Back to GetFilings.com

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

OR

Commission File Number: 333-121185

CBD MEDIA HOLDINGS LLC

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (513) 397-6794

Securities registered pursuant to Section 12(b) of the Act: Title of Class: N/A

Securities registered pursuant to Section 12(g) of the Act: Title of Class: N/A

Name of exchange on which registered: N/A

Indicate by check mark whether each 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.    x  Yes    ¨  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    ¨  Yes    x  No

Table of Contents

CBD MEDIA HOLDINGS LLC

FORM 10-K

TABLE OF CONTENTS

Table of Contents

PART I

This annual report on Form 10-K contains certain forward-looking statements that involve risks and uncertainties. The actual future results for CBD Media LLC may differ materially from those discussed herein. Additional information concerning factors that could cause or contribute to such differences can be found in Part II, Item 7 entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” elsewhere throughout this Annual Report, and in the “Risk Factors” section of CBD Media’s Registration Statement on Form S-4, Registration No. 333-121185, filed with the SEC on January 28, 2005.

As used herein, unless the context otherwise requires:

CBD Media

We are the twelfth largest directory publisher in the United States based on 2003 revenue. We are the exclusive directory publisher for Cincinnati Bell branded yellow pages in the Cincinnati-Hamilton metropolitan area, which is the 23rd largest metropolitan area in the country according to the most recent U.S. Census. We believe our directories captured an 87% share of the 2003 total directory advertising spending in the Cincinnati-Hamilton metropolitan area. In 2004, we published sixteen directories and distributed 2.4 million yellow pages directories to businesses and residences. We also offer integrated internet-based directory services to our consumers through the cincinnatibellyellowpages.com web site. In addition, we publish the white pages for Cincinnati Bell Telephone, the incumbent local exchange carrier in the Cincinnati-Hamilton metropolitan area for over 100 years, for whom we distributed 1 million copies in 2004. We generate our revenues primarily through the sale of advertising, and in 2004 had over 17,000 local advertising customers consisting primarily of small and medium-sized businesses, as well as approximately 1,100 national advertisers. For the twelve months ended December 31, 2004, our revenue was $87.7 million and we have experienced year-over-year revenue growth since 1993.

We acquired our directory publishing business in March 2002 from Cincinnati Bell Inc., the owner and operator of Cincinnati Bell Telephone. As a part of this acquisition, we received an exclusive, royalty-free license to use the name “Cincinnati Bell Directory” to conduct our directory publishing business in the Cincinnati-Hamilton metropolitan area until March 2022. In addition, Cincinnati Bell Inc. and its subsidiaries and affiliates are contractually prohibited from competing with us in the directory publication business in the Cincinnati-Hamilton metropolitan area until March 2012.

The U.S. directory advertising industry has experienced stable and consistent revenue growth, with revenues for the industry increasing from approximately $5.8 billion in 1985 to approximately $14.9 billion in 2003, representing a compounded annual growth rate of approximately 5.7% for the period. We believe that print directories are, in many cases, the primary forms of advertising used by small and medium-sized businesses and are one of the most resilient forms of advertising in economic downturns. In addition, we believe that the annual publication cycle and the priority placement given to existing advertisers result in high customer retention rates by directory publishers even during poor economic times. During the last two recessions beginning in 1991 and 2001, the U.S. directory advertising industry experienced positive growth in spending, while other major forms of advertising media, including radio, television and newspaper, experienced spending declines.

1

Table of Contents

Competitive Strengths

Dominant local market position. We have superior printed directory usage and possession statistics in the Cincinnati-Hamilton metropolitan area. According to a 2004 study prepared for us by the University of Cincinnati, we are the preferred yellow pages directory of 92% of the population of the Greater Cincinnati metropolitan area and have residential and business possession rates for 96% and 94%, respectively. We believe these usage statistics are, in part, responsible for our high advertiser satisfaction rates (5 year average of 71.5%—top 2 boxes), as well as our average local advertiser retention rate of over 80% in the last five years, which we believe is the highest in our market and compares favorably to other directories published under the local exchange carrier brand nationwide. We expect that Cincinnati Bell Telephone’s established market position and strong brand name will allow us to sustain our market share, maintain high usage trends for our directories and attract additional high-quality advertisers in the future.

Powerful brand name. In 2002, we entered into a twenty-year agreement with Cincinnati Bell Inc. that allows us to use the widely-recognized Cincinnati Bell name to market our directory products. The Cincinnati Bell brand has been in existence for over 100 years and its high regard among our consumers is evidenced by Cincinnati Bell Telephone’s receipt of the J.D. Power and Associates 2001 and 2002 awards for both Local Residential Telephone Customer Satisfaction-Mainstream Users and Residential Long Distance Customer Satisfaction-Mainstream Users, as well as the award for the Highest Overall Satisfaction Among Wireless Telephone Users in Cincinnati in 2002. Cincinnati Bell Telephone’s local ranking represents J.D. Power’s highest award for all local telephone companies in the United States. We believe our strategic relationship with Cincinnati Bell Telephone affords us brand recognition as the incumbent yellow pages provider and gives us a significant competitive advantage compared with directory publishers in our market that are not associated with the Cincinnati Bell brand.

