##### Table of Contents



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
 For the Quarterly Period Ended: March 31, 2009
 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: 001-33603
 Dolan Media 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
 þ o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
 Yes o No þ




---



##### 



PART I  FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1Condensed Consolidated Balance Sheets as of March 31, 2009 (unaudited) and December 31, 2008
    
    
    1Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2009 and March 31, 2008
    
    
    2Unaudited Condensed Consolidated Statements of Stockholders Equity as of March 31, 2009
    
    
    3Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and March 31, 2008
    
    
    4Notes to Unaudited Condensed Consolidated Interim Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    34Item 4. Controls and Procedures
    
    
    35PART II  OTHER INFORMATION
    
    
    35Item 1. Legal Proceedings
    
    
    35Item 1A. Risk Factors
    
    
    35Item 2. Unregistered Sales of Securities and Use of Proceeds
    
    
    35Item 3. Defaults Upon Senior Securities
    
    
    36Item 4. Submission of Matters to a Vote of Security Holders
    
    
    36Item 5. Other Information
    
    
    36Item 6. Exhibits
    
    
    36SIGNATURES
    
    
    37Exhibit 10.4Section 302 Certification of James P. DolanSection 302 Certification of Scott J. PolleiSection 906 Certification of James P. DolanSection 906 Certification of Scott J. Pollei




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Dolan Media Company
 
 Condensed Consolidated Balance Sheets
 (in thousands, except share data)
 March 31,
    
    
    December 31,2009
    
    
    2008(unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    6,121
    
    
    $
    2,456Accounts receivable, including unbilled
services (net of allowances for doubtful
accounts of $1,263 and $1,398 as of March
31, 2009 and December 31, 2008,
respectively)
    
    
    51,575
    
    
    
    38,776Unbilled pass-through costs
    
    
    10,238
    
    
    
    7,164Prepaid expenses and other current assets
    
    
    2,670
    
    
    
    4,881Deferred income taxes
    
    
    397
    
    
    
    397Total current assets
    
    
    71,001
    
    
    
    53,674Investments
    
    
    17,123
    
    
    
    17,126Property and equipment, net
    
    
    20,188
    
    
    
    21,438Finite-life intangible assets, net
    
    
    250,968
    
    
    
    254,917Goodwill
    
    
    119,008
    
    
    
    118,983Other assets
    
    
    4,782
    
    
    
    5,166Total assets
    
    $
    483,070
    
    
    $
    471,304LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesCurrent portion of long-term debt
    
    $
    11,100
    
    
    $
    12,048Accounts payable
    
    
    7,549
    
    
    
    9,116Accrued pass-through liabilities
    
    
    23,930
    
    
    
    21,598Accrued compensation
    
    
    6,461
    
    
    
    7,673Accrued liabilities
    
    
    6,788
    
    
    
    2,738Due to sellers of acquired businesses
    
    
    1,250
    
    
    
    75Deferred revenue
    
    
    14,784
    
    
    
    13,014Total current liabilities
    
    
    71,862
    
    
    
    66,262Long-term debt, less current portion
    
    
    140,400
    
    
    
    143,450Deferred income taxes
    
    
    16,079
    
    
    
    18,266Deferred revenue and other liabilities
    
    
    4,987
    
    
    
    5,136Total liabilities
    
    
    233,328
    
    
    
    233,114Redeemable noncontrolling interest
    
    
    21,509
    
    
    
    15,760Commitments and contingencies (Note 12)Stockholders equityCommon
stock, $0.001 par value; authorized: 70,000,000 shares; outstanding: 29,950,943
and 29,955,018 shares as of March 31, 2009
and December 31, 2008, respectively
    
    
    30
    
    
    
    30Preferred stock, $0.001 par value;
authorized: 5,000,000 shares; designated: 5,000 shares of Series A Junior
Participating Preferred Stock; no shares
outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    288,466
    
    
    
    291,310Accumulated deficit
    
    
    (60,263
    )
    
    
    (68,910
    )Total stockholders equity
    
    
    228,233
    
    
    
    222,430Total liabilities and stockholders equity
    
    $
    483,070
    
    
    $
    471,304
   1




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##### Table of Contents



Dolan Media Company
 
 Unaudited Condensed Consolidated Statements of Operations
 (in thousands, except share and per share data)
 Three Months EndedMarch 31,2009
    
    
    2008RevenuesProfessional Services
    
    $
    42,032
    
    
    $
    18,740Business Information
    
    
    21,904
    
    
    
    22,771Total revenues
    
    
    63,936
    
    
    
    41,511Operating expensesDirect operating: Professional Services
    
    
    15,458
    
    
    
    6,311Direct operating: Business Information
    
    
    7,450
    
    
    
    7,572Selling, general and administrative
    
    
    20,736
    
    
    
    16,103Amortization
    
    
    5,124
    
    
    
    2,219Depreciation
    
    
    2,123
    
    
    
    1,101Total operating expenses
    
    
    50,891
    
    
    
    33,306Equity in earnings of The Detroit Legal News Publishing, LLC
    
    
    1,397
    
    
    
    1,557Operating income
    
    
    14,442
    
    
    
    9,762Non-operating income (expense)Interest expense, net of interest income
    
    
    (1,970
    )
    
    
    (1,296
    )Non-cash interest income (expense) related to interest rate swaps
    
    
    234
    
    
    
    (1,155
    )Other income
    
    
    1,446
    
    
    
    11Total non-operating expense
    
    
    (290
    )
    
