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FORM 10-Q UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   (Mark One)/x/
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 26, 2004
  / /
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the transition period from  to
 Commission File Number 1-14541   PULITZER INC.    Delaware
    
    43-1819711(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)
 900 North Tucker Boulevard, St. Louis, Missouri 63101
(Address of principal executive offices) (314) 340-8000
(Registrants telephone number, including area code) No Changes
(Former name, former address and former fiscal year, if changed since last report)   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 /x / No / /
   Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes /x/ No / /
 Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date. Class
    
    Outstanding 11/1/04Common Stock
    
    9,935,630Class B Common Stock
    
    11,686,592




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TABLE OF CONTENTS  Part I. FINANCIAL INFORMATIONItem 1. FINANCIAL STATEMENTSCONDENSED CONSOLIDATED STATEMENTS OF INCOMECONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMECONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSItem 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSItem 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKItem 4. CONTROLS AND PROCEDURESPart II. OTHER INFORMATIONItem 1. LEGAL PROCEEDINGSItem 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIESItem 6. EXHIBITSSIGNATURESEXHIBIT INDEXCertificationCertificationCertificationCertification    Table of Contents  
 Part I. FINANCIAL INFORMATION 
 Item 1. FINANCIAL STATEMENTS 
 PULITZER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited  In thousands, except earnings per share) Third Quarter Ended
    
    Nine Months EndedSept. 26,
    
    Sept. 28,
    
    Sept. 26,
    
    Sept. 28,2004
    
    2003
    
    2004
    
    2003OPERATING REVENUES:AdvertisingRetail
    
    $
    30,028
    
    
    $
    28,461
    
    
    $
    88,854
    
    
    $
    85,000National
    
    
    5,588
    
    
    
    6,411
    
    
    
    18,689
    
    
    
    20,768Classified
    
    
    35,627
    
    
    
    32,468
    
    
    
    103,383
    
    
    
    93,318Subtotal
    
    
    71,243
    
    
    
    67,340
    
    
    
    210,926
    
    
    
    199,086Preprints
    
    
    16,633
    
    
    
    14,488
    
    
    
    48,017
    
    
    
    44,023Total advertising
    
    
    87,876
    
    
    
    81,828
    
    
    
    258,943
    
    
    
    243,109Circulation
    
    
    20,087
    
    
    
    19,830
    
    
    
    61,119
    
    
    
    60,323Other
    
    
    1,767
    
    
    
    1,594
    
    
    
    5,456
    
    
    
    5,164Total operating revenues
    
    
    109,730
    
    
    
    103,252
    
    
    
    325,518
    
    
    
    308,596OPERATING EXPENSES:Payroll and other personnel expenses
    
    
    46,686
    
    
    
    44,900
    
    
    
    139,614
    
    
    
    134,973Newsprint expense
    
    
    11,875
    
    
    
    10,954
    
    
    
    34,997
    
    
    
    32,048Depreciation
    
    
    4,096
    
    
    
    3,677
    
    
    
    11,592
    
    
    
    11,061Amortization
    
    
    1,225
    
    
    
    1,139
    
    
    
    3,618
    
    
    
    3,349Other expenses
    
    
    29,516
    
    
    
    26,662
    
    
    
    88,401
    
    
    
    79,096Total operating expenses
    
    
    93,398
    
    
    
    87,332
    
    
    
    278,222
    
    
    
    260,527Equity in earnings of Tucson newspaper partnership
    
    
    4,033
    
    
    
    3,225
    
    
    
    12,226
    
    
    
    11,593Operating income
    
    
    20,365
    
    
    
    19,145
    
    
    
    59,522
    
    
    
    59,662Interest income
    
    
    1,251
    
    
    
    872
    
    
    
    3,518
    
    
    
    2,729Interest expense
    
    
    (4,966
    )
    
    
    (4,877
    )
    
    
    (14,606
    )
    
    
    (15,609
    )Net gain (loss) on marketable securities
    
    
    (34
    )
    
    
    455
    
    
    
    463
    
    
    
    513Net loss on investments
    
    
    (30
    )
    
    
    (163
    )
    
    
    (72
    )
    
    
    (1,289
    )Net other income (expense)
    
    
    3
    
    
    
    78
    
    
    
    11
    
    
    
    96INCOME BEFORE PROVISION FOR INCOME
TAXES
    
    
    16,589
    
    
    
    15,510
    
    
    
    48,836
    
    
    
    46,102PROVISION FOR INCOME TAXES
    
    
    5,785
    
    
    
    5,748
    
    
    
    17,524
    
    
    
    17,077MINORITY INTEREST IN NET EARNINGS OF
SUBSIDIARIES
    
    
    204
    
    
    
    382
    
    
    
    861
    
    
    
    1,162NET INCOME
    
    $
    10,600
    
    
    $
    9,380
    
    
    $
    30,451
    
    
    $
    27,863
 (Continued) -2-




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Third Quarter Ended
    
    Nine Months EndedSept. 26,
    
    Sept. 28,
    
    Sept. 26,
    
    Sept. 28,2004
    
    2003
    
    2004
    
    2003BASIC EARNINGS PER SHARE OF STOCK:Basic earnings per share
    
    $
    0.49
    
    
    $
    0.44
    
    
    $
    1.41
    
    
    $
    1.30Weighted average number of shares outstanding
    
    
    21,601
    
    
    
    21,414
    
    
    
    21,577
    
    
    
    21,381DILUTED EARNINGS PER SHARE OF STOCK:Diluted earnings per share
    
    $
    0.49
    
    
    $
    0.43
    
    
    $
    1.39
    
    
    $
    1.29Weighted average number of shares outstanding
    
    
    21,819
    
    
    
    21,670
    
    
    
    21,834
    
    
    
    21,571
 See notes to condensed consolidated financial statements. (Concluded) -3-




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PULITZER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited  In thousands) Third Quarter Ended
    
    Nine Months EndedSept. 26,
    
    Sept. 28,
    
    Sept. 26,
    
    Sept. 28,2004
    
    2003
    
    2004
    
    2003NET INCOME
    
    $
    10,600
    
    
    $
    9,380
    
    
    $
    30,451
    
    
    $
    27,863OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAX:Unrealized holding gains (losses) on marketable
securities arising during the period
    
    
    545
    
    
    
    (45
    )
    
    
    (503
    )
    
    
    300Realized (gains) losses arising during the period
    
    
    21
    
    
    
    (281
    )
    
    
    (287
    )
    
    
    (317
    )Other comprehensive income items
    
    
    566
    
    
    
    (326
    )
    
    
    (790
    )
    
    
    (17
    )COMPREHENSIVE INCOME
    
    $
    11,166
    
    
    $
    9,054
    
    
    $
    29,661
    
    
    $
    27,846
 See notes to condensed consolidated financial statements. -4-




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PULITZER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited  In thousands) Sept. 26,
    
    Dec. 28,2004
    
    2003ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    56,970
    
    
    $
    27,552Marketable securities
    
    
    152,704
    
    
    
    148,644Trade accounts receivable (less allowance for doubtful
accounts of $3,213 and $3,843)
    
    
    51,868
    
    
    
    54,700Inventory
    
    
    10,879
    
    
    
    7,566Income taxes receivable
    
    
    0
    
    
    
    7,097Prepaid expenses and other
    
    
    12,331
    
    
    
    9,171Total current assets
    
    
    284,752
    
    
    
    254,730PROPERTIES:Land
    
    
    9,719
    
    
    
    9,758Buildings
    
    
    73,218
    
    
    
    73,192Machinery and equipment
    
    
    145,369
    
    
    
    156,425Construction in progress
    
    
    3,221
    
    
    
    1,256Total
    
    
    231,527
    
    
    
    240,631Less accumulated depreciation
    
    
    121,908
    
    
    
    124,550Properties  net
    
    
    109,619
    
    
    
    116,081INTANGIBLE AND OTHER ASSETS:Goodwill
    
    
    815,974
    
    
    
    811,409Intangible assets  net of accumulated amortization
    
    
    35,479
    
    
    
    37,217Restricted cash and investments
    
    
    66,060
    
    
    
    54,810Other
    
    
    38,127
    
    
    
    35,426Total intangible and other assets
    
    
    955,640
    
    
    
    938,862TOTAL
    
    $
    1,350,011
    
    
    $
    1,309,673
 (Continued) -5-




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PULITZER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited  In thousands, except share data) Sept. 26,
    
    Dec. 28,2004
    
    2003LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Trade accounts payable
    
    $
    10,253
    
    
    $
    9,995Salaries, wages and commissions
    
    
    16,360
    
    
    
    15,595Interest payable
    
    
    5,697
    
    
    
    3,582Pension obligations
    
    
    1,365
    
    
    
    1,356Income taxes payable
    
    
    5,438
    
    
    
    0Other
    
    
    12,728
    
    
    
    9,766Total current liabilities
    
    
    51,841
    
    
    
    40,294LONG-TERM DEBT
    
    
    306,000
    
    
    
    306,000PENSION OBLIGATIONS
    
    
    7,998
    
    
    
    5,239POSTRETIREMENT AND POSTEMPLOYMENT
BENEFIT OBLIGATIONS
    
    
    66,810
    
    
    
    61,265OTHER LONG-TERM LIABILITIES
    
    
    43,021
    
    
    
    45,431COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Preferred stock, $.01 par value; 100,000,000 shares authorized;
Issued and outstanding  noneCommon stock, $.01 par value; 100,000,000 shares authorized;
Issued 9,903,554 in 2004 and 9,682,134 in 2003
    
    
    99
    
    
    
    97Class B common stock, convertible, $.01 par value; 100,000,000
Shares authorized; issued  11,711,592 in 2004 and
11,834,592 in 2003
    
    
    117
    
    
    
    118Additional paid-in capital
    
    
    389,779
    
    
    
    384,291Retained earnings
    
    
    495,596
    
    
    
    477,437Accumulated other comprehensive loss
    
    
    (10,941
    )
    
    
    (10,151
    )Total
    
    
    874,650
    
    
    
    851,792Unamortized restricted stock grants
    
    
    (256
    )
    
    
    (303
    )Treasury stock  at cost; 1,191 and 1,061 shares of common
stock in 2004 and 2003, respectively, and 0 shares of
Class B common stock in 2004 and 2003
    
    
    (53
    )
    
    
    (45
    )Total stockholders equity
    
    
    874,341
    
    
    
    851,444TOTAL
    
    $
    1,350,011
    
    
    $
    1,309,673
 (Concluded) See notes to condensed consolidated financial statements. -6-




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PULITZER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited  In thousands) Nine Months EndedSept. 26,
    
    Sept. 28,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    30,451
    
    
    $
    27,863Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation
    
    
    11,592
    
    
    
    11,061Amortization
    
    
    3,618
    
    
    