Efficient operating model. We utilize select strategic partners, whom we believe are among the best operators in their respective industries, to provide sales, printing, distribution and billing support under long-term contracts. This business model allows us to realize best-in-industry service and cost efficiencies that directly contribute to our operating and free cash flow margins, which we believe are among the highest in the directory publishing industry. We are able to leverage our partners’ expertise and national experience, thereby minimizing ongoing capital expenditures and allowing our management to concentrate its focus on the strategic management of our business. We also believe that we are a significant customer of each of our key partners, which we believe enhances the quality of services that we receive.

Strong financial profile. Our business has been characterized by consistent revenue growth and high operating margins. Our revenue has increased each year since 1993, from approximately $58.7 million in 1993 to approximately $87.7 million in 2004, resulting in a compounded annual growth rate of nearly 4%. The stability of our financial results is driven by (i) our directory advertising sales, which are presold through one-year contracts typically paid on a monthly basis; (ii) our collection rate during the year ended December 31, 2004 of approximately 95% of gross accounts receivable, which we believe compares favorably to the collection rates of both other directories published under the local exchange carrier brand and independent directory publishers; (iii) our high advertising retention rates from existing customers, which have averaged over 80% over the last five years; and (iv) the fact that 85% of our operating expenses are tied to contracts with strategic partners and tend to be correlated with our revenue.

Favorable cash flow characteristics. Our business has strong cash flow characteristics due to the combination of our consistent revenue, strong operating margins, high collection rates, low capital expenditures, minimal working capital requirements, limited corporate overhead and a favorable tax position resulting from our acquisition from Cincinnati Bell Inc. in 2002. The timing of our cash inflows throughout the year is also predictable, as our customers typically pay for their advertisements in our directories in twelve equal monthly installments.

2

Table of Contents

Attractive market demographics. We believe that the Cincinnati-Hamilton metropolitan area has a growing economy, a stable base of employment and a high percentage of service-based businesses. We believe service-based businesses, as an industry group, are more favorably disposed to advertise in yellow pages directories. The Cincinnati-Hamilton metropolitan area has experienced economic growth that has exceeded the national average over the past nine years. From 1994 to 2003, the Cincinnati Gross Regional Product grew at an estimated average annual rate of 3.6% compared to the national Gross Domestic Product average annual growth rate of 3% over the same period. The 2003 unemployment rate for the Cincinnati-Hamilton metropolitan area was 4.8%, well below the national unemployment rate of 5.8%, and 57% of newly created or retained jobs in 2001 were in the services industry. In addition, more than 370 Fortune 500 firms have a presence in Cincinnati, and eight of these firms have their headquarters in the region.

Diverse customer base. We have a large, diversified yellow pages customer base. In 2004, we served more than 17,000 local and approximately 1,100 national advertisers through our fifteen yellow pages directories. We believe that the significance of the directory advertising medium to these customers, along with the diversity of our customer base, mitigates the effect of downturns in the economy or any individual sector of the economy on our business as our operations are not dependent on any one particular advertiser or industry segment. In 2004, no single advertiser represented more than 0.6% of our revenue and our largest topical directory heading accounted for only 5.0% of our total revenue. In addition, in 2004, our top ten topical directory headings accounted for approximately 22.0% of total revenue.

Significant value for our target advertisers. We believe that directory advertising provides significant value to our customers and a value greater than that created by advertising in most other major forms of media. The 2.3 million yellow pages directories that were distributed to businesses and residences represent a broad spectrum of potential users and, in turn, offer our advertisers significant local reach. Directory advertising is also directional in nature, which means consumers typically use directories immediately before making a purchase, creating a meaningful value for advertisers in the directory. As a result, according to CRM Associates, it was estimated that in 2002 directory advertising produced a higher median return on investment ($51 for every $1 spent) than advertising in most other major forms of media, including newspapers ($34), radio ($19), magazines ($17) and television ($10).

Experienced management team. Our current management team has over 50 years combined experience with our business, with an average of approximately thirteen years of experience each. Our President and Chief Executive Officer, Douglas A. Myers, has worked at our business for the past sixteen years in a variety of positions prior to being appointed to his current role in 1999. John P. Schwing, our Chief Financial Officer, and David D. Miller, our Vice President of Sales and Operations, have served in senior management roles with us for the past eleven and fifteen years, respectively. The senior management’s relationships with the strategic partners involved in CBD Media’s operations are well-established and long-standing. In addition, each member of our senior management has an equity interest in our business.

