/a/d 9/9/98, Marcy J. Ford, Trustee of the Marcy Ford Revocable Trust u/a/d 7/12/04, William D. Meagher, Trustee of the William D. Meagher Trust u/a/d 8/24/07, and Jeanne M. Kivi, Trustee of the Jeanne M. Kivi Trust u/a/d 8/24/07, as a group.

Forward-Looking Statements

This discussion and analysis contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Forward-looking statements are statements such as those contained in projections, plans, objectives, estimates, statements of future performance, and assumptions relating to any of the foregoing and can often be identified by the use of words such as “may,” “will,” “expect,” “anticipate,” “believe,” “intend,” “estimate,” “goal,” “continue,” and similar words or expressions. By their nature, forward-looking statements are based on information currently available to us and are subject to risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. These risks, uncertainties and other factors include:

•

our businesses operate in highly competitive markets and depend on the economies and demographics of the legal, financial and real estate markets we serve, and changes in those sectors could have an adverse effect on our revenues, cash flows, and profitability;

•

if the number of case files referred to us by our mortgage default processing service law firm customers (or loan servicers and mortgage lenders we serve directly for mortgage default files in California) decreases or fails to increase, our operating results and ability to execute our growth strategy could be adversely affected;

•

bills introduced and laws enacted to mitigate foreclosures, voluntary relief programs and voluntary halts or moratoria by servicers or lenders, as well as governmental investigations, enforcement actions, litigation and court orders, may have an adverse affect on our mortgage default processing services and public notice operations;

•

growing our business may place a strain on our management and internal systems, processes and controls, may result in operating inefficiencies, and may negatively impact our operating margins;

•

we intend to continue to pursue acquisition opportunities, which we may not do successfully and which may subject us to considerable business and financial risk or require us to raise additional capital or incur additional indebtedness;

•

we depend on our senior management team and other key leaders of our business segments, and the operation and growth of our business may be negatively impacted if we lose any of their services;

•

revenues of our subsidiary NDeX and our subsidiary DiscoverReady are each very concentrated among a few customers, thus the loss of business from these customers and a failure to attract new customers could adversely affect our operating results; and

•

certain key personnel of our subsidiary NDeX, who are also shareholders and principal attorneys of our law firm customers, may under certain circumstances have interests that differ from or conflict with our interests.

See “Risk Factors” in Item 1A of our annual report on Form 10-K for the year ended December 31, 2010, filed on March 11, 2011, with the SEC for a description of these and other risks, uncertainties and factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, any forward-looking statements. You should not place undue reliance on any forward-looking statements. Except as otherwise required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this report.

Overview

We are a leading provider of necessary professional services and business information to legal, financial and real estate sectors in the United States. We serve our customers through two complementary operating divisions: our Professional Services Division and our Business Information Division. Our Professional Services Division comprises two reporting segments: mortgage default processing services and litigation support services. Through our subsidiary, NDeX, we provide mortgage default processing services to eight law firm customers located in Florida, Georgia, Indiana, Michigan, Minnesota, and Texas, as well as directly to mortgage lenders and loan servicers on residential real estate located in California. Our subsidiaries DiscoverReady and Counsel Press comprise our litigation support services reporting segment. DiscoverReady provides outsourced discovery management and document review services to major United States companies and their counsel. Counsel Press provides appellate services to law firms and attorneys nationwide. Our Business Information Division publishes business journals, court and commercial media and other highly focused information products and services, operates web sites and produces events for targeted professional audiences in 21 geographic markets across the United States. Our information is delivered through a variety of methods, including more than 60 print publications and more than 80 web sites. Through subscription-based offerings, our Business Information Division also offers transcription services and access to our legislative databases which provide federal and state legislative and regulatory information.

Our total revenues decreased $9.8 million, or 12.3%, from $79.2 million for the three months ended June 30, 2010, to $69.4 million for the three months ended June 30, 2011, primarily as a result of a $7.0 million decrease in our mortgage default processing services revenues, a $1.7 million decrease in our Business Information Division revenues and a $1.0 million decrease in our litigation support services revenues. The decrease in mortgage default processing services revenues was driven primarily by a decrease in the number of foreclosure files received for processing and change in the mix of types of files, as discussed below. Net income attributable to The Dolan Company decreased to $2.6 million for the second quarter of 2011 from $8.6 million for the same period in 2010.

Recent Developments

Acquisition of ACT Litigation Services, Inc.