    
    (2,440
    )Income before income taxes
    
    
    14,152
    
    
    
    7,322Income tax expense
    
    
    (4,317
    )
    
    
    (2,758
    )Net income
    
    
    9,835
    
    
    
    4,564Less: Net income attributable to the redeemable noncontrolling interest
    
    
    (1,188
    )
    
    
    (557
    )Net income attributable to Dolan Media Company
    
    $
    8,647
    
    
    $
    4,007Earnings per share  basic:Net income attributable to Dolan Media Company
    
    $
    0.29
    
    
    $
    0.16Accretion of redeemable noncontrolling interest, net of tax, in
conjunction with adoption of SFAS No. 160
    
    
    (0.11
    )
    
    
    Net income attributable to Dolan Media Company common stockholders
    
    $
    0.18
    
    
    $
    0.16Weighted average shares outstanding  basic
    
    
    29,805,722
    
    
    
    24,936,007Earnings per share  diluted:Net income attributable to Dolan Media Company
    
    $
    0.29
    
    
    $
    0.16Accretion of redeemable noncontrolling interest, net of tax, in
conjunction with adoption of SFAS No. 160
    
    
    (0.11
    )
    
    
    Net income attributable to Dolan Media Company common stockholders
    
    $
    0.18
    
    
    $
    0.16Weighted average shares outstanding  diluted
    
    
    29,871,913
    
    
    
    25,215,956
   2




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##### Table of Contents



Dolan Media Company
 
 Unaudited Condensed Consolidated Statements of Stockholders Equity
 (in thousands, except share data)
 AdditionalCommon Stock
    
    
    Paid-In
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    TotalBalance (deficit) at December 31, 2007
    
    
    25,088,718
    
    
    $
    25
    
    
    $
    212,364
    
    
    $
    (83,213
    )
    
    $
    129,176Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,303
    
    
    
    14,303Private placement of common stock,
net of offering costs
    
    
    4,000,000
    
    
    
    4
    
    
    
    60,483
    
    
    
    
    
    
    
    60,487Issuance of common stock in a
business acquisition
    
    
    825,528
    
    
    
    1
    
    
    
    16,460
    
    
    
    
    
    
    
    16,461Issuance of common stock pursuant to
the exercise of stock options under
the 2007 incentive compensation plan
    
    
    8,089
    
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    21Stock-based compensation expense,
including issuance of restricted
stock (shares are net of forfeitures)
    
    
    32,683
    
    
    
    
    
    
    
    1,918
    
    
    
    
    
    
    
    1,918Tax benefit on stock options exercised
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    
    
    
    
    64Balance (deficit) at December 31, 2008
    
    
    29,955,018
    
    
    $
    30
    
    
    $
    291,310
    
    
    $
    (68,910
    )
    
    $
    222,430Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,647
    
    
    
    8,647Accretion of redeemable
noncontrolling interest, net of tax
    
    
    
    
    
    
    
    
    
    
    (3,350
    )
    
    
    
    
    
    
    (3,350
    )Net income attributable to Dolan
Media Company common stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,297Stock-based compensation expense
(shares are net of forfeitures)
    
    
    (4,075
    )
    
    
    
    
    
    
    506
    
    
    
    
    
    
    
    506Balance (deficit) at March 31, 2009
    
    
    29,950,943
    
    
    $
    30
    
    
    $
    288,466
    
    
    $
    (60,263
    )
    
    $
    228,233
   3




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##### Table of Contents



Dolan Media Company
 
 Unaudited Condensed Consolidated Statements of Cash Flows
 (in thousands)
 Three Months EndedMarch 31,2009
    
    
    2008Cash flows from operating activitiesNet income
    
    $
    9,835
    
    
    $
    4,564Distributions received from The Detroit Legal News Publishing, LLC
    
    
    1,400
    
    
    
    1,400Distributions paid to holders of noncontrolling interest
    
    
    (976
    )
    
    
    (373
    )Non-cash operating activities:Amortization
    
    
    5,124
    
    
    
    2,219Depreciation
    
    
    2,123
    
    
    
    1,101Equity in earnings of The Detroit Legal News Publishing, LLC
    
    
    (1,397
    )
    
    
    (1,557
    )Stock-based compensation expense
    
    
    506
    
    
    
    399Change in value of interest rate swap and accretion of interest on
note payable
    
    
    (230
    )
    
    
    1,209Amortization of debt issuance costs
    
    
    62
    
    
    
    47Changes in operating assets and liabilities, net of effects of
business acquisitions:Accounts receivable
    
    
    (15,873
    )
    
    
    (5,837
    )Prepaid expenses and other current assets
    
    
    2,211
    
    
    
    (2
    )Other assets
    
    
    (6
    )
    
    
    115Accounts payable and accrued liabilities
    
    
    3,984
    
    
    
    (302
    )Deferred revenue
    
    
    1,739
    
    
    
    769Net cash provided by operating activities
    
    
    8,502
    
    
    
    3,752Cash flows from investing activitiesAcquisitions and investments
    
    
    (25
    )
    
    
    (17,422
    )Capital expenditures
    
    
    (810
    )
    
    
    (1,442
    )Net cash used in investing activities
    
    
    (835
    )
    
    
    (18,864
    )Cash flows from financing activitiesNet payments on senior revolving note
    
    
    
    
    
    
    (9,000
    )Proceeds from borrowings or conversions on senior term notes (Note 6)
    
    
    
    
    