Business Strategy

Increase revenue from existing local customer base. We have historically achieved annual revenue growth by selling additional advertising or services to our existing local customer base of more than 17,000 local customers, comprised primarily of small to medium-sized service businesses. By offering a larger ad display, color text instead of black and white, improved display placement under a heading, and a wide variety of specialty product offerings such as directory spine and back-cover advertising, we have been successful in generating higher average revenue per customer over time, the key focus of our sales force.

Expand product offerings and value-added services. We provide small and medium-sized businesses with a fully-integrated solution for their directory advertising needs. For many of our local advertisers, printed yellow pages advertising has historically been their primary or only means of advertising. Only 26% of our print customers currently advertise using our internet directory advertising site, cincinnatibellyellowpages.com. We have fully integrated this website in our local sales channel and have begun providing a bundled advertising product consisting of print and internet advertising to our customers. We believe that as the percentage of our customer base using our internet directory advertising products increases, we will be able to generate incremental

3

Table of Contents

revenue from these products. We are introducing additional advertising opportunities in our print directory product, such as front cover advertisements, which we expect will also allow us to generate additional incremental revenue from our customer base.

Leverage strategic partnerships. Our unique partnership-based business model allows us to generate operating margins which we believe, based on publicly available information, are among the highest in the directory publishing industry and allows our management team to focus on strategic growth. We will continue to use these partnerships to generate continued revenue growth while maintaining our strong operational margins. We believe that our selection of industry-leading strategic partners and our value to these partners has allowed us to achieve favorable operating results while avoiding significant capital expenditures and limiting corporate overhead.

Industry

Directory advertising competes with all other forms of media advertising, including television, radio, newspapers, the internet, billboards and direct mail. The entire U.S. advertising market was estimated to be $171.1 billion in 2002, with directory advertising capturing an approximate 8.7% share of the advertising market. Unlike other forms of advertising, directory advertising is characterized as primarily directional advertising (which refers to advertising targeted at consumers who are actively seeking information and are prepared to purchase a product or service). Historically, the U.S. directory advertising industry has been dominated by the large publishing businesses of regional Bell operating companies, or RBOCs, and other incumbent local telephone companies.

Directory advertising market size

It is estimated that the U.S. directory advertising industry generated sales of approximately $14.9 billion in 2003. The industry is characterized by steady and consistent growth with advertising spending increasing at a 4.3%, 4.6% and 4.1% compounded annual growth rate over the last five, ten and fifteen years, respectively. The following chart depicts the estimated size and growth of the U.S. directory advertising industry since 1985:

U.S. directory advertising: 1985 – 2003

Source: Veronis Suhler Stevenson, Communications Industry Forecast, July 1997 and 2004. Reported Yellow Pages Advertising revenue includes revenue from Publisher’s Internet yellow pages operations.

4

Table of Contents

Local versus national advertising

While directory advertising is sold on both a local and national basis, local advertising from small and medium-sized businesses constitutes the majority of directory advertising spending. As shown in the table below, from 1998 to 2003, local print directory advertising constituted approximately 84.9% of total spending for the U.S. directory advertising industry. This is consistent with our experience, where for the period from January 1, 2004 to December 31, 2004, local advertising accounted for approximately 80.0% of our total revenue.

Local versus national U.S. directory advertising: 1998 – 2003

Source: Veronis Suhler Stevenson, Communications Industry Forecast, July 2004. Publisher’s Internet Yellow Pages revenue is included in the Local Yellow Pages figures.

Competition within the industry

Presently, the industry can be divided into two major groups of directory advertising publishers: the directory businesses of RBOCs and other incumbent local telephone companies such as Cincinnati Bell Telephone, referred to as Incumbent Publishers, and independent publishers such as TransWestern Publishing Company LLC, the U.S. business of Yell Group Ltd. and McLeodUSA Media Group Inc. (which has been acquired by Yell Group Ltd.), referred to as Independent Publishers. Fueled by the Telecommunications Act of 1996, which assured access to telephone subscriber listings at nominal rates, and significant private equity investment, Independent Publishers have begun to consolidate and increase their market share. As shown in the table below, the Independent Publishers’ revenues have increased over the last five years, yet the Incumbent Publishers remain the dominant players, with an estimated 86.7% share of total 2003 revenue for the U.S. directory advertising industry.

U.S. directory market share: 1998 – 2003

Source: Veronis Suhler Stevenson, Communications Industry Forecast, July 2004.

We believe that Incumbent Publishers maintain higher margins than their Independent Publisher competitors due to their affiliation with the incumbent local telephone service provider, highly recognized brand names, established consumer usage, broader distribution, wider geographic coverage and long-term advertiser

5

Table of Contents

relationships. Given these advantages, Independent Publishers are forced to compete primarily on price, with advertising rates that are significantly lower than the rates for equivalent products listed by Incumbent Publishers. As a result, Independent Publishers typically have substantially lower EBITDA margins than Incumbent Publishers.