On July 25, 2011, we, through DiscoverReady, completed the acquisition of substantially all of the assets of ACT Litigation Services, Inc. (“ACT”) for (i) an upfront payment of approximately $60.0 million in cash that was paid in full at closing, plus (ii) up to $5.0 million in potential additional purchase price that will be held back for a period of 20 months (subject to partial early release) to secure certain obligations of ACT and its shareholders, plus (iii) an earnout payment based primarily upon the extent to which an agreed-upon multiple of ACT’s pro forma EBITDA for the year ended December 31, 2011, exceeds the base purchase price of $65.0 million, plus (iv) two additional earnout payments of up to a maximum of $15.0 million in the aggregate that are contingent upon reaching certain revenue milestones for the years ended December 31, 2012, and 2013. All of the earnout payments are subject to certain set-off rights under the purchase agreement.

The Company used funds available under its revolving line of credit to fund the closing payments in connection with this acquisition. The acquired operations of ACT will become part of the Company’s Litigation Support Services segment within its Professional Services Division.

ACT specializes in providing technology and process solutions to clients with electronic discovery needs. It also provides hosting and review services.

Increase in our ownership in DiscoverReady

In May 2011, we purchased approximately one-third of the outstanding membership units in DiscoverReady held by DR Holdco for approximately $5.0 million in cash. As a result, our ownership percentage in DiscoverReady increased from 85.3% to 90.0%, and the noncontrolling interest decreased from 14.7% to 10.0%.

Stock Buy-Back Plan

Our board of directors approved a stock buy-back plan effective as of the closing of our new credit agreement on December 6, 2010. This plan allows us to repurchase up to 2 million shares of issued and outstanding common stock at prevailing market prices or negotiated prices through December 31, 2013. The number of shares and the timing of the purchases will be determined at the discretion of management. During the first six months of 2011, we repurchased 137,500 shares under this plan for an aggregate of $1.7 million, all of which were purchased in the first quarter.

Regulatory Environment

There are two general areas of regulatory activity, federal and state. In the federal sector, in April 2011, 14 major mortgage servicers signed consent orders with the Board of Governors of The Federal Reserve System and the Office of the Comptroller of the Currency (OCC), agreeing to submit action plans detailing how they will comply with new requirements for servicing defaulted loans.

The consent agreements required improvements to certain internal processes and enhanced controls related to third-party vendors that provide services related to residential default or foreclosure, including the law firm customers of NDeX. The consent agreements required the servicers to complete revisions in foreclosure processing by approximately June 15, 2011, to the satisfaction of the Federal Reserve and the OCC, and to reorganize their related foreclosure operations to follow the amended procedures by approximately August 15, 2011. In June the OCC gave the banks 30-day extensions on these deadlines. The OCC is now reviewing the plans the banks submitted. The OCC has indicated that it may require changes to the plans provided and that it is in discussions with the United States Department of Justice and other federal and state authorities to finalize and synchronize the plans into a consistent set of servicing requirements. In June 2011, the OCC issued guidance clarifying that, in addition to the 14 large mortgage servicers subject to the agency’s enforcement action, all mortgage servicers under OCC supervision must assure compliance with all appropriate foreclosure management standards. The bulletin also directed all national banks to conduct a self-assessment of foreclosure management practices no later than September 30, 2011, and to correct any weaknesses identified. National bank examiners will review the self-assessments and corrective actions in the next quarterly review or examination of the bank.

The OCC deadlines for reports and compliance have continued the heightened governmental scrutiny that residential mortgage foreclosure servicers have been experiencing for the past several quarters, since the “robo-signing” issues hit the media. Servicers have reacted to this heightened scrutiny by reviewing and verifying their policies and procedures, applying more scrutiny to pending foreclosures, and then releasing into foreclosure only those cases that have been carefully reviewed. Many servicers have also reacted to this environment of increased scrutiny by requesting additional information and process verification from law firms and other third-party vendors. These servicer actions have sharply reduced, though not completely stopped, the number of mortgage defaults being referred to begin foreclosure. We continue to believe that the reduction in foreclosure referrals is likely to continue until the new procedures are in place, but that a large number of pre-foreclosures and pending foreclosures remain to be undertaken and completed.

In July 2011, the Consumer Financial Protection Bureau outlined its approach to supervising large depository institutions to ensure compliance with federal consumer protection laws. This supervisory process, which applies to the 111 depository institutions with total assets of more than $10 billion, began on July 21, 2011.

Meanwhile, at the state level, the attorneys general of all 50 states announced late in 2010 a joint effort to investigate the mortgage servicing industry and to negotiate with mortgage servicers in hopes of achieving changes in the foreclosure process as well as possible payment of financial penalties and an increased level of mortgage loan modifications. While these officials in most states lack direct regulatory authority over mortgage servicers, the attorneys general have indicated a willingness to act in the courts if necessary to enforce their negotiating positions. Their discussions with the mortgage servicers have not resulted in agreements and based on public statements, the efforts do not appear to be coordinated or moving toward common ground. Meanwhile approximately a dozen of the attorneys general have withdrawn from these negotiations and have expressed their support for the federal regulatory steps described above.