    3,349Stock-based compensation
    
    
    1,248
    
    
    
    928Deferred income taxes
    
    
    (3,466
    )
    
    
    4,450Net gain on sale of assets
    
    
    (463
    )
    
    
    (513
    )Net loss on investments
    
    
    72
    
    
    
    1,289Changes in current assets and liabilities (net of the effects of the
purchase and sale of properties) which provided (used) cash:Trade accounts receivable
    
    
    2,997
    
    
    
    5,455Inventory
    
    
    (3,313
    )
    
    
    542Other assets
    
    
    (2,959
    )
    
    
    (6,805
    )Trade accounts payable and other liabilities
    
    
    15,236
    
    
    
    8,810Income taxes receivable/payable
    
    
    12,535
    
    
    
    2,992NET CASH FROM OPERATING ACTIVITIES
    
    
    67,548
    
    
    
    59,421CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (5,160
    )
    
    
    (9,436
    )Purchase of newspaper properties and distribution businesses,
net of cash acquired
    
    
    (5,912
    )
    
    
    (6,065
    )Purchases of marketable securities
    
    
    (278,184
    )
    
    
    (259,184
    )Sales of marketable securities
    
    
    271,753
    
    
    
    233,489Return of capital in (investment in) joint ventures and limited
partnerships
    
    
    (1,350
    )
    
    
    (1,882
    )Increase in restricted cash and investments
    
    
    (11,250
    )
    
    
    (11,250
    )Discretionary funding of retirement obligations
    
    
    0
    
    
    
    (10,837
    )NET CASH FROM INVESTING ACTIVITIES
    
    
    (30,103
    )
    
    
    (65,165
    )CASH FLOWS FROM FINANCING ACTIVITIES:Dividends paid
    
    
    (12,292
    )
    
    
    (11,536
    )Proceeds from exercise of stock options
    
    
    3,505
    
    
    
    3,371Proceeds from employee stock purchase plan
    
    
    768
    
    
    
    675Purchase of treasury stock
    
    
    (8
    )
    
    
    (26
    )NET CASH FROM FINANCING ACTIVITIES
    
    
    (8,027
    )
    
    
    (7,516
    )NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    29,418
    
    
    
    (13,260
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    27,552
    
    
    
    81,517CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    56,970
    
    
    $
    68,257
 (Continued) -7-




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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid (received) during the period for:Interest paid
    
    $
    12,949
    
    
    $
    15,431Interest received
    
    
    (2,959
    )
    
    
    (2,690
    )Income taxes paid
    
    
    14,094
    
    
    
    9,884Income tax refunds
    
    
    (7,046
    )
    
    
    (334
    )SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:Increase in dividends payable and decrease in retained earnings
    
    $
    0
    
    
    $
    3,857Issuance of restricted stock grants
    
    $
    120
    
    
    $
    0
 (Concluded) See notes to condensed consolidated financial statements. -8-




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PULITZER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fiscal Year Pulitzer Inc. and its subsidiaries and affiliated entities
(the Company) fiscal year ends on the last Sunday of the calendar year. For
2004, the Companys fiscal year began on December 29, 2003 and will end on
December 26, 2004. For 2003, the Companys fiscal year began on December 30,
2002 and ended on December 28, 2003. Basis of Consolidation The condensed consolidated financial statements
include the accounts of Pulitzer Inc. and its subsidiary companies, all of
which are wholly-owned except for Pulitzer Inc.s (together with another
subsidiary) 95 percent interest in the results of operations of the St. Louis
Post-Dispatch LLC (PD LLC) and STL Distribution Services LLC (DS LLC), a
distribution company serving the St. Louis market, and 50 percent interest in
the results of operations of Tucson newspaper partnership (TNI). All
significant intercompany transactions have been eliminated from the condensed
consolidated financial statements. Interim Adjustments In the opinion of management, the accompanying
unaudited condensed consolidated financial statements contain all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
the Companys consolidated financial position as of September 26, 2004 and
December 28, 2003 and the results of operations and cash flows for the
three-month and nine-month periods ended September 26, 2004 and September 28,
2003. These condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and related
notes thereto included in the Companys Annual Report on Form 10-K for the
fiscal year ended December 28, 2003. Consolidated results of operations and
cash flows for interim periods are not necessarily indicative of the results to
be expected for the full year. Earnings Per Share of Stock Basic earnings per share of stock is
computed using the weighted average number of common and Class B common shares
outstanding during the applicable period. Diluted earnings per share of stock
is computed using the weighted average number of common and Class B common
shares outstanding and common stock equivalents (primarily outstanding stock
options). Weighted average shares used in the calculation of basic and diluted
earnings per share are summarized as follows: Third Quarter Ended
    
    Nine Months EndedSept. 26,
    
    Sept. 28,
    
    Sept. 26,
    
    Sept. 28,2004
    
    2003
    
    2004
    
    2003(In thousands)Weighted average shares outstanding (Basic EPS)
    
    
    21,601
    
    
    
    21,414
    
    
    
    21,577
    
    
    
    21,381Common stock equivalents
    
    
    218
    
    
    
    256
    
    
    
    257
    
    
    
    190Weighted average shares outstanding and
Common stock equivalents (Diluted EPS)
    
    
    21,819
    
    
    
    21,670
    
    
    
    21,834
    
    
    
    21,571
 Common stock equivalents included in the diluted earnings per share
calculation were determined using the treasury stock method. Under the
treasury stock method, outstanding stock options are dilutive when the average
market price of the Companys common stock exceeds the option exercise price
during a period. In addition, proceeds from the assumed exercise of dilutive
options along with the related tax benefit are assumed to be used to repurchase
common shares at the average market price of such stock during the period.
Options to purchase 1,046,150 and 72,969 shares for the quarters ended
September 26, 2004 and September 28, 2003, respectively, and 718,643 and
220,611 shares of common stock for the nine month periods ended September 26,
2004 and September 28, 2003, respectively, were not included in the computation
of diluted earnings per share because the options respective exercise prices
were greater than the average market price of the common stock during the
respective periods. Financing Arrangements In December 2001 and August 2003 the Company
executed fixed-to-floating interest rate swap contracts in the current combined
amount of $150.0 million. The swap contracts mature with the
Companys debt on April 28, 2009. The Company accounts for all swaps as
fair value hedges and employs the short cut method. These interest rate swap
contracts have the effect of converting the interest cost for $150.0 million of
the Companys debt from fixed rate to variable rate. As of September 26, 2004,
approximately 49 percent of the Companys long-term interest cost was subject
to variable rates. -9-




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In October 2002 the Company terminated other swap contracts totaling $75.0
million, resulting in a net gain of $5.0 million. The Company initially
recognized the $5.0 million cash receipt, representing the increased fair value
of the long-term debt at the date of the swap terminations, as an increase in
long-term liabilities with subsequent, ratable amortization as a reduction of
interest expense over the remaining life of the original interest rate swap
contracts which would have expired on April 28, 2009. Stock-Based Compensation The Company has two stock-based employee
compensation plans. The Company accounts for those plans under the recognition
and measurement principals of Accounting Principles Board Opinion No. 25 (APB
25), Accounting for Stock Issued to Employees, and related interpretations.
Stock-based compensation cost associated with restricted stock grants,
restricted stock awards, and stock options granted to certain TNI employees, is
reflected in net income for 2004 and 2003. No stock-based employee compensation
cost is reflected in net income for Company stock option plans as all options
granted under those plans had an exercise price equal to the fair market value
of the underlying common stock on the date of grant. The following table
illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation(SFAS No. 123), to stock-based
employee compensation. The Company has estimated the fair value of its option
grants by using the binomial options pricing model. Third Quarter Ended
    
    Nine Months EndedSept. 26,
    
    Sept. 28,
    
    Sept. 26,
    
    Sept. 28,2004
    
    2003
    
    2004
    
    2003(In thousands, except earnings per share)Net income, as reported
    
    $
    10,600
    
    
    $
    9,380
    
    
    $
    30,451
    
    
    $
    27,863Add: Stock-based
compensation expense
included in reported net
income, net of related tax
effects
    
    
    303
    
    
    
    193
    
    
    
    852
    
    
    
    575Deduct: Total stock-based
compensation expense
determined under fair value
based method for all awards,
net of related tax effect
    
    
    (1,318
    )
    
    
    (1,200
    )
    
    
    (3,990
    )
    
    
    (3,660
    )Pro forma net income
    
    $
    9,585
    
    
    $
    8,373
    
    
    $
    27,313
    
    
    $
    24,778Pro forma earnings per share:Basic   as reported
    
    $
    0.49
    
    
    $
    0.44
    
    
    $
    1.41
    
    
    $
    1.30Basic  pro forma
    
    $
    0.44
    
    
    $
    0.39
    
    
    $
    1.27
    
    
    $
    1.16Pro forma earnings per share:Diluted  as reported
    
    $
    0.49
    
    
    $
    0.43
    
    
    $
    1.39
    
    
    $
    1.29Diluted  pro forma
    
    $
    0.44
    
    
    $
    0.39
    
    
    $
    1.25
    
    
    $
    1.15
 New Accounting Pronouncements- In December 2003, the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was
signed into law. The Act introduced a prescription drug benefit under Medicare
(Medicare Part D) and a federal subsidy to sponsors of retiree health care
benefit plans that provide a benefit that is at least actuarially equivalent
(as that term is defined in the Act) to Medicare Part D. FASB Staff Position
106-1, Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003(FSP 106-1),
which is effective for interim or annual financial statements for fiscal years
which ended after December 7, 2003, permits a sponsor of a postretirement
health care plan that provides a prescription drug benefit to make a one-time
election to defer accounting for the effects of the Act. The Company decided to recognize the effects of the Act on the Companys
accumulated postretirement benefit obligation (APBO) and postretirement
benefit costs initially in the first quarter of 2004. The Company has
concluded that it qualifies for the subsidy under the Act since the
prescription drug benefits provided under the Companys postretirement
healthcare plans generally require lower premiums from covered retirees and
have lower deductibles than the benefits provided in Medicare Part D and,
therefore, are actuarially equivalent to or better -10-