Competition with other media

We believe that one of the most compelling aspects of yellow pages directories is their ability to weather economic downturns more favorably than other forms of advertising. For example, during the last two recessions, beginning in 1991 and 2001, yellow pages directory advertising was one of the only media segments to show revenue growth. As the table below highlights, U.S. directory advertising industry spending increased 2.9% and 5.2% in 1991 and 2001, respectively, while other major media segments declined.

Advertising spending by media category: 1990 – 2003

Source: Veronis Suhler Stevenson, Communications Industry Forecast, July 1997 and 2004.

We believe directory advertising is the preferred form of advertising for many small and medium-sized businesses due to its relatively low cost, broad demographic and geographic distribution, enduring presence and high customer usage rates. We believe that yellow pages advertising is attractive to our customers because consumers may view yellow pages directories as a free, comprehensive single source of information. While overall advertising tends to track an economy’s business cycle, directory advertising tends to be more stable and does not fluctuate widely with economic cycles due to its preference by small to medium-sized businesses, often as their principal or only form of advertising. Directory advertising is also recession-resistant because failure to advertise in a given directory cannot be remedied until the replacement directory is published, usually one year later. Moreover, most directory publishers, including us, give priority placement within a directory classification to their longest-tenured advertisers. As a result, advertisers have a strong incentive to renew their directory advertising purchases from year to year, so as not to lose their priority placement within the directory.

Long-term growth rates for the U.S. directory advertising industry also compare favorably to most other major media categories with a compounded annual growth rate of 4.3% from 1998 to 2003 versus a 2.8% average compounded annual growth rate during the same period for an aggregate of major forms of media

6

Table of Contents

consisting of newspaper, radio and television. According to CRM Associates, it was estimated that in 2002, directory advertising for the top 135 topical directory headings generated a median return on investment of $51 for every $1 spent, as compared to a median return on investment of $34 for newspapers, $19 for radio and $10 for television.

The Internet

Most major directory publishers, including us, operate an internet-based directory business, or IYP. The U.S. internet yellow pages market represented a small, but growing segment of the total U.S. directory advertising market in 2001 with total revenue of approximately $263 million, and was estimated to grow to $347 million in 2002, an increase of approximately 32%. The internet directories that have succeeded in generating advertising revenue have generally been captive ventures of incumbent print directory publishers. Industry sources estimate that 71% of 2002 IYP revenues were generated by print publishers. Publishers have increasingly bundled online advertising with their traditional print offerings while applying some notional value to the online product. We expect IYP usage to continue to steadily grow in support of overall directory usage.

Markets and Directories

In 2004, we published sixteen directories, including yellow pages, white pages and other specialty directories, and distributed approximately 3.5 million copies, including 2.4 million yellow pages and 1.1 million white pages directories, to businesses and residences primarily in the Cincinnati-Hamilton metropolitan area, which includes local communities and counties surrounding Cincinnati and Northern Kentucky. Our directories are generally well-established in their communities and cover contiguous geographic areas to create a strong local market presence and to achieve selling efficiencies. The following table shows yellow pages directory services revenue and other data for the year ended December 31, 2004 for our directories in each area in which we operate:

Products

Our main product is printed directories, which generated approximately 96.1% of our total revenue for the year ended December 31, 2004. We also operate an internet-based directory, and offer audiotext and other direct marketing services.

Printed directories

In 2004, we published sixteen printed directories, consisting of:

7

Table of Contents

Our directories are designed to meet the advertising needs of local and national businesses and the informational needs of consumers. The diversity of our advertising products enables us to create customized advertising programs that are responsive to specific needs and financial resources of small and medium-sized businesses. Our yellow pages and white pages directories are also efficient sources of buying information for consumers, featuring a comprehensive list of businesses in the local market that are conveniently organized under approximately 2,600 topical directory headings.

Yellow pages directories. We offer every business a basic listing at no charge in the relevant edition of our yellow pages directories. This listing includes the name, address and telephone number of the business and is included in alphabetical order in the relevant business classification. We maintain a database of these listings, which is derived from data supplied daily from Cincinnati Bell Telephone. This database is supplemented with additional information acquired by our sales representatives and customer service employees.

For the year ended December 31, 2004, we derived approximately 95.9% of our total revenue from the sale of advertising in our yellow pages directories. A full range of paid advertising products are available in our yellow pages directories, as set forth below:

8

Table of Contents

White pages directory. State public utilities commissions require Cincinnati Bell Telephone, as the local exchange carrier in its local service area, to publish and distribute a white pages directory to serve the local service area. In March 2002, we entered into a White Pages Publication and Distribution Agreement with Cincinnati Bell Telephone whereby we were appointed Cincinnati Bell Telephone’s exclusive agent to sell advertising, manufacture and distribute their white pages directory. By virtue of this agreement, we provide a white pages listing to every residence and business in a given area that sets forth the name, address and phone number of the residence or business in question unless they have requested to be a non-published or non-listed customer. Under this agreement, we also solicit and sell advertising to be included in the white pages directory. This agreement is effective until March 2012 at which time it is renewable at our discretion for a period of an additional ten years.