For additional information about legislation and regulatory activity impacting or potentially impacting our business, please see “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments—Regulatory Environment” in our annual report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 11, 2011, as well as the “Regulatory Environment” discussions in our prior reports filed with the SEC on Form 10-Q and Form 10-K.

Recent Acquisitions

We have grown significantly since our predecessor company commenced operations in 1992, in large part due to acquisitions, such as the ACT acquisition discussed in “Recent Developments” above and the following two acquisitions that occurred in 2010:

DataStream Content Solutions, LLC: On December 1, 2010, we acquired DataStream Content Solutions, LLC (“DataStream”). In connection with this acquisition, we paid the sellers $15.0 million in cash at closing, held back $1.5 million payable 18 months after closing to secure indemnification claims, and are obligated to pay up to an additional $4.0 million in earnouts in two annual installments. The amount of the two annual earnout payments is based upon the acquired business achieving certain EBITDA targets during the calendar years ending December 31, 2011, and 2012.

Federal News Service, Inc.: On August 9, 2010, we acquired certain assets of Federal News Service, Inc. (“Federal News”) for approximately $1.7 million in cash.

Revenues

We derive revenues from two operating divisions, our Professional Services Division and our Business Information Division, operating as three reportable segments: (1) mortgage default processing services; (2) litigation support services; and (3) business information. For the three and six months ended June 30, 2011, our total revenues were $69.4 million and $142.0 million, respectively, and the percentage of our total revenues attributed to each of our divisions and segments was as follows:

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70% and 71%, respectively, from our Professional Services Division (47% and 50%, respectively, from mortgage default processing services and 23% and 21%, respectively, from litigation support services); and

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30% and 29%, respectively, from our Business Information Division.

Professional Services. Our Professional Services Division generates revenues primarily by providing mortgage default processing, outsourced discovery management and document review, and appellate services through fee-based arrangements. We further break down our Professional Services Division into two reportable segments, mortgage default processing services and litigation support services.

Mortgage Default Processing Services. Through NDeX, we assist eight law firms in processing foreclosure, bankruptcy, eviction and, to a lesser extent, other mortgage default case files for residential mortgages that are in default. We also provide foreclosure processing services directly to mortgage lenders and loan servicers for properties located in California. In addition, NDeX provides loan modification and loss mitigation support on mortgage default files to its customers and related real estate title work primarily to the Barrett and Albertelli law firms. We refer to revenues that NDeX derives from these sources collectively as “mortgage default processing service revenues.” Shareholders and/or principal attorneys of our law firm customers, including David A. Trott, chairman and chief executive officer of NDeX, are executive management employees of NDeX.

For the three and six months ended June 30, 2011, we received for processing approximately 80,800 and 173,100 mortgage default case files, respectively. The mix of types of files received for processing changed as more fully described below in Professional Services Division Results, resulting in a shift from higher revenue files to lower revenue files. Our mortgage default processing service revenues accounted for 47% and 50%, respectively, of our total revenues and 68% and 70%, respectively, of our Professional Services Division revenues during the three and six months ended June 30, 2011. For the six months ended June 30, 2011, each of the Barrett Law Firm, Trott & Trott and Albertelli law firm accounted for more than 10% of our mortgage default processing services revenues, with the Barrett Law Firm accounting for 45%, Trott & Trott accounting for 25%, and Albertelli law firm accounting for 13% of these revenues. We recognize mortgage default processing service revenues on a proportional basis over the period during which the services are provided, the calculation of which requires management to make estimates. For more information regarding how we recognize revenue, please see “Critical Accounting Policies and Estimates — Revenue Recognition” in Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations in our annual report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 11, 2011.

NDeX’s revenues are primarily driven by the number of residential mortgage defaults in each of the states in which we do business, as well as the type of files we process (e.g., foreclosures, evictions, bankruptcies or litigation) because each has a different pricing structure. Although the services agreements with our law firm customers contemplate the review and possible revision of the fees for the services we provide, price increases have not historically affected our mortgage default processing revenues materially. In some cases, our services agreements adjust the fee paid to us for the files we process on an annual basis pursuant to an agreed-upon consumer price index. In other cases, our services agreements require us to agree with our law firm customer regarding the terms and amount of any fee increase. If we are unable to negotiate fixed fee increases under these agreements that at least take into account the increases in costs associated with providing mortgage default processing services, our operating and net margins could be adversely affected. You should refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations—Revenues in our annual report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 11, 2011, for more information about the conditions when the fixed fee per file we charge our law firm customers may change.

Deferred revenue includes payments for mortgage default processing services billed in advance that we expect to recognize in future periods due to the extended period of time it takes to process certain files. At June 30, 2011, we had such deferred revenue on our balance sheet in the amount of $13.7 million.