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than the benefits provided
under the Act. In addition, the Company does not anticipate any material
change in the participation rate or per capita claims costs as a result of the
Act. The Company estimates that the provisions of the Act will lower the APBO
by approximately $12 million which is being treated as a negative prior service
cost that is being amortized beginning on March 8, 2004. This amortization
will result in a $1.3 million reduction to the APBO and postretirement benefit
costs in 2004, against which no income tax provision will be made in accordance
with the Act. Specific authoritative guidance on the accounting for the federal
subsidy is pending, and that guidance, when issued, could require the Company
to change previously reported information. The Condensed Consolidated
Statements of Income incorporate expense reductions of $0.4 million and $0.9
million for the respective third quarter and first nine-month periods of 2004,
against which no income tax provision has been made. Subsequently, The FASB
issued Staff Position 106-2, Accounting and Disclosure Requirements Related to
the Medicare Prescription and Modernization Act of 2003(FSP 106-2), which
superceded FSP 106-1, and is effective for interim periods beginning after June
15, 2004. The Company adopted FSP 106-2 on June 25, 2004 which had no
significant change in accounting previously adopted in accordance with FSP
106-1. Use of Estimates The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results may differ
from those estimates. Reclassifications Certain reclassifications have been made to the 2003
condensed consolidated financial statements to conform with the presentation
made in 2004. 2. TUCSON NEWSPAPER PARTNERSHIP In Tucson, Arizona, a separate partnership, TNI, acting as agent for the
Companys subsidiary, Star Publishing Company (Star Publishing), and Gannett
Co. Inc. (Gannett), is responsible for printing, delivery, advertising, and
circulation of the Arizona Daily Star(the Star)and the Tucson Citizen (the
Citizen). TNI collects all of the receipts and income relating to the Star
and the Citizenand pays all operating expenses incident to the partnerships
operations and publication of the newspapers. Each newspaper is solely
responsible for its own news and editorial content. Net pretax income or net
pretax loss of TNI is allocated equally to Star Publishing and Gannett. The
Companys 50 percent share of TNIs operating results is reported as Equity in
earnings of Tucson newspaper partnership in the accompanying condensed
consolidated statements of income. Summarized financial information for TNI is as follows: Sept. 26,
    
    Dec. 28,2004
    
    2003(In thousands)Current assets
    
    $
    16,533
    
    
    $
    15,935Current liabilities
    
    $
    9,210
    
    
    $
    9,315Partners equity
    
    $
    7,323
    
    
    $
    6,620
 Third Quarter Ended
    
    Nine Months EndedSept. 26,
    
    Sept. 28,
    
    Sept. 26,
    
    Sept. 28,2004
    
    2003
    
    2004
    
    2003(In thousands)Operating revenues
    
    $
    26,837
    
    
    $
    24,976
    
    
    $
    81,616
    
    
    $
    78,817Operating income
    
    $
    8,066
    
    
    $
    6,450
    
    
    $
    24,452
    
    
    $
    23,186Companys share of operating income
before depreciation, amortization, and
general and administrative expense (1)
    
    $
    4,033
    
    
    $
    3,225
    
    
    $
    12,226
    
    
    $
    11,593
  (1)
    
    Star Publishings depreciation, amortization, and general and
administrative expenses associated with the operation and administration
of TNI are reported as operating expenses in the Companys condensed
consolidated statements of income. In aggregate, these amounts totaled
$726,000 and $590,000 for the third quarter of 2004 and 2003,
respectively, and $1.9 million and $1.8 million for the first nine months
of 2004 and 2003, respectively. -11-




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3. ACQUISITION OF PROPERTIES In the first nine months of 2004, Pulitzer Inc. subsidiaries acquired
businesses, principally weekly newspapers and niche publications that
complement the daily newspaper operations of Pulitzer Newspapers, Inc. and its
subsidiaries (PNI) in Coos Bay, Oregon, Bloomington, Illinois, and Santa
Barbara County, California and St. Louis newspaper distribution businesses, for
an aggregate price of approximately $5.9 million. In the first nine months of
2003 Pulitzer Inc. subsidiaries acquired businesses, principally weekly
newspapers and newspaper distribution businesses, totaling $6.1 million. The
pro forma results of these acquisitions were not material and, therefore, are
not presented. 4. GOODWILL AND OTHER INTANGIBLE ASSETS Changes in the carrying amounts of goodwill and other intangible assets of
the Company for the nine months ended September 26, 2004 were as follows: OtherIntangible(In thousands)
    
    Goodwill
    
    AssetsBalance at December 28, 2003
    
    $
    811,409
    
    
    $
    37,217Additions during the period
    
    
    4,565
    
    
    
    1,880Amortization expense
    
    
    0
    
    
    
    (3,618
    )Balance at September 26, 2004
    
    $
    815,974
    
    
    $
    35,479
 Other intangible assets at September 26, 2004 and December 28, 2003 were
as follows: Accumulated
    
    Net(In thousands)
    
    Cost
    
    Amortization
    
    CostSeptember 26, 2004Other intangible assets:Advertising base
    
    $
    34,729
    
    
    $
    8,742
    
    
    $
    25,987Subscriber lists
    
    
    23,927
    
    
    
    16,129
    
    
    
    7,798Long-term pension asset
    
    
    1,260
    
    
    
    0
    
    
    
    1,260Non-compete agreements and other
assets
    
    
    5,417
    
    
    
    4,983
    
    
    
    434Total other intangible assets
    
    $
    65,333
    
    
    $
    29,854
    
    
    $
    35,479December 28, 2003Other intangible assets:Advertising base
    
    
    33,552
    
    
    
    7,487
    
    
    
    26,065Subscriber lists
    
    
    23,300
    
    
    
    14,040
    
    
    
    9,260Long-term pension asset
    
    
    1,260
    
    
    
    0
    
    
    
    1,260Non-compete agreements and other
assets
    
    
    5,341
    
    
    
    4,709
    
    
    
    632Total other intangible assets
    
    $
    63,453
    
    
    $
    26,236
    
    
    $
    37,217
 Pretax amortization expense of other intangible assets for the third
quarter and first nine months ended September 26, 2004 was $1.2 million and
$3.6 million, respectively, and annually over the next six years is estimated
to be: $4.8 million for 2004 and 2005, $4.6 million for 2006, $2.6 million for
2007, and $2.0 million for 2008 and 2009.  5.
    COMPONENTS OF PENSION AND OTHER BENEFIT PLANS NET PERIODIC
BENEFIT COSTS -12-




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The Company has several funded and unfunded noncontributory defined
benefit pension plans that together cover a significant portion of its
employees. Benefits under the plans are generally based on salary and years of
service. The Companys liability and related expense for benefits under the
plans are recorded over the service period of active employees based upon
annual actuarial calculations. Plan funding strategies are influenced by tax
regulations. Plan assets consist primarily of domestic and foreign corporate
equity securities, government and corporate bonds, and cash. In addition, the Company provides retiree medical and life insurance
benefits under varying postretirement plans at several of its operating
locations. The level and adjustment of participant contributions vary
depending on the specific postretirement plan. In addition, PD LLC provides
postemployment disability benefits to certain employee groups prior to
retirement at the St Louis Post-Dispatch (Post-Dispatch). The Companys
liability and related expense for benefits under the postretirement plans are
recorded over the service period of active employees based upon annual
actuarial calculations. The Company accrues postemployment disability benefits
when it becomes probable that such benefits will be paid and when sufficient
information exists to make reasonable estimates of the amounts to be paid. The Company uses a September 30 measurement date for all of its pension
and postretirement plan obligations. The pension cost components for the Companys pension and postretirement
plans are as follows: Pension Benefits
    
    Other BenefitsThird Quarter EndedSept. 26,
    
    Sept. 28,
    
    Sept. 26,
    
    Sept. 28,2004
    
    2003
    
    2004
    
    2003(In thousands)Service cost for benefits earned during the period
    
    $
    1,225
    
    
    $
    1,092
    
    
    $
    710
    
    
    $
    582Interest cost on projected benefit obligation
    
    
    2,331
    
    
    
    2,323
    
    
    
    1,621
    
    
    
    1,670Expected return on plan assets
    
    
    (2,776
    )
    
    
    (2,466
    )
    
    
    (284
    )
    
    
    (192
    )Amortization of prior service cost
    
    
    78
    
    
    
    78
    
    
    
    0
    
    
    
    3Amortization of transition obligation
    
    
    0
    
    
    
    14
    
    
    
    0
    
    
    
    0Amortization of loss
    
    
    364
    
    
    
    100
    
    
    
    135
    
    
    
    90Cost for special termination benefits
    
    
    0
    
    
    
    32
    
    
    
    0
    
    
    
    0Net periodic pension cost
    
    $
    1,222
    
    
    $
    1,173
    
    
    $
    2,182
    
    
    $
    2,153
 Pension Benefits
    
    Other BenefitsNine Months EndedSept. 26,
    
    Sept. 28,
    
    Sept. 26,
    
    Sept. 28,2004
    
    2003
    
    2004
    
    2003(In thousands)Service cost for benefits earned during the period
    
    $
    3,675
    
    
    $
    3,276
    
    
    $
    2,132
    
    
    $
    1,746Interest cost on projected benefit obligation
    
    
    6,993
    
    
    
    6,969
    
    
    
    4,999
    
    
    
    5,010Expected return on plan assets
    
    
    (8,328
    )
    
    
    (7,398
    )
    
    
    (852
    )
    
    
    (576
    )Amortization of prior service cost
    
    
    234
    
    
    
    234
    
    
    
    0
    
    
    
    9Amortization of transition obligation
    
    
    0
    
    
    
    42
    
    
    
    0
    
    
    
    0Amortization of loss
    
    
    1,092
    
    
    
    300
    
    
    
    552
    
    
    
    270Cost for special termination benefits
    
    
    0
    
    
    
    96
    
    
    
    0
    
    
    
    0Net periodic pension cost
    
    $
    3,666
    
    
    $
    3,519
    
    
    $
    6,831
    
    
    $
    6,459
 Based on the Companys forecast at September 26, 2004, the Company expects
to contribute $0.7 million to its pension plans and $10.0 million to its
postretirement plans in 2004. 6. COMMITMENTS AND CONTINGENCIES Capital Commitments As of September 26, 2004, the Company had construction and equipment
commitments of approximately $4.4 million. -13-