    
    25,000Payments on senior long-term debt
    
    
    (2,250
    )
    
    
    (625
    )Capital contribution from holder of noncontrolling interest
    
    
    
    
    
    
    1,179Payment on unsecured note payable
    
    
    (1,750
    )
    
    
    (1,750
    )Payments of deferred financing costs
    
    
    (2
    )
    
    
    (1
    )Net cash (used) provided by financing activities
    
    
    (4,002
    )
    
    
    14,803Net increase (decrease) in cash and cash equivalents
    
    
    3,665
    
    
    
    (309
    )Cash and cash equivalents at beginning of the period
    
    
    2,456
    
    
    
    1,346Cash and cash equivalents at end of the period
    
    $
    6,121
    
    
    $
    1,037
   4




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##### Table of Contents



Notes to Unaudited Condensed Consolidated Interim Financial Statements
 Note 1. Nature of Business and Significant Accounting Policies
 Basis of Presentation
    Use of Derivative Instruments:
 Fair Value of Financial Instruments:
 New Accounting Pronouncements:
  5




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##### Table of Contents



Note 2. Basic and Diluted Income Per Share
   6




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##### Table of Contents



in thousands, except per
share amounts
 Three Months Ended March 31,2009
    
    
    2008Net income attributable to Dolan Media Company
    
    $
    8,647
    
    
    $
    4,007Accretion of redeemable noncontrolling interest, net of tax
    
    
    (3,350
    )
    
    
    Net income attributable to Dolan Media Company common stockholders
    
    $
    5,297
    
    
    $
    4,007Basic:Weighted average common shares outstanding
    
    
    29,953
    
    
    
    25,085Weighted average common shares of unvested restricted stock
    
    
    (147
    )
    
    
    (149
    )Shares used in the computation of basic net income per share
    
    
    29,806
    
    
    
    24,936Net income attributable to Dolan Media Company common stockholders per share  basic
    
    $
    0.18
    
    
    $
    0.16Diluted:Shares used in the computation of basic net income per share
    
    
    29,806
    
    
    
    24,936Stock options and restricted stock
    
    
    66
    
    
    
    280Shares used in the computation of dilutive net income per share
    
    
    29,872
    
    
    
    25,216Net income attributable to Dolan Media Company common stockholders per share  diluted
    
    $
    0.18
    
    
    $
    0.16
  Note 3. Acquisitions
  Wilford & Geske
 National Default Exchange, L.P. and related entities:
   7




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##### Table of Contents



Pro Forma Information (unaudited): (in thousands, except per share data):
 Three MonthsEndedMarch 31, 2008Pro FormaTotal revenues
    
    $
    60,690Net income attributable to Dolan Media Company common stockholders
    
    
    4,366Net income per share:Basic
    
    $
    0.17Diluted
    
    $
    0.17Actual/Pro forma weighted average shares outstanding:Basic
    
    
    25,762Diluted
    
    
    25,422
 Note 4. Investments
 (in thousands)
 Accounting
    
    Percent
    
    March 31,
    
    
    December 31,Method
    
    Ownership
    
    2009
    
    
    2008The Detroit Legal News Publishing, LLC
    
    Equity
    
    35
    
    $
    16,223
    
    
    $
    16,226GovDelivery, Inc.
    
    Cost
    
    15
    
    
    900
    
    
    
    900Total
    
    
    
    
    
    $
    17,123
    
    
    $
    17,126
 The Detroit Legal News Publishing, LLC:
   8




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##### Table of Contents



(in thousands)
 As of March 31,
    
    
    As of December 31,2009
    
    
    2008Carrying value of investment
    
    $
    16,223
    
    
    $
    16,226Underlying finite-lived customer list, net of amortization
    
    
    10,052
    
    
    
    10,429
 Three Months Ended March 31,2009
    
    
    2008Equity in earnings of DLNP, net of amortization of customer list
    
    $
    1,397
    
    
    $
    1,557Distributions received
    
    
    1,400
    
    
    
    1,400Amortization expense
    
    
    376
    
    
    
    377
 (in thousands)
 Three Months Ended March 31,2009
    
    
    2008Revenues
    
    $
    11,949
    
    
    $
    12,405Cost of revenues
    
    
    4,769
    
    
    
    4,742Gross profit
    
    
    7,180
    
    
    
    7,663Selling, general and administrative expenses *
    
    
    1,726
    
    
    
    1,706Operating income *
    
    
    5,454
    
    
    
    5,957Net income
    
    $
    5,068
    
    
    $
    5,527Companys 35% share of net income
    
    $
    1,773
    
    
    $
    1,934Less amortization of intangible assets
    
    
    376
    
    
    
    377Equity in earnings of DLNP, LLC
    
    $
    1,397
    
    
    $
    1,577
 *
    
    For comparison purposes only, the Company has changed the selling, general and administrative
expenses and operating income presented here for the three months ended March 31, 2008 from those
previously reported to reflect current year treatment of Michigan business taxes as a non-operating
expense as a result of changes in Michigan tax law. Note 5. Goodwill and Finite-life Intangible Assets
 Goodwill: (in thousands)
 March 31,
    
    
    December 31,2009
    
    
    2008Professional Services
    
    $
    59,776
    
    
    $
    59,751Business Information
    
    
    59,232
    
    
    
    59,232Total
    
    $
    119,008
    
    
    $
    118,983
 Finite-Life Intangible Assets:
  9




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Note 6. Long-Term Debt, Capital Lease Obligation
 (in thousands)
 March 31,
    