Internet-based directory and electronic products

Although we remain primarily focused on our printed directories, we also market an internet-based yellow pages directory (IYP), www.cincinnatibellyellowpages.com, to our advertisers. We believe that cincinnatibellyellowpages.com is the leading internet yellow pages directory in our market. For the year ended December 31, 2004, our internet-based directory services generated approximately 4% of our total revenue and had an average of 290,000 monthly yellow pages searches. All of the listings in our printed directories also appear in our internet-based directory, which is available to users at no additional charge to our advertisers. The content we create for our printed directories, which we also post on our website, as well as the unique content within our semi-custom websites, makes us competitive on the internet.

As in our printed directories, businesses may pay to enhance their listings or enhance their listing placement on cincinnatibellyellowpages.com and for other premium advertising products. Options that are available on our website include pay per click placements on National search engines, semi-custom web sites, category sponsorships, keyword advertising enhanced listings, replicated print advertisements, website and email links, banner ads and traffic packages on affiliate IYP platforms. We view our internet-based directory as a complement to our print product rather than as a stand-alone business. We believe that increased usage of internet-based directories will continue to support overall usage of the directory business. At this time leveraging the key assets of the sales channel and products as a single solution continues to make strategic sense at this time.

To promote future usage of our internet-based directories, we continue to bundle our internet products with our print advertising products as a single source solution to increase the customer value proposition while supporting rate increases. We also deliver our yellow pages content electronically, including through CD-ROMs and soon through wireless platforms, and will continue to explore new means to gather and deliver our content to consumers to best meet their needs.

Sales and Marketing

The marketing of directory advertisements is primarily a direct sales business that requires both maintaining existing customers and developing new customers. Renewing customers comprise our core advertiser base, and a

9

Table of Contents

large number of these customers have advertised in our directories for many years. In 2004, we retained over 82.8% of our local advertisers from the previous year. We believe that this high renewal rate reflects the importance of our directories to our local customers, for whom yellow pages directory advertising is, in many cases, the primary form of advertising.

We have outsourced our direct sales effort to L.M. Berry and Company (a subsidiary of the Bell South Corporation), which we believe to be one of the most experienced sales forces in the U.S. directory advertising industry. Our directory advertising and marketing agreement with L.M. Berry expires in August 2009. L.M. Berry is a sales agency dedicated to the selling of local yellow pages advertising on behalf of incumbent local telephone companies across the United States and currently has offices in 39 states. L.M. Berry handles the sale of local advertising for our yellow and white pages directories, manages our national advertising sale process for these directories and is responsible for all yellow and white pages “pre-press” services.

We conduct two major sales campaigns each year, selling both print and internet-based directory advertising to our customers. The first campaign consists of two Cincinnati-Hamilton metropolitan area directories, a Cincinnati city edition and a Northern Kentucky edition, as well as neighborhood underlay directories. The metropolitan campaign delivers its books in June and typically contributes 75% of revenue. The second campaign consists of suburban market directories and a business-to-business directory. The suburban campaign delivers its books in November and typically contributes 25% of our revenue. Each of these campaigns consists of an extended marketing plan, sales canvass and sales campaign.

As our exclusive local advertising sales agent, L.M. Berry is required to employ an adequate sales force and support staff to sell our directory advertising and provide customer support to our local advertisers. L.M. Berry provides sales management, clerical and sales support staff to provide these services, as well as artists and graphic designers who are responsible for assisting advertisers to create art copy to be included in their print and internet yellow pages advertisements. L.M. Berry also prepares credit and billing information for us, assists us with the collection of delinquent accounts, and prepares presentations and reports that update us on its sales progress and other marketing information.

In addition to our locally-based sales personnel, L.M. Berry manages a separate sales channel to serve our approximately 1,100 national advertisers. National advertisers are typically national or large regional chains, such as rental car companies, insurance companies and pizza delivery businesses, that purchase advertisements in many yellow pages directories in multiple geographical regions. In order to sell to national advertisers, we retain the services of third-party certified marketing representatives, or CMRs. CMRs design and create advertisements for national companies and place those advertisements in yellow pages directories nationwide. Some CMRs are departments of general advertising agencies, while others are specialized agencies that focus solely on directory advertising. The national advertiser pays the CMR, which then pays us after deducting its commission. We have relationships with approximately 212 CMRs and employ one national sales manager to manage our selling efforts to national customers. For the national sales function, L.M. Berry manages order processing, updates and maintains advertising rates, supports CMR relationships and generates sales reports and analyzes national advertising sales performance.