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Investment Commitments As of September 26, 2004, the Company had an unfunded capital contribution
commitment of approximately $3.8 million related to its investment in a limited
partnership not associated with or involved in the Companys operations. Merger Agreement Indemnification Pursuant to an Amended and Restated Agreement and Plan of Merger, dated as
of May 25, 1998 (the Merger Agreement), by and among Pulitzer Inc., Pulitzer
Publishing Company (Pulitzer Inc.s predecessor) (Old Pulitzer) and
Hearst-Argyle Television, Inc. (Hearst-Argyle) on March 18, 1999,
Hearst-Argyle acquired, through the merger (the Merger) of Old Pulitzer with
and into Hearst-Argyle, Old Pulitzers television and radio broadcasting
operations (collectively, the Broadcasting Business) in exchange for the
issuance to Old Pulitzers stockholders of 37,096,774 shares of Hearst-Argyles
Series A common stock. Old Pulitzers Broadcasting Business consisted of nine
network-affiliated television stations and five radio stations owned and
operated by Pulitzer Broadcasting Company and its wholly owned subsidiaries.
Prior to the Merger, Old Pulitzers newspaper publishing and related new media
businesses were contributed to Pulitzer Inc. in a tax-free spin-off to Old
Pulitzer stockholders (the Spin-off). The Merger and Spin-off are
collectively referred to as the Broadcast Transaction. Old Pulitzers historical basis in its newspaper publishing and related
new media assets and liabilities has been carried over to the Company. The
Broadcast Transaction represents a reverse-spin transaction and, accordingly,
the Companys results of operations for periods prior to the consummation of
the Broadcast Transaction are identical to the historical results previously
reported by Old Pulitzer. Pursuant to the Merger Agreement, Pulitzer Inc. is obligated to indemnify
Hearst-Argyle against losses related to: (i) on an after tax basis, certain tax
liabilities, including (A) any transfer tax liability attributable to the
Spin-off, (B) with certain exceptions, any tax liability of Old Pulitzer, or
any subsidiary of Old Pulitzer attributable to any tax period (or portion
thereof) ending on or before the closing date of the Merger, including tax
liabilities resulting from the Spin-off, and (C) any tax liability of Pulitzer
Inc. or any subsidiary of Pulitzer Inc.; (ii) liabilities and obligations under
any employee benefit plans not assumed by Hearst-Argyle; and (iii) certain
other matters as set forth in the Merger Agreement. Internal Revenue Service Matters In October 2001 the Internal Revenue Service (IRS) formally proposed
that Old Pulitzers taxable income for the tax year ended March 18, 1999 be
increased by approximately $80.4 million based on its assertion that Old
Pulitzer was required to recognize a taxable gain in that amount as a result of
the Spin-off. Under the Merger Agreement, Pulitzer Inc. is obligated to
indemnify Hearst-Argyle against any tax liability attributable to the Spin-off
and has the right to control any proceedings relating to the determination of
Old Pulitzers tax liability for such tax period. Accordingly, if the IRS were
completely successful in its assertion, Pulitzer Inc.s indemnification
obligation would be approximately $29.3 million, plus applicable interest. Any
such income tax indemnification payment would be recorded as an adjustment to
additional paid-in capital, and any related interest expense would be reflected
as a component of net income in the period recognized. Notwithstanding the IRS
proposed adjustment, Pulitzer Inc. does not believe that Old Pulitzer realized
any taxable gain in connection with the Spin-off, and it has not accrued any
liability in connection with this issue. In January 2002, Pulitzer Inc. filed a
formal written protest of the IRS proposed adjustment with the IRS Appeals
Office. On August 30, 2002, Pulitzer Inc., on behalf of Old Pulitzer, filed with
the IRS amended federal corporate income tax returns for the tax years ended
December 1997 and 1998 and March 1999 in which tax refunds in the aggregate
amount of approximately $8.1 million, plus interest, were claimed. These refund
claims were based on the contention that Old Pulitzer was entitled to deduct
certain fees and expenses which it had not previously deducted and which Old
Pulitzer had incurred in connection with its investigation of several strategic
alternatives and potential transactions prior to its decision to proceed with
the Broadcast Transaction. Under the Merger Agreement, Pulitzer Inc. is
entitled to any refunds recovered from the IRS as a result of these refund
claims, but it has not recorded a receivable for these refund claims inasmuch
as the IRS could deny all or a portion thereof. Any income tax refunds would be
recorded as an adjustment to additional paid-in-capital, and any related
interest received would be reflected as a component of net income in the period
recognized. In late 2003, the IRS Appeals Officer initially indicated that he would
sustain substantially the entire amount of the IRS proposed adjustment of Old
Pulitzers taxable gain as a result of the Spin-off. He further indicated that
the refund claims filed by Pulitzer Inc. on behalf of Old Pulitzer for the
December 1997 and 1998 and March 1999 tax years had been referred to the IRS
Examination Division for review. Subsequently, Pulitzer Inc.s representatives -14-




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furnished the IRS Appeals Officer with additional information in support of
Pulitzer Inc.s position on the issue of Old Pulitzers taxable gain as a
result of the Spin-off and also requested, in view of this additional
information, that this issue be referred back to the IRS Examination Division
for consideration concurrently with the refund claims filed by Pulitzer Inc. on
behalf of Old Pulitzer for the December 1997 and 1998 and March 1999 tax years.
In July 2004, the IRS Appeals Officer agreed to release jurisdiction over all
issues relating to Old Pulitzers consolidated federal income tax liability for
the December 1997 and 1998 and March 1999 tax years back to the IRS Examination
Division. Representatives of Pulitzer Inc. and of the IRS Examination Division
have engaged in substantive discussions seeking to resolve such issues. These
discussions are ongoing. While there can be no assurance that Pulitzer Inc. will completely prevail
in its position with respect to the issue of Old Pulitzers taxable gain as a
result of the Spin-off, Pulitzer Inc. firmly believes that the IRS position is
not supported by the facts or applicable legal authority and intends to
vigorously contest the IRS proposed adjustment. With respect to the refund
claims filed by Pulitzer Inc. on behalf of Old Pulitzer for the December 1997
and 1998 and March 1999 tax years, Pulitzer Inc. believes that the position
underlying these refund claims is supported by the facts and applicable legal
authority, although there can be no assurance that the IRS will approve all or
any portion of these refund claims. In view of the uncertainty regarding the
resolution of these issues, no financial statement recognition has been given
to any taxes or interest that may become payable to the IRS or to Pulitzer Inc.
in connection with their ultimate resolution. PD LLC Operating Agreement On May 1, 2000, Pulitzer Inc. and The Herald Company, Inc. (Herald)
completed the transfer of their respective interests in the assets and
operations of the Post-Dispatchand certain related businesses to a new joint
venture (the Venture), known as PD LLC. Pulitzer Inc. is the managing member
of PD LLC. Under the terms of the operating agreement governing PD LLC (the
Operating Agreement), Pulitzer Inc. and another subsidiary hold a 95 percent
interest in the results of operations of PD LLC and Herald holds a 5 percent
interest. Heralds 5 percent interest is reported as Minority Interest in Net
Earnings of Subsidiary in the consolidated statements of income. Also, under
the terms of the Operating Agreement, Herald received on May 1, 2000 a cash
distribution of $306.0 million from PD LLC (the Initial Distribution). This
distribution was financed by a $306.0 million borrowing by PD LLC (the Loan).
Pulitzer Inc.s entry into the Venture was treated as a purchase for
accounting purposes. During the first ten years of its term, PD LLC is restricted from making
distributions (except under specified circumstances), capital expenditures and
member loan repayments unless it has set aside out of its cash flow a reserve
equal to the product of $15.0 million and the number of years since May 1,
2000, but not in excess of $150.0 million (the Reserve). PD LLC is not
required to maintain the Reserve after May 1, 2010. On May 1, 2010, Herald will
have a one-time right to require PD LLC to redeem Heralds interest in PD LLC,
together with Heralds interest, if any, in another limited liability company
in which Pulitzer Inc. is the managing member and which is engaged in the
business of delivering publications and products in the greater St. Louis
metropolitan area (DS LLC). The May 1, 2010 redemption price for Heralds
interest will be determined pursuant to a formula yielding an amount which will
result in the present value to May 1, 2000 of the after-tax cash flows to
Herald (based on certain assumptions) from PD LLC, including the Initial
Distribution and the special distribution described below, if any, and from DS
LLC, being equal to $275.0 million. In the event that PD LLC has an increase in
the tax basis of its assets as a result of Heralds recognizing taxable income
from certain transactions
effected under the agreement governing the contributions of Pulitzer Inc.
and one of its subsidiaries and Herald to PD LLC or the Operating Agreement or
from the transactions effected in connection with the organization of DS LLC,
Herald generally will be entitled to receive a special distribution from PD LLC
in an amount that corresponds, approximately, to the present value of the
after-tax benefit to the members of PD LLC of the tax basis increase. Upon the
termination of PD LLC and DS LLC, which will be on May 1, 2015 (unless Herald
exercises the redemption right described above), Herald will be entitled to the
liquidation value of its interests in PD LLC and DS LLC, to be paid in cash by
Pulitzer Inc. That amount will be equal to the amount of Heralds capital
accounts, after allocating the gain or loss that would result from a cash sale
of PD LLC and DS LLCs assets for their fair market value at that time.
Heralds share of such gain or loss generally will be 5 percent, but will be
reduced (but not below 1 percent) to the extent that the present value to May
1, 2000 of the after-tax cash flows to Herald from PD LLC and from DS LLC,
including the Initial Distribution, the special distribution described above,
if any, and the liquidation amount (based on certain assumptions), exceeds
$325.0 million. The actual amount payable to Herald either on May 1, 2010 or upon the
termination of PD LLC and DS LLC on May 1, 2015 will depend on such variables
as future cash flows, the amounts of any distributions to Herald prior to such
payment, PD LLCs and DS LLCs rate of growth and market valuations of
newspaper properties. While the amount of such payment cannot be predicted
with certainty, Pulitzer Inc. currently estimates (assuming a 5 percent -15-




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annual
growth rate in Heralds capital accounts, no special distribution as described
above and consistent newspaper property valuation multiples) that the amount of
such payment either on May 1, 2010 or on May 1, 2015 would not exceed $100
million. Pulitzer Inc. further believes that it will be able to finance such
payment either from available cash reserves or with the proceeds of a debt
issuance. Legal Contingencies In the second quarter of 2004, the Company settled the lawsuit filed in
the Missouri Circuit Court, Twenty-Second Judicial Circuit (City of St. Louis,
Missouri), against Pulitzer Inc., PD LLC, and Suburban Journals LLC
(Defendants) which was described in the Companys Annual Report on Form 10-K
for the year ended December 28, 2003 and the Companys Quarterly Report on Form
10-Q for the quarters ended March 28, 2004 and June 27, 2004. The lawsuit was brought by a group
of 33 independent carriers (the Plaintiffs) engaged in the business of
delivering the Post-Dispatchpursuant to home delivery contracts involving 44
carrier routes. The lawsuit was settled with a
payment by PD LLC of approximately $1.5 million. The Company has been involved, from time to time, in various claims and
lawsuits incidental to the ordinary course of its business, including such
matters as libel, slander and defamation actions, complaints alleging
discrimination, and product distribution practices. While the ultimate outcome
of litigation cannot be predicted with certainty, management, based on its
understanding of the facts, does not believe the ultimate resolution of these
matters will have a material adverse effect on the Companys consolidated
financial position or results of operations. However, depending upon the period
of resolution, such effects could be material to the consolidated financial
results of an individual period. 7. OPERATING REVENUES The Companys consolidated operating revenues consist of the following: Third Quarter Ended
    
    Nine Months EndedSept. 26,
    
    Sept. 28,
    
    Sept. 26,
    
    Sept. 28,2004
    
    2003
    
    2004
    
    2003(In thousands)Combined St. Louis operations
    
    $
    77,296
    
    
    $
    73,691
    
    
    $
    230,567
    
    
    $
    221,932Pulitzer Newspapers, Inc.
    