    
    December 31,2009
    
    
    2008Senior secured debt (see below):Senior variable-rate term note, payable in quarterly
installments with a balloon payment due August 8,
2014
    
    $
    151,500
    
    
    $
    153,750Senior variable-rate revolving note due August 8, 2012
    
    
    
    
    
    
    Total senior secured debt
    
    
    151,500
    
    
    
    153,750Unsecured note payable
    
    
    
    
    
    
    1,746Capital lease obligations
    
    
    
    
    
    
    2151,500
    
    
    
    155,498Less current portion
    
    
    11,100
    
    
    
    12,048Long-term debt, less current portion
    
    $
    140,400
    
    
    $
    143,450
 Senior Secured Debt:
  Unsecured Note Payable :
 Note 7. Common and Preferred Stock
  Note 8. Income Taxes
  Note 9. Other Income (Expense)
   10




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Note 10. Major Customers and Related Parties
  Note 11. Reportable Segments
  Reportable Segments
Three Months Ended March 31, 2009 and 2008
 Professional
    
    
    BusinessServices
    
    
    Information
    
    
    Corporate
    
    
    Total(In thousands)Three Months Ended March 31, 2009Revenues
    
    $
    42,032
    
    
    $
    21,904
    
    
    $
    
    
    
    $
    63,936Direct operating expenses
    
    
    15,458
    
    
    
    7,450
    
    
    
    
    
    
    
    22,908Selling, general and administrative expenses
    
    
    10,025
    
    
    
    8,422
    
    
    
    2,289
    
    
    
    20,736Amortization and depreciation
    
    
    5,681
    
    
    
    1,287
    
    
    
    279
    
    
    
    7,247Equity in Earnings of DLNP, LLC
    
    
    
    
    
    
    1,397
    
    
    
    
    
    
    
    1,397Operating income (loss)
    
    $
    10,868
    
    
    $
    6,142
    
    
    $
    (2,568
    )
    
    $
    14,442Three Months Ended March 31, 2008Revenues
    
    $
    18,740
    
    
    $
    22,771
    
    
    $
    
    
    
    $
    41,511Direct operating expenses
    
    
    6,311
    
    
    
    7,572
    
    
    
    
    
    
    
    13,883Selling, general and administrative expenses
    
    
    4,657
    
    
    
    9,622
    
    
    
    1,824
    
    
    
    16,103Amortization and depreciation
    
    
    1,983
    
    
    
    1,158
    
    
    
    179
    
    
    
    3,320Equity in Earnings of DLNP, LLC
    
    
    
    
    
    
    1,557
    
    
    
    
    
    
    
    1,557Operating income (loss)
    
    $
    5,789
    
    
    $
    5,976
    
    
    $
    (2,003
    )
    
    $
    9,762
 Note 12. Share-Based Compensation
   Stock Options:
  11




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##### Table of Contents



WeightedAverage
    
    
    Weighted
    
    
    WeightedAverageNumber of
    
    
    Grant Date
    
    
    Average
    
    
    RemainingShares
    
    
    Fair Value
    
    
    Exercise Price
    
    
    Contractual LifeOutstanding options at December 31, 2008
    
    
    1,352,992
    
    
    $
    4.54
    
    
    $
    14.21
    
    
    6.06 Yrs.Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Canceled or forfeited
    
    
    (9,311
    )
    
    
    4.81
    
    
    
    15.29
    
    
    
    Outstanding options at March 31, 2009
    
    
    1,343,681
    
    
    $
    4.54
    
    
    $
    14.20
    
    
    5.81 Yrs.Options exercisable at March 31, 2009
    
    
    288,881
    
    
    $
    3.78
    
    
    $
    10.99
    
    
    5.90 Yrs.
  Restricted Stock Grants:
 WeightedAverageNumber
    
    
    Grant Dateof Shares
    
    
    Fair ValueNonvested, December 31, 2008
    
    
    149,296
    
    
    $
    15.30Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Canceled or forfeited
    
    
    (4,075
    )
    
    
    14.97Nonvested, March 31, 2009
    
    
    145,221
    
    
    $
    15.31
  Note 13. Contingencies and Commitments
 Litigation:
 Note 14. Subsequent Events
   12




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  
    
    our business operates in highly competitive markets and depends upon the economies and
the demographics of the legal, financial and real estate sectors in the markets we serve
and changes in those sectors could have an adverse effect on our revenues, cash flows and
profitability;
 
    
    a decrease in paid subscriptions to our print publications could continue to adversely
affect our circulation revenues to the extent we are not able to sufficiently continue
increasing our print subscription rates and adversely affect our advertising and display
revenues to the extent advertisers begin placing fewer print advertisements with us due to
print decreased readership;
 
    
    we have owned and operated our APC business for a short period of time;
 
