FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Commission File Number 1-14541

PULITZER INC.

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.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Indicate the number of shares outstanding of each of the issuer’s classes
of common stock, as of the latest practicable date.

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)

(Continued)

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See notes to condensed consolidated financial statements.

(Concluded)

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PULITZER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited — In thousands)

See notes to condensed consolidated financial statements.

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PULITZER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited — In thousands)

(Continued)

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PULITZER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited — In thousands, except share data)

(Concluded)

See notes to condensed consolidated financial statements.

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PULITZER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited — In thousands)

(Continued)

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(Concluded)

See notes to condensed consolidated financial statements.

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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:

     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.

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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.

     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

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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 Citizen and 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:

(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.

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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:

     Other intangible assets at September 26, 2004 and December 28, 2003 were as follows:

     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

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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:

     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.

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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

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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-Dispatch and 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

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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-Dispatch pursuant 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:

* * * * * *

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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 Star and 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-Dispatch on 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

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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’s direct 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.

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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:

     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.

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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

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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:

     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

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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

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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

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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-Dispatch and 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

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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-Dispatch pursuant 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

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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.

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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.

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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.

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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.

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Item 6. EXHIBITS

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.

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EXHIBIT INDEX

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