    
    32,434
    
    
    
    29,561
    
    
    
    94,951
    
    
    
    86,664Total
    
    $
    109,730
    
    
    $
    103,252
    
    
    $
    325,518
    
    
    $
    308,596
 * * * * * * -16-




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Item 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS Statements in this Quarterly Report on Form 10-Q concerning the Companys
business outlook or future economic performance, anticipated profitability,
revenues, expenses or other financial items, together with other statements
that are not historical facts, are forward-looking statements as that term is
defined under the Federal Securities Laws. Forward-looking statements are
subject to risks, uncertainties and other factors which could cause actual
results to differ materially from those stated in such statements. Such risks,
uncertainties and other factors include, but are not limited to, industry
cyclicality, the seasonal nature of the business, changes in pricing or other
actions by competitors or suppliers (including newsprint suppliers), outcome of
labor negotiations, capital or similar requirements, and general economic
conditions, any of which may impact advertising and circulation revenues and
various types of expenses, as well as other risks detailed in the Companys
filings with the Securities and Exchange Commission including this Quarterly
Report on Form 10-Q. Although the Company believes that the expectations
reflected in forward-looking statements are reasonable, it cannot guarantee
future results, levels of activity, performance or achievements. Accordingly,
investors are cautioned not to place undue reliance on any such
forward-looking statements, and the Company disclaims any obligation to
update the information contained herein or to publicly announce the result of
any revisions to such forward-looking statements to reflect future events or
developments. GENERAL Pulitzer Inc. (together with its subsidiaries and affiliated entities, the
Company) is a newspaper publishing company with integrated Internet
operations in 14 United States markets, the largest of which is St. Louis,
Missouri. For the third quarter and first nine months of 2004, the Companys
St. Louis operations contributed approximately 70 percent and 71 percent of
reported revenue, respectively. Pulitzer Inc. is the successor to the company founded by the first Joseph
Pulitzer in 1878 to publish the original St. Louis Post-Dispatch(the
Post-Dispatch"). The Company and its predecessors have operated continuously
since 1878 with the involvement of the Pulitzer family. Michael E. Pulitzer, a
grandson of the founder, currently serves as Chairman of the Board of the
Company. The Companys newspaper holdings include operations in St. Louis,
Missouri, where its subsidiary, St. Louis Post-Dispatch LLC (PD LLC),
publishes the Post-Dispatch, the only major daily newspaper serving the greater
St. Louis metropolitan area, and in Tucson, Arizona, where its subsidiary, Star
Publishing Company (Star Publishing), publishes the Arizona Daily Star(the
"Star). In Tucson, Star Publishing shares, on an equal basis, the combined
results of the Starand the Tucson Citizen(the Citizen),published by the
Gannett Co., Inc. (Gannett). The St. Louis newspaper operations include the Suburban Journals (the
Suburban Journals), acquired by Suburban Journals of Greater St. Louis LLC in
August 2000. The Suburban Journals are a group of 37 weekly papers and various
niche publications that focus on providing local news and editorial content to
the communities that they serve, and have a combined average weekly
distribution of approximately 1.2 million to approximately 0.6 million unique
households. As a result of the May 1, 2000 transaction that created PD LLC, PD LLC
operates the Post-Dispatch.Pulitzer Inc. and one of its subsidiaries hold a 95
percent interest in the results of PD LLC operations. Prior to May 1, 2000,
Pulitzer Inc. shared the operating profits and losses of the Post-Dispatchon a
50-50 basis with The Herald Company, Inc. (Herald). Pulitzer Inc.s wholly owned subsidiary, Pulitzer Newspapers, Inc., and
its subsidiaries (collectively, PNI) publish 12 dailies that serve markets in
the Midwest, Southwest and West, as well as more than 70 weekly newspapers,
shoppers and niche publications. The Companys revenues are derived primarily from advertising and
circulation, which have respectively averaged approximately 78 percent and 20
percent of total revenue over the five years ending December 2003 to December
1999 . Advertising rates and rate structures and resulting revenues vary among
publications based on, among other things, circulation, type of advertising,
local market conditions and competition. The Companys operating revenues are significantly influenced by a number
of factors, including overall advertising expenditures, the appeal of
newspapers in comparison to other forms of advertising, the performance of -17-




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the
Company in comparison to its competitors in specific markets, the strength of
the national economy, and general economic conditions and population changes in
the markets served by the Company. The Companys business tends to be seasonal, with peak revenues and
profits generally occurring in the fourth and, to a lesser extent, second
quarters of each year as a result of increased advertising activity during the
Christmas and spring holiday periods. The first quarter is historically the
weakest quarter for revenues and profits. Acquisition of Properties In the first nine months of 2004, Pulitzer Inc. subsidiaries acquired
businesses, principally weekly newspapers and niche publications that
complement the daily newspaper operations of PNI and its subsidiaries in Coos
Bay, Oregon, Bloomington, Illinois, and Santa Barbara County, California and
St. Louis newspaper distribution businesses, for an aggregate price of
approximately $5.9 million. In the first nine months of 2003 Pulitzer Inc.
subsidiaries acquired businesses, principally weekly newspapers and newspaper
distribution businesses, for an aggregate price totaling $6.1 million. The pro
forma results of these acquisitions were not material and, therefore, are not
presented. Critical Accounting Policies The Company regularly reviews its selection and application of significant
accounting policies and related financial disclosures. The application of
these accounting policies requires that management make estimates and
judgments. The estimates that affect the application of the most critical
accounting policies and require the most significant judgments are outlined in
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Critical Accounting Policies  contained in our Annual Report on
Form 10-K for the year ended December 28, 2003. THIRD QUARTER ENDED SEPTEMBER 26, 2004 COMPARED WITH THIRD QUARTER ENDED
SEPTEMBER 28, 2003 Executive Overview Operating revenue increased 6.3 percent to $109.7 million for the third
quarter of 2004 versus $103.3 million in 2003, reflecting a 7.4 percent
increase in advertising revenue and a 1.3 percent increase in circulation
revenue. The advertising revenue increase resulted, principally, from (a) an
8.4 percent increase in retail advertising revenue, including retail preprints,
reflecting gains from smaller local advertisers, growth in the healthcare,
grocery and financial categories, and revenues from Local Values, the
Post-Dispatchsdirect mail initiative in St. Louis (Local Values); and (b) a
9.7 percent increase in classified advertising, reflecting an 18.0 percent
increase in help wanted advertising, a 12.4 percent increase in real estate
advertising, and a 2.2 percent decrease in automotive advertising. The retail
and classified advertising revenue increases were partially offset by a 7.9
percent decrease in national advertising, including national preprints,
principally due to weakness in the pharmaceutical, packaged goods and travel
categories. Operating expenses for the third quarter of 2004 increased 6.9 percent to
$93.4 million from $87.3 million in the third quarter of 2003, principally due
to (a) an 8.4 percent increase in newsprint expense, reflecting a 9.2 percent
price increase over the third quarter of 2003; (b) incremental operating
expense from the 2003 and 2004 PNI acquisitions; (c) increased postage,
production, and marketing expense related to Local Values; (d) a $0.5 million
expense related to severance cost for employment termination inducements in St.
Louis. These expense increases were partially offset by reductions in employee
benefit and bad debt reserves reflecting favorable experience during the year. Third quarter 2004 operating income increased to $20.4 million, or 6.4
percent, from $19.1 million in the third quarter of 2003 reflecting the revenue
and expense fluctuations previously discussed as well as a 25.1 percent
increase in the equity earnings from TNI. Third quarter 2004 net income increased to $10.6 million, or $0.49 per
diluted share, compared to $9.4 million, or $0.43 per diluted share, for the
third quarter of 2003. This increase in 2004 net income was principally due to
(a) increased advertising revenue; (b) a 25.1 percent increase in equity in
earnings of TNI; (c) increased interest
income resulting from higher yields on the Companys invested funds; and
(d) a reduction in the effective tax rate to 35.9 percent. -18-




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Operating Results Operating revenue for the third quarter of 2004 increased to $109.7
million, or 6.3 percent, from $103.3 million in the third quarter of 2003.
Retail advertising revenue, including retail preprints, increased 8.4 percent
to $45.2 million in the third quarter of 2004 from $41.7 million in the
comparable period of the prior year. The increase was driven, in part, by a
14.4 percent increase in retail advertising revenue from small to mid-size
advertisers in St. Louis. Additionally, PNI retail advertising revenue
increased 8.7 percent. These increases were partially offset by weakness in the
department store, furniture and home improvement categories in St. Louis.
Retail preprint revenue increased 14.6 percent due, in part, to preprint
revenue related Local Values. National advertising revenue, including national preprints, decreased 7.9
percent in the third quarter of 2004, to $7.1 million compared to $7.7 million
in the third quarter of 2003. The decrease resulted, principally, from weakness
in the pharmaceutical, telecommunication, and travel categories in St. Louis
marginally offset by increased national revenue at PNI. Third quarter 2004 classified advertising revenue increased 9.7 percent to
$35.6 million from $32.5 million in the third quarter of 2003. Real estate and
help wanted increases were partially offset by weakness in the automotive
category, reflecting the effects of an 11-week strike by auto dealership
mechanics in St. Louis. The strike was settled on October 15, 2004. The
Companys classified advertising revenue percentage changes for the third
quarter of 2004 versus the comparable period of 2003 are summarized in the
table below: TotalPulitzer
    
    St. Louis
    
    PNIClassified advertising revenueThird Quarter 2004 vs.
    