Litigation Support Services. Our litigation support services segment generates revenues by providing discovery management and document review services through DiscoverReady and appellate services through Counsel Press. For the three and six months ended June 30, 2011, our litigation support services revenues accounted for 23% and 21%, respectively, of our total revenues and 32% and 30%, respectively, of our Professional Services Division revenues. We recognize litigation support services revenues during the month in which the services are provided. In the case of Counsel Press, this is when our final appellate product is filed with the court.

DiscoverReady provides its services to major United States companies and their counsel and assists them in document reviews and helping them manage the discovery process. Discovery is the process by which parties use the legal system to obtain relevant information, primarily in litigation and regulatory matters. This process can be expensive and time-consuming for companies depending upon the volume of emails, electronic files and paper documents a company must review to respond to a document request. DiscoverReady also provides related technology management services. DiscoverReady bills its customers primarily based upon the number of documents reviewed and the amount of data or other information it processes in connection with those reviews. Accordingly, our discovery management and document review services revenues are largely determined by the volume of data we review.

Counsel Press assists law firms and attorneys throughout the United States in organizing, preparing and filing appellate briefs, records and appendices, in paper and electronic formats that comply with the applicable rules of the U.S. Supreme Court, any of the 13 federal courts of appeals and any state appellate court or appellate division. Counsel Press charges its customers primarily on a per-page basis based on the final appellate product that is filed with the court clerk. Accordingly, our appellate service revenues are largely determined by the volume of appellate cases we handle and the number of pages in the appellate cases we file.

Business Information. Our Business Information Division generates revenues primarily from display and classified advertising, public notice and subscriptions. We sell commercial advertising consisting of display and classified advertising in all of our print products and on most of our web sites. We include within our display and classified advertising revenue those revenues generated by sponsorships, advertising and ticket sales generated by our local events. Our display and classified advertising revenues accounted for 10% and 9%, respectively, of our total revenues and 33% and 31%, respectively, of our Business Information Division revenues for the three and six months ended June 30, 2011. We recognize display and classified advertising revenues upon publication of an advertisement in one of our publications or on one of our web sites. Advertising revenues are driven primarily by the volume, price and mix of advertisements published as well as how many local events are held.

We publish more than 300 different types of public notices in our court and commercial newspapers, including foreclosure notices, probate notices, notices of fictitious business names, limited liability company and other business entity notices, unclaimed property notices, notices of governmental hearings and trustee sale notices. For the three and six months ended June 30, 2011, our public notice revenues accounted for 40% and 41%, respectively, of our Business Information Division revenues and 12% of our total revenues for both periods. We recognize public notice revenues upon placement of a public notice in one of our court and commercial newspapers. Public notice revenues are driven by the volume and mix of public notices published, which can be affected by the number of residential mortgage foreclosures in the markets where we are qualified to publish public notices and the rules governing publication of public notices in such states. In many of the states in which we publish public notices, the price for public notices is statutorily regulated, with market forces determining the pricing for the remaining states.

We sell our business information products, including our DataStream and Federal News products, primarily through subscriptions. For the three and six months ended June 30, 2011, our subscription and other revenues, which consist primarily of subscriptions, single-copy sales, transcriptions and access to state and federal legislative information, accounted for 27% and 28%, respectively, of our Business Information Division revenues and 8% of our total revenues for both periods. We recognize subscription revenues ratably over the subscription periods, which range from three months to multiple years, with the average subscription period being twelve months. Deferred revenue includes payment for subscriptions collected in advance that we expect to recognize in future periods. At June 30, 2011, we had such deferred revenue on our balance sheet in the amount of $7.8 million. Subscription and other revenues are driven primarily by the number of copies sold and the subscription rates charged to customers.

Operating Expenses

Our operating expenses consist of the following:

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Direct operating expenses, which consist primarily of the cost of compensation and employee benefits for the processing staff at NDeX, DiscoverReady, and Counsel Press and our editorial personnel in our Business Information Division, production and distribution expenses, such as compensation (including stock-based compensation expense) and employee benefits for personnel involved in the production and distribution of our business information products, the cost of newsprint and delivery of our business information products, and file-specific data services and technology fees in connection with our California foreclosure files;

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Selling, general and administrative expenses, which consist primarily of the cost of compensation (including stock-based compensation expense) and employee benefits for our sales, human resources, accounting and information technology personnel, publishers and other members of management, rent, other sales and marketing related expenses and other office-related payments;

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Depreciation expense, which represents the cost of fixed assets and software allocated over the estimated useful lives of these assets, with such useful lives ranging from two to thirty years; and

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Amortization expense, which represents the cost of finite-life intangible assets acquired through business combinations allocated over the estimated useful lives of these intangibles, with such useful lives ranging from two to thirty years.

Total operating expenses as a percentage of revenues depends upon our mix of business from Professional Services, which is our higher margin revenue, and Business Information. This mix may continue to shift between fiscal periods.