    
    APCs business revenues are very concentrated, as APC currently provides mortgage
default processing services to six law firm customers, and if the number of case files
referred to APC by these law firm customers decreases or fails to increase, our operating
results and ability to execute our growth strategy could be adversely affected;
 
    
    the key attorneys at each of APCs law firm customers are employed by APC, some of whom,
including David A. Trott, the chairman and chief executive officer of APC, also hold an
indirect equity interest in APC. As a result, these key attorneys may, in certain
circumstances, have interests that differ from or conflict with our interests;
 
    
    government regulation of sub-prime, Alt-A and other residential mortgage products,
including bills introduced in states where we do business, the Hope for Homeowners Act, the
Emergency Economic Stabilization Act and Homeowner Affordability and Stability Plan, and
voluntary foreclosure relief programs developed by lenders, loan servicers and the Hope Now
Alliance, a consortium that includes loan servicers, may have an adverse affect on and
restrict our mortgage default processing services and public notice operations;
 
    
    a key component of our operating income and operating cash flows has been, and may
continue to be, our minority equity investment in The Detroit Legal News Publishing, LLC;
 
    
    we are dependent on our senior management team, especially James P. Dolan, our founder,
chairman, president and chief executive officer; Scott J. Pollei, our executive vice
president and chief financial officer; Mark W.C. Stodder, our executive vice
president-business information; and David A. Trott, chairman and chief executive officer,
APC;
  13




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##### Table of Contents




    
    we intend to continue to pursue acquisition opportunities, which we may not do
successfully and which may subject us to considerable business and financial risks;
 
    
    growing our business may place a strain on our management and internal systems,
processes and controls;
 
    
    we incurred additional indebtedness to close the acquisition of NDEx and this additional
debt consumed a significant portion of our ability to borrow and may limit our ability to
pursue other acquisitions or growth strategies;
 
    
    the acquisition of NDEx may expose us to particular business and financial risks that
include, but are not limited to: (1) diverting managements time, attention and resources
from managing the business; (2) incurring significant additional capital expenditures and
operating expenses to improve, coordinate or integrate managerial, operational, financial
and administrative systems; (3) failing to integrate the operations, personnel and internal
controls of NDEx into APC or to manage NDEx or our growth; and (4) facing operational
difficulties in new markets or with new product and service offerings; and
 
    
    if our goodwill or finite-life intangible assets become impaired, we may be required to
record a significant charge to earnings.
    Overview
    14




---



##### Table of Contents



Recent Developments
 Regulatory Environment
    Adoption of Stockholder Rights Plan
     15




---



##### Table of Contents



Recent Acquisitions
       Revenues
  
    
    65.7% from our Professional Services Division; and
 
    
    34.3% from our Business Information Division.
  16




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##### Table of Contents



Professional Services.
 Reporting Revenue Gross as a Principal versus Net as an Agent .
   17




---



##### Table of Contents



,
  Business Information.
    18




---



##### Table of Contents



Operating Expenses
  
    
    Direct operating expenses, which consist primarily of the cost of compensation and
employee benefits for the processing staff at APC 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 the cost of delivery of our business information products, and
packaging and data service fees in connection with our California foreclosure files;
 
    
    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;
 
    
    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
 
    
    Amortization expense, which represents the cost of finite-lived intangibles acquired
through business combinations allocated over the estimated useful lives of these
intangibles, with such useful lives ranging from one to thirty years.
  Equity in Earnings of The Detroit Legal News Publishing
   Noncontrolling Interest
   19




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##### Table of Contents



Three Months Ended March 31,2009
    
    
    2008APC Investments
    
    $
    486
    
    
    $
    300Feiwell & Hannoy
    
    
    109
    
    
    
    73Sellers of NDEx (as a group)*
    
    
    381
    
    
    
    Total
    
    $
    976
    
    
    $
    373
 *
    
    Members of APC since September 2, 2008.  Critical Accounting Policies and Estimates
     20




---



##### Table of Contents



Goodwill, Other Intangible Assets and Other Long-Lived Assets
   Share-based Compensation Expense
  Income Taxes
   21




---



##### Table of Contents



Accounts Receivable Allowances
   New Accounting Pronouncements
  Non-GAAP Financial Measures
  Adjusted EBITDA
 before
 
    
    interest expense, net;
 
    
    income tax expense;
 
    
    depreciation and amortization;
 
    
    non-cash compensation expense;
 
    
    non-recurring income and/or expense; and
 
    
    noncontrolling interest;
 after
 
    
    distributions paid to holders of noncontrolling interest.
  22




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##### Table of Contents



Managements Use of Adjusted EBITDA
       23




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##### Table of Contents



Three Months Ended March 31,2009
    
    
    2008Net income attributable to Dolan Media Company
    
    $
    8,647
    
    
    $
    4,007Interest expense, net
    
    
    1,736
    
    
    
    2,451Income tax expense
    
    
    4,317
    
    
    
    2,758Amortization of intangibles
    
    
    5,124
    
    
    
    2,219Depreciation expense
    
    
    2,123
    
    
    
    1,101Amortization of DLNP intangible
    
    
    376
    
    
    
    377Non-cash compensation expense
    
    
    506
    
    
    
    399Non-recurring (income) expense
    
    
    (1,435
    )
    
    
    Noncontrolling interest
    
    
    1,188
    
    
    
    557Cash distributions to holders of noncontrolling interest
    
    
    (976
    )
    
    
    (373
    )Adjusted EBITDA
    
    $
    21,606
    
    
    $
    13,496
 Cash Earnings and Cash Earnings per Diluted Share
 before
 
    
    non-cash interest income related to the change in fair value of interest rate swaps;
 
    
    non-cash compensation expense;
 
    
    amortization expense;
 
    
    non-recurring (income) expense; and
 
    
    an adjustment to income tax expense related to the reconciling items relating to the
above at the appropriate tax rate (then-in-effect).
  Managements Use of Cash Earnings and Cash Earnings Per Diluted Share
   24




---



##### Table of Contents



in thousands, except share and per share data
 Three Months Ended March 31,2009
    
    
    2008Net income attributable to Dolan Media Company
    
    $
    8,647
    
    
    $
    4,007Non-cash interest (income) expense related to the
change in fair value of interest rate swaps
    