    percentage change from comparableThird Quarter 2003
    
    prior year periodAutomotive
    
    
    -2.2
    %
    
    
    -2.0
    %
    
    
    -3.0
    %Help Wanted
    
    
    +18.0
    %
    
    
    +11.8
    %
    
    
    +37.4
    %Real Estate
    
    
    +12.4
    %
    
    
    +6.7
    %
    
    
    +24.3
    %Total Classified
    
    
    +9.7
    %
    
    
    +6.2
    %
    
    
    +19.2
    %
 Circulation revenues increased 1.3 percent, in the third quarter of 2004
to $20.1 million from $19.8 million in the third quarter of 2003. Other
publishing revenues increased 10.9 percent to $1.8 million in the third quarter
of 2004. Operating expense increased 6.9 percent in the third quarter of 2004 to
$93.4 million compared to $87.3 million in the third quarter of 2003. Labor
related costs increased 4.0 percent, reflecting increased salary and benefit
expense. These increases were partially offset by a 1.7 percent reduction in
full-time equivalent employees (FTEs) related to improved production and
distribution efficiencies in St. Louis and operating efficiencies at PNI
resulting from the combination of certain weekly and daily newspaper
operations. Newsprint expense increased 8.4 percent in the third quarter of 2004 to
$11.9 million from $11.0 million in the third quarter of 2003, resulting,
principally, from an 9.2 percent increase in newsprint prices, partially offset
by decreased consumption principally associated with decreased circulation and
advertising linage at the Post-Dispatch. Other operating expenses increased 10.7 percent to $29.5 million in the
third quarter of 2004 from $26.7 million in the comparable quarter of the prior
year due to: (a) incremental operating expenses from the 2003 and 2004 PNI
newspaper acquisitions; (b) increased postage and production expenses related
to Local Values; and (c) a $0.5 million severance expense for employment
termination inducements. These expense increases were partially offset by
reductions in employee benefit and bad debt reserves reflecting favorable
experience during the year. Depreciation and amortization expense increased $0.5 million to $5.3
million in the third quarter of 2004 compared to $4.8 million in the third
quarter of 2003. Equity in earnings of TNI increased 25.1 percent to $4.0 million from $3.2
million in the third quarter of 2004 due, primarily, to advertising revenue
(principally classified and preprint revenue). These revenue increases were
partially offset by increased newsprint expense and postage expense. -19-




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Third quarter 2004 operating income increased 6.4 percent to $20.4 million
from $19.1 million in the third quarter of 2003. Non-Operating Items Interest expense, net of interest income, decreased in the third quarter
to $3.7 million from $4.0 million in the same quarter of 2003, principally due
to higher yields on the Companys invested funds. Results for the third quarter of 2004 and 2003 included a $34,000 pretax
loss and a $455,000 pretax gain, respectively, on the sale of marketable
securities. Results for the third quarter of 2004 and 2003 included pretax charges of
$30,000 and $1.0 million, respectively, to adjust the carrying value of certain
non-operating investments. Results for the third quarter of 2003 also included
an $825,000 gain from the distribution of the Companys interest in a mutual
insurance company. The effective income tax rate for the third quarter of 2004 decreased to
34.9 percent from 37.1 percent in the third quarter of 2003 due, principally,
to postretirement expense reductions associated with the 2003 Medicare
Prescription Drug, Improvement and Modernization Act (the Act) against which
no income tax provision has been made in accordance with the Act, and lower
state income tax rates associated with increased utilization of existing net
operating loss carryforwards. Net Income For the third quarter 2004 the Company reported net income of $10.6
million, or $0.49 per diluted share, compared to $9.4 million, or $0.43 per
diluted share, in the comparable quarter of 2003. NINE MONTHS ENDED SEPTEMBER 26, 2004 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
28, 2003 Executive Overview Operating revenue increased 5.5 percent to $325.5 million for the first
nine months of 2004 versus $308.6 million in the comparable 2003 period,
reflecting a 6.5 percent increase in advertising revenue and a 1.3 percent
increase in circulation revenue. The advertising revenue increase resulted,
principally, from (a) a 5.9 percent increase in retail advertising revenue,
including retail preprints, reflecting gains from smaller local advertisers and
revenues from Local Values; and (b) an 10.8 percent increase in classified
advertising. The retail and classified advertising revenue increases were
partially offset by a 6.8 percent decrease in national advertising, including
national preprints, principally due to weakness in the pharmaceutical and
travel categories. Operating expenses for the first nine months of 2004 increased 6.8 percent
to $278.2 million from $260.5 million in the first nine months of 2003,
principally due to (a) a 9.2 percent increase in newsprint expense, reflecting
a 9.0 percent price increase over the first nine months of 2003; (b) expenses
of $1.5 million related to the settlement of independent home delivery carrier
litigation in St. Louis; (c) incremental operating expenses from the 2003 and
2004 PNI acquisitions; (d) increased postage, production and marketing expenses
related to Local Values; and (e) severance payments of $0.5 million in 2004
versus $0.2 million in 2003. These expense increases were partially offset by
reductions in employee benefit and bad debt reserves reflecting favorable
experience during the year. Operating income for the first nine months of 2004
decreased to $59.5 million, or 0.2 percent, from $59.7 million in the first
nine months of 2003. Net income for the first nine months of 2004 increased to $30.5 million,
or $1.39 per diluted share, compared to $27.9 million, or $1.29 per diluted
share, for the first nine months of 2003. This increase in net income was
principally due to (a) increased advertising revenue; (b) decreased net
interest expense resulting from the
Companys interest rate swap contracts and higher yields on the Companys
invested funds; and (c) carrying value adjustments to non-operating investments
of $72,000 during the first nine months of 2004 compared to $1.3 million in the
comparable prior of the year. Operating Results Operating revenue for the first nine months of 2004 increased 5.5 percent
to $325.5 million from $308.6 million in the first nine months of 2003. Retail
advertising revenue, including retail preprints, increased 5.9 percent to -20-




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$132.7 million in the first nine months of 2004 from $125.3 million in the
comparable 2003 period. The increase was driven, in part, by a 13.1 percent
increase in retail advertising revenue from small to mid-size advertisers in
St. Louis. Additionally, PNI retail revenue increased 7.9 percent. These
increases were partially offset by weakness in the department store category in
St. Louis. Retail preprint revenue increased 8.9 percent due, in part, to
preprint revenue related to Local Values. National advertising revenue, including national preprints, decreased 6.8
percent in the first nine months of 2004, to $22.8 million compared to $24.5
million in the comparable period of 2003. The decrease resulted, principally,
from weakness in the pharmaceutical, telecommunication, and travel categories
in St. Louis and tough comparisons with the comparable period of the prior
year. Classified advertising revenue during the first nine months of 2004
increased 10.8 percent to $103.4 million from $93.3 million in 2003.
Automotive, help wanted and real estate classified revenue categories reported
period-over-period revenue increases of 4.3 percent, 15.5 percent and 14.1
percent, respectively. The Companys classified advertising revenue percentage
changes for the first nine months of 2004 versus the comparable period of 2003
are summarized in the table below: TotalPulitzer
    
    St. Louis
    
    PNIFirst nine months of
    
    Classified advertising revenue2004 vs. first nine
    
    percentage change from comparablemonths of 2003
    
    prior year periodAutomotive
    
    
    +4.3
    %
    
    
    +4.8
    %
    
    
    +2.8
    %Help Wanted
    
    
    +15.5
    %
    
    
    +9.6
    %
    
    
    +36.0
    %Real Estate
    
    
    +14.1
    %
    
    
    +7.9
    %
    
    
    +28.9
    %Total Classified
    
    
    +10.8
    %
    
    
    +7.3
    %
    
    
    +20.8
    %
 Circulation revenues increased $0.8 million, or 1.3 percent, in the first
nine months of 2004. Other publishing revenues increased $0.3 million, or 5.7
percent. Operating expense increased 6.8 percent in the first nine months of 2004
to $278.2 million compared to $260.5 million in the first nine months 2003.
Labor related costs increased 3.4 percent, reflecting increased salary and
employee benefit costs, partially offset by a 2.0 percent reduction in FTEs. Newsprint expense increased 9.2 percent in the first nine months of 2004
to $35.0 million from $32.0 million in the comparable 2003 period, principally
from a 9.0 percent increase in newsprint prices. Other operating expenses increased 11.8 percent to $88.4 million in the
first nine months of 2004 from $79.1 in the comparable period of the prior year
due to: (a) incremental operating expenses from the 2003 and 2004 PNI newspaper
acquisitions; (b) increased postage, production, and marketing expenses related
to Local Values;(c) expenses of $1.5 million related to the settlement of
independent home delivery carrier litigation in St. Louis; and (d) a $0.5
million severance expense for employment termination inducements. These expense
increases were partially offset by reductions in employee benefit and bad debt
reserves reflecting favorable experience during the year. Depreciation and amortization expense increased to $15.2 million in the
first nine months of 2004 compared to $14.4 million in the comparable 2003
period. Equity in earnings of TNI increased 5.5 percent to $12.2 million in the
first nine months of 2004 from $11.6 million in the first nine months of 2003
due, primarily, to increased advertising revenue, principally classified and
retail preprints. Operating income for the first nine months of 2004 decreased 0.2 percent
to $59.5 million from $59.7 million in the first nine months of 2003. Non-Operating Items -21-




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Interest expense, net of interest income, decreased in the first nine
months of 2004 to $11.1 million from $12.9 million in the comparable period of
2003, principally due to savings from the Companys interest rate swaps and
higher yields on invested funds. Results for the first nine months of 2004 and 2003 included a pretax gains
of $463,000 and $513,000, respectively, on the sale of marketable securities. Results for the first nine months of 2004 and 2003 included pretax charges
of $72,000 and $2.1 million, respectively, to adjust the carrying value of
certain non-operating investments. Results for the first nine months of 2003
also included an $825,000 gain from the distribution of the Companys interest
in a mutual insurance company. The effective income tax rate for the first nine months of 2004 decreased
to 35.9 percent from 37.0 percent in the first nine months of 2003 due,
principally, to postretirement expense reductions associated with the Act
against which no income tax provision has been made in accordance with the Act,
and lower state income tax rates associated with increased utilization of
existing net operating loss carryforwards. Net Income For the first nine months of 2004 the Company reported net income of $30.5
million, or $1.39 per diluted share, compared to $27.9 million, or $1.29 per
diluted share, in the comparable period of 2003. LIQUIDITY AND CAPITAL RESOURCES As of September 26, 2004, the Company had an unrestricted cash and
marketable securities balance of $209.7 million compared to $176.2 million as
of December 28, 2003. The increase resulted principally from an increase in net
income for the first nine months of 2004, the receipt of 2003 income tax
refunds, the absence, through September 2004, of discretionary contributions to
fund the Companys retirement obligations, and lower expenditures for capital
projects in 2004 compared to the comparable 2003 period. At both September 26, 2004 and December 28, 2003, the Company had $306.0
million of outstanding debt pursuant to a loan agreement between PD LLC and a
group of institutional lenders led by Prudential Capital Group (the Loan).
The aggregate principal amount of the Loan is payable on April 28, 2009, and
bears interest at an annual rate of 8.05 percent. The agreements with respect to the Loan (the Loan Agreements) contain
certain covenants and conditions, including the maintenance of cash flow and
various other financial ratios, minimum net worth requirements and limitations
on the incurrence of other debt. In addition, the Loan Agreements and the PD
LLC Operating Agreement (the Operating Agreement) require that PD LLC
maintain a minimum reserve balance consisting of cash and investments in U.S.
government securities, totaling approximately $66.1 million as of September 26,
2004. The Loan Agreements and the Operating Agreement provide for a $3.75
million quarterly increase in the minimum reserve balance through May 1, 2010,
by which time the amount will total $150.0 million. There is no requirement for
the Company to maintain the reserve balance subsequent to May 1, 2010. The Company expects to spend approximately $10.0 million to $12.0 million
on property, plant and equipment in 2004. As of September 26, 2004, the
Company had capital commitments for buildings and equipment replacements of
approximately $4.4 million. In addition, as of September 26, 2004, the Company
had an unfunded
capital contribution commitment of approximately $3.8 million related to
its investment in a limited partnership not associated with or involved in the
Companys operations. In order to build a stronger, more direct relationship with the readers of
the Post-Dispatch,PD LLC has purchased a number of distribution businesses
from independent carriers and dealers over the past four years, and it may
continue to purchase additional distribution businesses from time to time in
the future. As of September 26, 2004, PD LLC owned approximately 71 percent of
its circulation routes covering approximately 71 percent of the Post-Dispatchs
daily home delivery and approximately 80 percent of single copy distribution in
the newspapers designated market. The Companys Board of Directors previously authorized the repurchase of
up to $100.0 million of the Companys outstanding capital stock. The Companys
repurchase program provides for the purchase of both common and Class B common
shares in either the open market or in privately negotiated transactions. As
of September 26, 2004, the Company had repurchased under this authority
1,000,000 shares of Class B common stock -22-