With respect to pre-press services, L.M. Berry provides services including ad design and production, page layout, pagination, advertising inventory control, customer acknowledgement preparation and mailing, quality review of final page proofs, production scheduling and provisioning and forwarding of completed directory products to the printer.

L.M. Berry is compensated for its services on a commission basis, consisting of a base commission and incentive commission. In addition, we pay L.M. Berry an annual prepress fee. For the year ended December 31, 2004, we paid L.M. Berry approximately $15.0 million for its services to us. L.M. Berry’s performance is measured through a system of key performance indicators, which monitor our revenue growth, advertiser contact and satisfaction and production cycle time, among other things. Based on the annual results of these key

10

Table of Contents

performance indicators, we may terminate the agreement or L.M. Berry may earn additional compensation for exceeding performance levels. In addition, during the term and for one year following the expiration or termination of the agreement, L.M. Berry and its parent company, BellSouth Advertising and Publishing Company, and all of its majority owned subsidiaries may not compete with us in the service area covered by the agreement.

Billing and Collection Services

In connection with the purchase of the directory publishing assets of Cincinnati Bell Directory from Cincinnati Bell Inc., we entered into a billing and collection services operating agreement with Cincinnati Bell Telephone, the local exchange carrier subsidiary of Cincinnati Bell Inc.. Pursuant to this billing and collections services operating agreement, Cincinnati Bell Telephone continues to bill and collect, on our behalf, amounts owed by our customers in connection with our directory services and sweeps cash to us on a daily basis. For customers for whom Cincinnati Bell Telephone is the provider of local telephone service, Cincinnati Bell Telephone bills the customer on the same billing statement that it bills the customer for its local telephone service. For the year ended December 31, 2004, we paid Cincinnati Bell Telephone approximately $1.2 million for its services to us. In addition, Cincinnati Bell Telephone has agreed not to provide similar services to any of our competitors during the term of the agreement. This billing arrangement will continue until March 2012, with an automatic renewal for a subsequent ten-year period unless we elect to terminate the agreement prior to the end of the initial term. Either party may also terminate this agreement if the other party commits a material breach that is not cured within sixty days of written notice of the breach. As part of the agreement, Cincinnati Bell Telephone also agreed to meet certain service level requirements with the goal of ensuring high quality service under objectively agreed upon standards. If Cincinnati Bell Telephone fails to meet these service level requirements, we may have the right to receive credits towards the fee payments that we owe under the agreement. Cincinnati Bell Telephone prepares a regular monthly report summarizing its collections and settlements effort and service performance, including service level requirement statistics.

Printing, Paper and Distribution

Quebecor Agreement

Quebecor World Directory Sales Corporation prints all of our directories. Our directories are typically printed two months before delivery. Our current contract with Quebecor began in January 1999 and expires on December 31, 2007, at which time the contract may be extended by mutual agreement for up to two additional years. Under the agreement, Quebecor provides us with printing services, including white pages and miscellaneous photocompilation, plating, presswork, binding and other services for each of our directories. Small size directories are produced by Quebecor in its Waukee, Iowa facility, while full to midsize directories and photocompilation are primarily manufactured at Quebecor’s Hazleton, Pennsylvania facility. Quebecor’s services are performed in accordance with specifications set forth in the agreement, which we may change upon written notice to Quebecor provided the changes do not materially adversely affect its business and we provide a reasonable time to effect the changes. We have the opportunity to access Quebecor’s facilities during work hours to review its quality systems and to make observations. Quebecor also agrees to host semi-annual sessions to target quality improvement. For the year ended December 31, 2004, we paid Quebecor approximately $9 million for its services to us. Quebecor agreed to indemnify us for third-party intellectual property infringement and certain other claims related to the printing services, including a certain amount of losses or expenses arising out of our customers’ claims of errors or omissions in the directories caused by Quebecor.

DDA Agreement

We have entered into a directory delivery agreement with Directory Distributing Associates, Inc., under which DDA distributes our printed directories and other collateral advertising material to consumers in our service territories, including Ohio, Kentucky and Indiana, by hand or mail delivery. The distribution typically commences each May and October of a given year for the June and November sales campaigns, respectively.

11

Table of Contents

This agreement will continue until December 31, 2005, but we have an option to renew the agreement for up to two additional one-year terms. We may terminate all or part of the agreement if DDA fails to deliver the directories within the specified time frame or upon a breach of another term, condition or provision of the contract not cured within ten days of receipt of notice of breach. We may also terminate at our convenience upon payment of any amount due to DDA for services provided and costs incurred. During the term, DDA may not distribute any other directory to our customers.

As part of its directory distribution services, DDA is responsible for hiring, training, compensating and terminating personnel or contractors used to perform the services, as well as other matters related to such persons or businesses, organizing delivery stations in each delivery area, coordinating shipping and shipping instructions, having and being responsible for delivery equipment, trucks and labor and conducting telephone quality checks to monitor performance.