    
    (234
    )
    
    
    1,155Non-cash compensation expense
    
    
    506
    
    
    
    399Amortization of intangibles
    
    
    5,124
    
    
    
    2,219Amortization of DLNP intangible
    
    
    376
    
    
    
    377Non-recurring (income) expense
    
    
    (1,435
    )
    
    
    Adjustment to income tax expense related to reconciling
items at effective tax rate
    
    
    (2,477
    )
    
    
    (1,660
    )Cash earnings
    
    $
    10,507
    
    
    $
    6,497Net income
attributable to Dolan Media Company per diluted share
    
    $
    0.29
    
    
    $
    0.16Accretion of redeemable noncontrolling interest, net of
tax, in conjunction with adoption of SFAS No. 160
    
    
    (0.11
    )
    
    
    Net income attributable to Dolan Media Company common
stockholders per diluted share (GAAP)
    
    $
    0.18
    
    
    $
    0.16Cash earnings per diluted share
    
    $
    0.35
    
    
    $
    0.26Weighted average diluted shares outstanding
    
    
    29,871,913
    
    
    
    25,215,956
  25




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##### Table of Contents



RESULTS OF OPERATIONS
 in thousands, except per share data
 Three Months Ended March 31,% of
    
    
    
    
    
    
    % of2009
    
    
    Revenues
    
    
    2008
    
    
    RevenuesRevenues:Professional Services
    
    $
    42,032
    
    
    
    65.7
    %
    
    $
    18,740
    
    
    
    45.1
    %Business Information
    
    
    21,904
    
    
    
    34.3
    %
    
    
    22,771
    
    
    
    54.9
    %Total revenues
    
    
    63,936
    
    
    
    100
    %
    
    
    41,511
    
    
    
    100.0
    %Operating expenses:Professional Services
    
    
    31,164
    
    
    
    48.7
    %
    
    
    12,951
    
    
    
    31.2
    %Business Information
    
    
    17,159
    
    
    
    26.8
    %
    
    
    18,352
    
    
    
    44.2
    %Unallocated corporate operating expenses
    
    
    2,568
    
    
    
    4.0
    %
    
    
    2,003
    
    
    
    4.8
    %Total operating expenses
    
    
    50,891
    
    
    
    79.6
    %
    
    
    33,306
    
    
    
    80.2
    %Equity in earnings of The Detroit Legal News
Publishing, LLC, net of amortization
    
    
    1,397
    
    
    
    2.2
    %
    
    
    1,557
    
    
    
    3.8
    %Operating income
    
    
    14,442
    
    
    
    22.6
    %
    
    
    9,762
    
    
    
    23.5
    %Interest expense, net
    
    
    (1,970
    )
    
    
    (3.1
    )%
    
    
    (1,296
    )
    
    
    (3.1
    )%Non-cash interest income (expense) related to
interest rate swaps
    
    
    234
    
    
    
    (0.4
    )%
    
    
    (1,155
    )
    
    
    (2.8
    )%Other income, net
    
    
    1,446
    
    
    
    2.3
    %
    
    
    11
    
    
    
    0.0
    %Income before income taxes
    
    
    14,152
    
    
    
    22.1
    %
    
    
    7,322
    
    
    
    17.6
    %Income tax expense
    
    
    (4,317
    )
    
    
    (6.8
    )%
    
    
    (2,758
    )
    
    
    (6.6
    )%Net income before noncontrolling interest
    
    
    9,835
    
    
    
    15.4
    %
    
    
    4,564
    
    
    
    11.0
    %Less: Net income attributable to the
redeemable noncontrolling interest
    
    
    (1,188
    )
    
    
    (1.9
    )%
    
    
    (557
    )
    
    
    (1.3
    )%Net income attributable to Dolan Media Company
    
    $
    8,647
    
    
    
    13.5
    %
    
    $
    4,007
    
    
    
    9.7
    %Adjusted EBITDA (non-GAAP)*
    
    $
    21,606
    
    
    
    33.8
    %
    
    $
    13,496
    
    
    
    32.5
    %Cash earnings (non-GAAP)*
    
    $
    10,507
    
    
    
    16.4
    %
    
    $
    6,497
    
    
    
    15.7
    %Net income
attributable to Dolan Media Company per diluted share (GAAP)
    
    $
    0.29
    
    
    
    
    
    
    $
    0.16Accretion of
redeemable noncontrolling interest, net of tax, in conjunction with
adoption of SFAS No. 160
    
    $
    (0.11
    )
    
    
    
    
    
    
    Net income attributable to Dolan Media
Company common stockholders per diluted share
(GAAP)
    
    $
    0.18
    
    
    
    
    
    
    $
    0.16Cash earnings per diluted share (non-GAAP)*
    
    $
    0.35
    
    
    
    
    
    
    $
    0.26Weighted average diluted shares outstanding
    
    
    29,872
    
    
    
    
    
    
    
    25,216
 *
    
    Please refer to Non-GAAP Financial Measures above for a reconciliation of these non-GAAP
measures to GAAP as well as the reasons why we consider them an important measure of our performance.  26




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##### Table of Contents



Three Months Ended March 31, 2009
Compared to Three Months Ended March 31, 2008
 Revenues
 Three Months Ended March 31,2009
    