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and 532,987 shares of common stock for
a combined purchase price of $62.2 million, leaving $37.8 million in remaining
share repurchase authority. The Company generally expects to generate sufficient cash from operations
to cover capital expenditures, working capital requirements, stock repurchases,
and dividend payments. Cash flows from operations are dependent upon, among
other things, the continued acceptance of newspaper advertising at current or
increased levels and the availability of raw materials, principally newsprint. CASH FLOWS Cash flow from operations is the Companys primary source of liquidity.
Cash provided from operating activities for the first nine months of 2004 was
$67.5 million compared to $59.4 million in 2003. The increase resulted
principally from higher 2003 income tax refunds received in 2004 and increased
net income and trade accounts payable, partially offset by larger inventory
balances, principally newsprint. Cash used for investing activities during the first nine months of 2004
was $30.1 million compared to $65.2 million used in the first nine months 2003.
The net purchase of marketable securities decreased to $6.4 million in the
first nine months of 2004 compared to $25.7 million in the first nine months of
2003. The Company made no discretionary contributions to fund retirement
obligations during the first nine months of 2004 compared to a $10.8 million
contribution in the first nine months of 2003. In addition, capital
expenditures decreased by $4.3 million in the first nine months of 2004 to $5.2
million from $9.4 million in the comparable period of 2003. Cash used for financing activities during the first nine months of 2004
was $8.0 million compared to $7.5 million used in the first nine months of
2003. The increase in cash used was due to an increase in dividends paid during
the year compared to the previous year, partially offset by increased proceeds
from the exercise of stock options and from employee stock purchase plans. OTHER Pursuant to an Amended and Restated Agreement and Plan of Merger, dated as
of May 25, 1998 (the Merger Agreement), by and among Pulitzer Inc., Pulitzer
Publishing Company (Pulitzer Inc.s predecessor) (Old Pulitzer) and
Hearst-Argyle Television, Inc. (Hearst-Argyle) on March 18, 1999,
Hearst-Argyle acquired, through the merger (the Merger) of Old Pulitzer with
and into Hearst-Argyle, Old Pulitzers television and radio broadcasting
operations (collectively, the Broadcasting Business) in exchange for the
issuance to Old Pulitzers stockholders of 37,096,774 shares of Hearst-Argyles
Series A common stock. Old Pulitzers Broadcasting Business consisted of nine
network-affiliated television stations and five radio stations owned and
operated by Pulitzer Broadcasting Company and its wholly owned subsidiaries.
Prior to the Merger, Old Pulitzers newspaper publishing and related new media
businesses were contributed to the Company in a tax-free spin-off to Old
Pulitzer stockholders (the Spin-off). The Merger and Spin-off are
collectively referred to as the Broadcast Transaction. Old Pulitzers historical basis in its newspaper publishing and related
new media assets and liabilities has been carried over to the Company. The
Broadcast Transaction represents a reverse-spin transaction and, accordingly,
the Companys results of operations for periods prior to the consummation of
the Broadcast Transaction are identical to the historical results previously
reported by Old Pulitzer. Merger Agreement Indemnification Pursuant to the Merger Agreement, Pulitzer Inc. is obligated to indemnify
Hearst-Argyle against losses related to: (i) on an after tax basis, certain tax
liabilities, including (A) any transfer tax liability attributable to the
Spin-off, (B) with certain exceptions, any tax liability of Old Pulitzer, or
any subsidiary of Old Pulitzer attributable to any tax period (or portion
thereof) ending on or before the closing date of the Merger, including tax
liabilities resulting from the Spin-off, and (C) any tax liability of Pulitzer
Inc. or any subsidiary of Pulitzer Inc.; (ii) liabilities and obligations under
any employee benefit plans not assumed by Hearst-Argyle; and (iii) certain
other matters as set forth in the Merger Agreement. Internal Revenue Service Matters In October 2001 the Internal Revenue Service (IRS) formally proposed
that Old Pulitzers taxable income for the tax year ended March 18, 1999 be
increased by approximately $80.4 million based on its assertion that Old
Pulitzer was required to recognize a taxable gain in that amount as a result of
the Spin-off. Under the Merger Agreement, Pulitzer Inc. is obligated to
indemnify Hearst-Argyle against any tax liability attributable to the Spin-off -23-




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and has the right to control any proceedings relating to the determination of
Old Pulitzers tax liability for such tax period. Accordingly, if the IRS were
completely successful in its assertion, Pulitzer Inc.s indemnification
obligation would be approximately $29.3 million, plus applicable interest. Any
such income tax indemnification payment would be recorded as an adjustment to
additional paid-in capital, and any related interest expense would be reflected
as a component of net income in the period recognized. Notwithstanding the IRS
proposed adjustment, Pulitzer Inc. does not believe that Old Pulitzer realized
any taxable gain in connection with the Spin-off, and it has not accrued any
liability in connection with this issue. In January 2002, Pulitzer Inc. filed a
formal written protest of the IRS proposed adjustment with the IRS Appeals
Office. On August 30, 2002, Pulitzer Inc., on behalf of Old Pulitzer, filed with
the IRS amended federal corporate income tax returns for the tax years ended
December 1997 and 1998 and March 1999 in which tax refunds in the aggregate
amount of approximately $8.1 million, plus interest, were claimed. These refund
claims were based on the contention that Old Pulitzer was entitled to deduct
certain fees and expenses which it had not previously deducted and which Old
Pulitzer had incurred in connection with its investigation of several strategic
alternatives and potential transactions prior to its decision to proceed with
the Broadcast Transaction. Under the Merger Agreement, Pulitzer Inc. is
entitled to any refunds recovered from the IRS as a result of these refund
claims, but it has not recorded a receivable for these refund claims inasmuch
as the IRS could deny all or a portion thereof. Any income tax refunds would be
recorded as an adjustment to additional paid-in-capital, and any related
interest received would be reflected as a component of net income in the period
recognized. In late 2003, the IRS Appeals Officer initially indicated that he would
sustain substantially the entire amount of the IRS proposed adjustment of Old
Pulitzers taxable gain as a result of the Spin-off. He further indicated that
the refund claims filed by Pulitzer Inc. on behalf of Old Pulitzer for the
December 1997 and 1998 and March 1999 tax years had been referred to the IRS
Examination Division for review. Subsequently, Pulitzer Inc.s representatives
furnished the IRS Appeals Officer with additional information in support of its
position on the issue of Old Pulitzers taxable gain as a result of the
Spin-off and also requested, in view of this additional information, that this
issue be referred back to the IRS Examination Division for consideration
concurrently with the refund claims filed by Pulitzer Inc. on behalf of Old
Pulitzer for the December 1997 and 1998 and March 1999 tax years. In July 2004,
the IRS Appeals Officer agreed to release jurisdiction over all issues relating
to Old Pulitzers consolidated federal income tax liability for the December
1997 and 1998 and March 1999 tax years back to the IRS Examination Division.
Representatives of Pulitzer Inc. and of the IRS Examination Division have
engaged in substantive discussions seeking to resolve such issues. These
discussions are ongoing. While there can be no assurance that Pulitzer Inc. will completely prevail
in its position with respect to the issue of Old Pulitzers taxable gain as a
result of the Spin-off, it firmly believes that the IRS position is not
supported by the facts or applicable legal authority and intends to vigorously
contest the IRS proposed adjustment. With respect to the refund claims filed
by Pulitzer Inc. on behalf of Old Pulitzer for the December 1997 and 1998 and
March 1999 tax years, Pulitzer Inc. believes that the position underlying these
refund claims is supported by the facts and applicable legal authority,
although there can be no assurance that the IRS will approve all or any portion
of these refund claims. In view of the uncertainty regarding the resolution of
these issues, no financial statement recognition has been given to any taxes or
interest that may become payable due to the IRS or to Pulitzer Inc. in
connection with their ultimate resolution. PD LLC Operating Agreement On May 1, 2000, Pulitzer Inc. and The Herald Company, Inc. (Herald)
completed the transfer of their respective interests in the assets and
operations of the Post-Dispatchand certain related businesses to a new joint
venture (the Venture), known as PD LLC. Pulitzer Inc. is the managing member
of PD LLC. Under the terms of the operating agreement governing PD LLC (the
Operating Agreement), Pulitzer Inc. and another subsidiary hold a 95 percent
interest in the results of operations of PD LLC and Herald holds a 5 percent
interest. Heralds 5 percent interest is reported as Minority Interest in Net
Earnings of Subsidiary in the consolidated statements of income. Also, under
the terms of the Operating Agreement, Herald received on May 1, 2000 a cash
distribution of $306.0 million from PD LLC (the Initial Distribution). This
distribution was financed by a $306.0 million borrowing by PD LLC (the Loan).
Pulitzer Inc.s entry into the Venture was treated as a purchase for
accounting purposes. During the first ten years of its term, PD LLC is restricted from making
distributions (except under specified circumstances), capital expenditures and
member loan repayments unless it has set aside out of its cash flow a reserve
equal to the product of $15.0 million and the number of years since May 1,
2000, but not in excess of $150.0 million (the Reserve). PD LLC is not
required to maintain the Reserve after May 1, 2010. On May 1, 2010, Herald will
have a one-time right to require PD LLC to redeem Heralds interest in PD LLC,
together with Heralds interest, if any, in another limited liability company
in which Pulitzer Inc. is the managing member and which is -24-