We reimburse DDA for direct expenses indicated in the agreement and pay DDA an additional annual fixed fee (negotiated at the beginning of each calendar year) for each metropolitan and suburban distribution. For the year ended December 31, 2004, we paid DDA $1.5 million for their services to us. To measure DDA’s performance and ensure that we receive quality service, we have established a system of performance measures, including delivery timing benchmarks, customer satisfaction, claimed possession, delivery quality and delivery packaging that are measured each year. Based on the results of these performance measures, we may grant DDA a contract extension, award it a bonus or terminate the agreement.

Customers

In 2004, more than 17,000 local businesses purchased advertising in our printed directories. Approximately 80% of our revenue for the year ended December 31, 2004 was generated by the sale of advertising in our printed directories to local businesses, which are generally small and medium-sized enterprises.

We do not depend to any significant extent on the sale of advertising to a particular industry or to a particular advertiser. The diversity of our customer base reduces exposure to adverse economic conditions that may affect particular geographic regions or particular industries and provides additional stability in operating results. The table below, which sets forth 2004 information relating to our largest directory headings, demonstrates the diversity of our customer base:

We enjoy high local advertiser retention rates. From 2000 to 2004, our average annual customer retention rate remained stable at approximately 80%, including the loss of advertisers as a result of business failures, which equaled approximately 5% in 2003. We believe this retention rate compares favorably to the retention rates of our competitors. The loss of advertisers was offset by the addition of new customers. Increases in total advertising spending and average dollars spent per advertisement also offset any net loss of advertisers.

We believe that this low level of turnover reflects a high level of satisfaction among our customers. The training that L.M. Berry and we provide to L.M. Berry’s sales representatives emphasizes the fostering of long-

12

Table of Contents

term relationships between sales representatives and their customers, and our blend of salary and incentive-based compensation structure with L.M. Berry is more customer-focused by equitably rewarding customer growth and new customer acquisition. In addition, our customers often do not reduce or eliminate directory spending during difficult economic periods because the failure to advertise cannot be remedied until the replacement directory is published, usually one year later. Moreover, most directory publishers, including us, give priority placement within a directory classification to long-time advertisers. As a result, businesses have a strong incentive to renew their directory advertising purchases from year-to-year, even during difficult economic times, so as not to lose their placement within the directory.

Competition

The U.S. directory advertising industry is competitive. We compete with many different advertising and other media, including newspapers, radio, television, the internet, billboards, direct mail and other yellow pages directory publishers. In total, there are five directory publishers we compete against, and we estimate that we have the dominant market share with over 85% of the market revenue. We compete with these publishers on value, quality, features, distribution and brand. Additionally, a new competitor, Verizon Information Services (SuperPagers brand), has begun selling print advertising in the Cincinnati marketplace during the first quarter of 2004. They published two directories in September 2004 that overlay our coverage. Given our experience with new competitors in our marketplace in the past, we do not believe that Verizon’s new directories will have a material impact on our financial performance.

In connection with the acquisition, we entered into a licensing agreement and a non-competition agreement with Cincinnati Bell Inc., the sole shareholder of Cincinnati Bell Directory, and a white pages publishing agreement with Cincinnati Bell Telephone. Under the license agreement, we have the exclusive right to the trademark “Cincinnati Bell Directory” in the conduct of our directory business in the Cincinnati-Hamilton metropolitan area until 2022. We believe the brand recognition afforded to us under the incumbent telephone company’s brand differentiates our directories from our independent competitors and provides a competitive advantage that leads to broader distribution, higher usage of our directories by end-users and long-term relationships with our customers.

Under the non-competition agreement, which remains in effect until 2012, Cincinnati Bell Inc. and its subsidiaries and affiliates are contractually prohibited from competing with us in the directory publication business in the Cincinnati-Hamilton metropolitan area until March 2012. This prohibition extends to our entire telephone directory business in that territory, whether conducted in written or electronic form, or displayed on the Internet or other dissemination device, including all primary, metro and suburban, business to business and underlay; all products and services related to the foregoing; and all Internet initiatives, websites, web hosting, web design and similar activities relating to the foregoing which existed when we acquired the business from Cincinnati Bell Inc. In addition, if Cincinnati Bell Inc. or any of its subsidiaries or affiliates engages in the directory publishing business (as was conducted immediately prior to our acquisition in March 2002) in the Cincinnati-Hamilton metropolitan area at any time after the expiration of the non-competition agreement in March 2012 or upon any termination of that agreement prior to that time, Cincinnati Bell Inc. is obligated, under the terms of the asset purchase agreement, to pay us 85% of all revenues resulting from such business through the earlier of 2022 or the termination of our license agreement pursuant to its terms.