    
    2008
    
    
    Increase($s in millions)Total revenues
    
    $
    63.9
    
    
    $
    41.5
    
    
    $
    22.4
    
    
    
    54.0
    %
 The Mecklenburg Times
   Operating Expenses
 Three Months Ended March 31,2009
    
    
    2008
    
    
    Increase($s in millions)Total operating expenses
    
    $
    50.9
    
    
    $
    33.3
    
    
    $
    17.6
    
    
    
    52.8
    %Direct operating expense
    
    
    22.9
    
    
    
    13.9
    
    
    
    9.0
    
    
    
    65.0
    %Selling, general and administrative expenses
    
    
    20.7
    
    
    
    16.1
    
    
    
    4.6
    
    
    
    28.8
    %Depreciation expense
    
    
    2.1
    
    
    
    1.1
    
    
    
    1.0
    
    
    
    92.8
    %Amortization expense
    
    
    5.1
    
    
    
    2.2
    
    
    
    2.9
    
    
    
    130.9
    %
   27




---



##### Table of Contents



Direct Operating Expenses.
 Selling, General and Administrative Expenses.
 Depreciation and Amortization Expense.
 Other Income, Net
 Three Months Ended March 31 ,2009
    
    
    2008
    
    
    Increase($s in millions)Other income, net
    
    $
    1.4
    
    
    $
    
    
    
    $
    1.4
    
    
    
    100.
    %
  Adjusted EBITDA (non-GAAP)
 Three Months Ended March 31,2009
    
    
    2008
    
    
    Increase($s in millions)Adjusted EBITDA
    
    $
    21.6
    
    
    $
    13.5
    
    
    $
    8.1
    
    
    
    60.0
    %Adjusted EBITDA margin
    
    
    33.8
    %
    
    
    32.5
    %
    
    
    1.3
    %
    
    
    3.9
    %
   28




---



##### Table of Contents



Cash Earnings and Cash Earnings per Diluted Share (non-GAAP)
 Three Months Ended March 31,2009
    
    
    2008
    
    
    IncreaseCash earnings (in millions)
    
    $
    10.5
    
    
    $
    6.5
    
    
    $
    4.0
    
    
    
    61.7
    %Cash earning per diluted share
    
    $
    0.35
    
    
    $
    0.26
    
    
    $
    0.09
    
    
    
    36.5
    %
  Interest Expense, Net
 Three Months Ended March 31,2009
    
    
    2008
    
    
    Increase (decrease)($s in millions)Total interest expense, net
    
    $
    2.0
    
    
    $
    1.3
    
    
    $
    0.7
    
    
    
    52.0
    %Interest on bank credit facility
    
    
    1.6
    
    
    
    1.1
    
    
    
    0.5
    
    
    
    43.4
    %Cash interest expense on interest rate swaps
    
    
    0.3
    
    
    
    
    
    
    
    0.3
    
    
    Not materialAmortization of deferred financing fees
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    Not materialOther
    
    
    
    
    
    
    0.1
    
    
    
    (0.1
    )
    
    Not material
  Non-Cash Interest (Income) Expense Related to Interest Rate Swaps
 Three Months Ended March 31,2009
    
    
    2008
    
    
    Decrease($s in millions)Non-cash interest
(income) expense
related to interest
rate swaps
    
    $
    (0.2
    )
    
    $
    1.2
    
    
    $
    (1.4
    )
    
    
    (120.3
    )%
  Income Tax Expense
 Three Months Ended March 31,2009
    
    
    2008
    
    
    Increase($s in millions)Income tax expense
    
    $
    4.3
    
    
    $
    2.8
    
    
    $
    1.6
    
    
    
    56.5
    %
  Professional Services Division Results
 Revenues
 Three Months Ended March 31,2009
    
    
    2008
    
    
    Increase($s in millions)Total Professional Services Division revenues
    
    $
    42.0
    
    
    $
    18.7
    
    
    $
    23.3
    
    
    
    124.3
    %Mortgage default processing service revenues
    
    
    38.3
    
    
    
    15.0
    
    
    
    23.3
    
    
    
    155.0
    %Appellate services revenues
    
    
    3.7
    
    
    
    3.7
    
    
    
    
    
    
    
    0.1
    %
  29




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##### Table of Contents



Operating Expenses
 Three Months Ended March 31,2009
    
    
    2008
    
    
    Increase($s in millions)Total operating expenses
    
    $
    31.2
    
    
    $
    13.0
    
    
    $
    18.2
    
    
    
    140.6
    %Direct operating expense
    
    
    15.5
    
    
    
    6.3
    
    
    
    9.1
    
    
    
    144.9
    %Selling, general and
administrative expenses
    
    
    10.0
    
    
    
    4.7
    
    
    
    5.4
    
    
    
    115.3
    %Depreciation expense
    
    
    1.4
    
    
    
    0.5
    
    
    
    0.9
    
    
    
    168.5
    %Amortization expense
    
    
    4.3
    
    
    
    1.5
    
    
    
    2.8
    
    
    
    192.7
    %
     30




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##### Table of Contents



Business Information Division Results
 Revenues
 Three Months Ended March 31,2009
    
    
    2008
    
    
    Increase (decrease)($s in millions)Total Business Information Division Revenues
    
    $
    21.9
    
    
    $
    22.8
    
    
    $
    (0.9
    )
    
    
    (3.8
    )%Display and classified advertising revenues
    
    
    6.8
    
    
    
    8.1
    
    
    
    (1.3
    )
    
    
    (16.3
    )%Public notice revenues
    
    
    11.3
    
    
    