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engaged in the
business of delivering publications and products in the greater St. Louis
metropolitan area (DS LLC). The May 1, 2010 redemption price for Heralds
interest will be determined pursuant to a formula yielding an amount which will
result in the present value to May 1, 2000 of the after-tax cash flows to
Herald (based on certain assumptions) from PD LLC, including the Initial
Distribution and the special distribution described below, if any, and from DS
LLC, being equal to $275.0 million. In the event that PD LLC has an increase in
the tax basis of its assets as a result of Heralds recognizing taxable income
from certain transactions effected under the agreement governing the
contributions of Pulitzer Inc. and one of its subsidiaries and Herald to PD LLC
or the Operating Agreement or from the transactions effected in connection with
the organization of DS LLC, Herald generally will be entitled to receive a
special distribution from PD LLC in an amount that corresponds, approximately,
to the present value of the after-tax benefit to the members of PD LLC of the
tax basis increase. Upon the termination of PD LLC and DS LLC, which will be
on May 1, 2015 (unless Herald exercises the redemption right described above),
Herald will be entitled to the liquidation value of its interests in PD LLC and
DS LLC, to be paid in cash by Pulitzer Inc. That amount will be equal to the
amount of Heralds capital accounts, after allocating the gain or loss that
would result from a cash sale of PD LLC and DS LLCs assets for their fair
market value at that time. Heralds share of such gain or loss generally will
be 5 percent, but will be reduced (but not below 1 percent) to the extent that
the present value to May 1, 2000 of the after-tax cash flows to Herald from PD
LLC and from DS LLC, including the Initial Distribution, the special
distribution described above, if any, and the liquidation amount (based on
certain assumptions), exceeds $325.0 million. The actual amount payable to Herald either on May 1, 2010 or upon the
termination of PD LLC and DS LLC on May 1, 2015 will depend on such variables
as future cash flows, the amounts of any distributions to Herald prior to such
payment, PD LLCs and DS LLCs rate of growth and market valuations of
newspaper properties. While the amount of such payment cannot be predicted
with certainty, Pulitzer Inc. currently estimates (assuming a 5 percent annual
growth rate in Heralds capital accounts, no special distribution as described
above and consistent newspaper property valuation multiples) that the amount of
such payment either on May 1, 2010 or on May 1, 2015 would not exceed $100
million. Pulitzer Inc. further believes that it will be able to finance such
payment either from available cash reserves or with the proceeds of a debt
issuance. Legal Contingencies In the second quarter of 2004, the Company settled the lawsuit filed in
the Missouri Circuit Court, Twenty-Second Judicial Circuit (City of St. Louis,
Missouri), against Pulitzer Inc., PD LLC, and Suburban Journals LLC
(Defendants) which was described in the Companys Annual Report on Form 10-K
for the year ended December 28, 2003 and the Companys Quarterly Report on Form
10-Q for the quarters ended March 28, 2004 and June 27, 2004. The lawsuit was brought by a group
of 33 independent carriers (the Plaintiffs) engaged in the business of
delivering the Post-Dispatchpursuant to home delivery contracts involving 44
carrier routes. The lawsuit was settled with a
payment by PD LLC of approximately $1.5 million. The Company has been involved, from time to time, in various claims and
lawsuits incidental to the ordinary course of its business, including such
matters as libel, slander and defamation actions, complaints alleging
discrimination, and product distribution practices. While the ultimate outcome
of litigation cannot be predicted
with certainty, management, based on its understanding of the facts, does
not believe the ultimate resolution of these matters will have a material
adverse effect on the Companys consolidated financial position or results of
operations. However, depending upon the period of resolution, such effects
could be material to the consolidated financial results of an individual
period. New Accounting Pronouncements In December 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 was signed into law. The Act introduced a
prescription drug benefit under Medicare (Medicare Part D) and a federal
subsidy to sponsors of retiree health care benefit plans that provide a benefit
that is at least actuarially equivalent (as that term is defined in the Act) to
Medicare Part D. FASB Staff Position 106-1, Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003(FSP 106-1), which is effective for interim or
annual financial statements for fiscal years which ended after December 7,
2003, permits a sponsor of a postretirement health care plan that provides a
prescription drug benefit to make a one-time election to defer accounting for
the effects of the Act. The Company decided to recognize the effects of the Act on the Companys
accumulated postretirement benefit obligation (APBO) and postretirement
benefit costs initially in the first quarter of 2004. The Company has
concluded that it qualifies for the subsidy under the Act since the
prescription drug benefits provided under the Companys postretirement
healthcare plans generally require lower premiums from covered retirees and
have lower deductibles than the benefits provided in Medicare Part D and,
therefore, are actuarially equivalent to or better -25-




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than the benefits provided
under the Act. In addition, the Company does not anticipate any material
change in the participation rate or per capita claims costs as a result of the
Act. The Company estimates that the provisions of the Act will lower the APBO
by approximately $12 million which is being treated as a negative prior service
cost that is being amortized beginning on March 8, 2004. This amortization
will result in a $1.3 million reduction to the APBO and postretirement benefit
costs in 2004, against which no income tax provision will be made in accordance
with the Act. Specific authoritative guidance on the accounting for the federal
subsidy is pending, and that guidance, when issued, could require the Company
to change previously reported information. The Condensed Consolidated
Statements of Income incorporate expense reductions of $0.4 million and $0.9
million for the respective third quarter and first nine-month periods of 2004,
against which no income tax provision has been made. The FASB issued Staff
Position 106-2, Accounting and Disclosure Requirements Related to the Medicare
Prescription and Modernization Act of 2003(FSP 106-2), which superceded FSP
106-1, and is effective for interim periods beginning after June 15, 2004. The
Company adopted FSP 106-2 on June 25, 2004 which had no significant change in
accounting previously adopted in accordance with FSP 106-1. -26-




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Item 3.
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Newsprint The primary raw material used in the Companys operations is newsprint,
representing 12.0 percent to 15.5 percent of operating expenses over the annual
fiscal periods of 1999 to 2003. Based on the Companys current level of
newspaper operations, expected annual newsprint consumption for 2004 is
estimated to be in the range of 103,000 metric tonnes. Historically, newsprint
has been subject to significant price fluctuations from year to year, unrelated
in many cases to general economic conditions. In the annual fiscal periods of
1999 to 2003, the Companys average annual cost per metric tonne of newsprint
has varied from its lowest price by approximately 27.8 percent. For every one
dollar change in the Companys average annual cost per metric tonne of
newsprint, 2004 pre-tax income would change by approximately $103,000, assuming
annual newsprint consumption of 103,000 metric tonnes. The Company attempts to
obtain the best price available by combining newsprint purchases for its
different newspaper locations with those of other newspaper companies. The
Company considers its relationship with newsprint producers to be good. The
Company has not entered into derivative contracts for newsprint. Loan/Swaps At September 26, 2004, the Company had $306.0 million of outstanding debt
pursuant to the Loan. The Loan bears interest at a fixed annual rate of 8.05
percent. The Company is a party to two interest rate swap contracts that convert a
portion of the Companys fixed rate debt to a variable rate. The interest rate
swaps have a combined $150.0 million notional amount and mature on April 28,
2009. Under the terms of the agreements, the Company pays interest at a
variable rate based upon LIBOR plus a combined adjustment average of 3.3392
percent and receives interest at a fixed rate of 8.05 percent. The floating
interest rates re-price semiannually. The Company accounts for the swaps as
fair value hedges and employs the short cut method. These transactions result
in approximately 49 percent of the Companys long-term interest cost being
subject to variable interest rates. Changes in market interest rates may cause the Company to incur higher or
lower net interest expense. For example, for every 1.0 percent change in the
variable interest rates associated with the Companys interest rate swaps, the
Companys annual interest expense would change by approximately $1.5 million. -27-




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Item 4. CONTROLS AND PROCEDURES As of the end of the period covered by this report, the Companys
management, including the President and Chief Executive Officer and Senior Vice
President-Finance and Chief Financial Officer, carried out an evaluation of the
effectiveness of the design and operation of the Companys disclosure controls
and procedures. Based upon that evaluation, the Companys President and Chief
Executive Officer and Senior Vice President-Finance and Chief Financial Officer
concluded that the Companys disclosure controls and procedures are effective
in alerting them to material information, on a timely basis, required to be
included in the Companys periodic SEC filings. During the period covered by
this report, there have been no significant changes in the Companys internal
control over financial reporting that have materially affected, or a reasonably
likely to materially affect, the Companys internal control over financial
reporting. -28-




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Part II. OTHER INFORMATION 
 Item 1. LEGAL PROCEEDINGS Please see Note 6 Commitments and Contingencies to the condensed
consolidated financial statements included in Part I, Item 1 of this Form 10-Q. 
 Item 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES None reportable. -29-




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Item 6. EXHIBITS The following exhibits are filed as
part of this report:31.1
    
    Certification by Robert C. Woodworth, President and Chief
Executive Officer of Pulitzer Inc., pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, in connection with Pulitzer Inc.s
Quarterly Report on Form 10-Q for the quarter ended September 26,
2004.31.2
    
    Certification by Alan G. Silverglat, Senior Vice
President-Finance and Chief Financial Officer of Pulitzer Inc.,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, in
connection with Pulitzer Inc.s Quarterly Report on Form 10-Q for
the quarter ended September 26, 2004.32.1
    
    Certification by Robert C. Woodworth, President and Chief
Executive Officer of Pulitzer
Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, in connection with
Pulitzer Inc.s Quarterly Report on Form 10-Q for the quarter ended
September 26, 2004.32.2
    
    Certification by Alan G. Silverglat, Senior Vice
President-Finance and Chief Financial Officer of Pulitzer Inc.,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, in connection with Pulitzer
Inc.s Quarterly Report on Form 10-Q for the quarter ended September
26, 2004.
 All other items of this report are not applicable for the current quarter. 
 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. PULITZER INC.
(Registrant)Date: November 4, 2004
    
    /s/ Alan G. Silverglat(Alan G. Silverglat)Senior Vice President-Finance andChief Financial Officer(on behalf of the Registrant andas principal financial officer)
 -30-




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EXHIBIT INDEX 31.1
    
    Certification by Robert C. Woodworth, President and Chief
Executive Officer of Pulitzer
Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, in
connection with Pulitzer Inc.s Quarterly Report on Form 10-Q for
the quarter ended September 26, 2004.31.2
    
    Certification by Alan G. Silverglat, Senior Vice
President-Finance and Chief Financial Officer of
Pulitzer Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, in connection with
Pulitzer Inc.s Quarterly Report on Form 10-Q for the quarter ended
September 26, 2004.32.1
    
    Certification by Robert C. Woodworth, President and Chief
Executive Officer of Pulitzer
Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, in connection with
Pulitzer Inc.s Quarterly Report on Form 10-Q for the quarter ended
September 26, 2004.32.2
    
    Certification by Alan G. Silverglat, Senior Vice
President-Finance and Chief Financial Officer of
Pulitzer Inc., pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in
connection with Pulitzer Inc.s Quarterly Report on Form 10-Q for
the quarter ended September 26, 2004.
 -31-