    10.6
    
    
    
    0.7
    
    
    
    6.2
    %Circulation revenues
    
    
    3.4
    
    
    
    3.5
    
    
    
    (0.1
    )
    
    
    (3.1
    )%Other revenues
    
    
    0.5
    
    
    
    0.5
    
    
    
    (0.1
    )
    
    
    (17.0
    )%
     Operating Expenses
 Three Months Ended March 31,2009
    
    
    2008
    
    
    Increase (decrease)($s in millions)Total operating expenses
    
    $
    17.2
    
    
    $
    18.4
    
    
    $
    (1.2
    )
    
    
    (6.5
    )%Direct operating expense
    
    
    7.5
    
    
    
    7.6
    
    
    
    (0.1
    )
    
    
    (1.6
    )%Selling, general and administrative expenses
    
    
    8.4
    
    
    
    9.6
    
    
    
    (1.2
    )
    
    
    (12.5
    )%Depreciation expense
    
    
    0.5
    
    
    
    0.4
    
    
    
    0.1
    
    
    
    15.9
    %Amortization expense
    
    
    0.8
    
    
    
    0.7
    
    
    
    0.1
    
    
    
    8.5
    %
   31




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##### Table of Contents



Off Balance Sheet Arrangements
  Liquidity and Capital Resources
  March 31,
    
    
    December 31,2009
    
    
    2008Cash and cash equivalents
    
    $
    6,121
    
    
    $
    2,456Working capital deficit
    
    
    (861
    )
    
    
    (12,588
    )Long-term debt, less current portion
    
    
    140,400
    
    
    
    143,450
 Three Months Ended March 31,2009
    
    
    2008Net cash provided by operating activities
    
    $
    8,502
    
    
    $
    3,752Net cash used in investing activities:
    
    
    (835
    )
    
    
    (18,864
    )Acquisitions and investments
    
    
    (25
    )
    
    
    (17,422
    )Capital expenditures
    
    
    (810
    )
    
    
    (1,442
    )Net cash (used) provided by financing activities
    
    
    (4,002
    )
    
    
    14,803
 Cash Flows Provided by Operating Activities
     March 31,
    
    
    December 31,2009
    
    
    2008Allowance for doubtful accounts as a percentage of gross accounts receivable
    
    
    2.4
    %
    
    
    3.5
    %Day sales outstanding
    
    
    76.6
    
    
    
    62.6
   32




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##### Table of Contents



Cash Flows Used by Investing Activities
    Cash Flows (Used) Provided by Financing Activities
    33




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##### Table of Contents



Credit Agreement.
   Future Needs
    
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 .
  34




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##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Securities and Use of Proceeds
   35




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##### Table of Contents



Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 ExhibitNo
    
    Title
    
    Method of Filing4.1
    
    
    Rights Agreement, dated as of January 29,
2009, by and between Dolan Media Company
and Mellon Investors Services LLC, as
Rights Agent
    
    Incorporated by
reference to
Exhibit 4.1 of our
current report on
Form 8-K filed with
the SEC on February
3, 200910.1
    
    
    Letter Agreement of James P. Dolan dated
February 3, 2009
    
    Incorporated by
reference to
Exhibit 10.1 of our
current report on
Form 8-K filed with
the SEC on February
3, 200910.2
    
    
    Letter Agreement of Scott J. Pollei dated
February 3, 2009
    
    Incorporated by
reference to
Exhibit 10.2 of our
current report on
Form 8-K filed with
the SEC on February
3, 200910.3
    
    
    Letter Agreement of Mark W.C. Stodder dated
February 3, 2009
    
    Incorporated by
reference to
Exhibit 10.3 of our
current report on
Form 8-K filed with
the SEC on February
3, 200910.4
    
    
    First Amendment to the Services Agreement
between American Processing Company, LLC
and Wilford & Geske dated April 24, 2009
    
    Filed herewith31.1
    
    
    Section 302 Certification of James P. Dolan
    
    Filed herewith31.2
    
    
    Section 302 Certification of Scott J. Pollei
    
    Filed herewith32.1
    
    
    Section 906 Certification of James P. Dolan
    
    Furnished herewith32.2
    
    
    Section 906 Certification of Scott J. Pollei
    
    Furnished herewith
  36




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##### Table of Contents



SIGNATURES
  Dated: May 6, 2009
    DOLAN MEDIA COMPANYBy:
    /s/ James P. DolanJames P. DolanChairman, Chief Executive Officer and President
(Principal Executive Officer)Dated: May 6, 2009By:
    /s/ Scott J. PolleiScott J. PolleiExecutive Vice President and Chief Financial Officer
(Principal Financial Officer)Dated: May 6, 2009By:
    /s/ Vicki J. DuncombVicki J. DuncombVice President, Finance
(Principal Accounting Officer)  37




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##### Table of Contents



Exhibit Index
 ExhibitNo
    
    Title
    
    Method of Filing10.4
    
    
    First Amendment to the Services Agreement
between American Processing Company, LLC
and Wilford & Geske dated April 24, 2009
    
    Filed herewith31.1
    
    
    Section 302 Certification of James P. Dolan
    
    Filed herewith31.2
    
    
    Section 302 Certification of Scott J. Pollei
    
    Filed herewith32.1
    
    
    Section 906 Certification of James P. Dolan
    
    Furnished herewith32.2
    
    
    Section 906 Certification of Scott J. Pollei
    
    Furnished herewith
  38