Under the white pages publication agreement, we are the exclusive publisher of, and distributor and sales agent for, the white pages directories for Cincinnati Bell Telephone. The agreement commenced in March 2002 and will remain in effect until March 2012 at which time it will automatically renew for an additional ten-year term at our discretion.

The internet has emerged as a new medium for consumers and advertisers. Although advertising on the internet still represents a small part of the total advertising market, as yellow pages references migrate to the internet, it will become increasingly important to the directory advertising medium. Most major yellow pages publishers operate an internet-based directory business. We compete through our primary internet site,

13

Table of Contents

cincinnatibellyellowpages.com, with these other publishers, with internet portal and search engine sites providing classified directory information, such as Yahoo!, Google and America Online, with other independent IYP’s such as Switchboard.com, YellowPages.com and with vertical players, such as Citysearch.com and Zagats.com, some of which have entered into affiliate agreements with other major directory publishers. As a result of the acquisition, we also acquired sixteen other relevant domain names which could be used in the conduct of our business. Cincinnati Bell Inc.’s prohibition against competing with our business also includes the internet and other dissemination devices.

Intellectual Property

In 2002, we entered into an agreement with Cincinnati Bell Inc. that allows us to use the widely-recognized Cincinnati Bell directory marks in the conduct of our business in the Cincinnati-Hamilton metropolitan area. Under this agreement, in the Cincinnati-Hamilton metropolitan area we have an exclusive (even as to Cincinnati Bell Inc., its parent, subsidiaries and affiliates), royalty-free license to use the trademark and service mark “Cincinnati Bell Directory” and a royalty-free, non-exclusive right to use all of the other trademarks, trade names and service marks which were licensed to Cincinnati Bell Inc. in the 1980s under a set of agreements relating to the December 31, 1983 divestiture of the Bell companies by AT&T. The agreement commenced in March 2002 and will remain in effect until March 2012 at which time it will automatically renew for an additional ten-year term at our discretion. Under the agreement, Cincinnati Bell Inc. has the obligation to take all actions reasonably necessary to enforce the marks described in the license agreement.

We are also party to a non-exclusive agreement with Cincinnati Bell Telephone Company, whereby we are granted a worldwide, irrevocable license to use Cincinnati Bell Telephone’s subscriber list information and subscriber list information updates, for the purposes of publishing directories in any format (electronic or otherwise), and to display the subscriber list information and the subscriber list information updates on any website or other internet or wireless dissemination device, for a scheduled fee plus costs. The agreement commenced in March 2002 and will remain in effect until March 2012 at which time it will automatically renew for an additional ten-year term at our discretion.

We believe that the phrase “yellow pages” and the walking fingers logo are in the public domain in the United States.

Employees

As of December 31, 2004, we employed eleven full-time employees. We consider relations with our employees to be good.

The table below provides a summary of our leased facilities as of December 31, 2004. Currently, we do not own any real property.

We consider our properties to be in good condition generally and believe that our facilities are adequate to meet our anticipated requirements.

14

Table of Contents

From time to time, we are a party to litigation matters arising in connection with the normal course of our business. In many of these matters, plaintiffs allege that they have suffered damages from errors or omissions or improper listings contained in directories published by us. Although we have not had notice of any such claims that we believe to be material, any pending or future claim could have a material adverse effect on our business, financial condition or results of operations or cash flows.

In addition, we are exposed to defamation and breach of privacy claims arising from our publication of directories and our methods of collecting, processing and using personal data. The subjects of our data and users of data that we collect and publish could have claims against us if such data were found to be inaccurate, or if personal data stored by us was improperly accessed and disseminated by unauthorized persons. Although we have not had notice of any material claims relating to defamation or breach of privacy claims to date, we may become party to litigation matters that could have a material adverse effect on our business.

No matters were submitted to a vote of security holders during the fourth quarter ended December 31, 2004.

PART II

There is no established public trading market for CBD Holdings’ membership units, and it is not expected that such a market will develop in the future. CBD Investor, which is owned by certain affiliates of Spectrum Equity Investors, owns membership interests in CBD Holdings that represent approximately 95% of the economic interests of CBD Holdings (assuming full vesting of the issued and outstanding Class C units) and 100% of the voting power of CBD Holdings. The remainder of the membership interests in CBD Holdings are owned by BRHI Inc., an affiliate of Cincinnati Bell Inc., Douglas A. Myers, John P. Schwing, David D. Miller and other members of our management. CBD Holdings is the sole stockholder of CBD Holdings Finance, Inc. and CBD Media. CBD Media is the sole stockholder of CBD Finance, Inc.

Distributions on CBD Holdings’ membership units are governed by the Limited Liability Company Agreement.

The following table sets forth for the periods indicated our selected historical consolidated financial data. The following selected historical consolidated financial data is qualified by our more detailed consolidated financial statements and the notes thereto included elsewhere in this annual report and should be read in conjunction with such consolidated financial statements and notes and the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this annual report.

The consolidated statement of operations data for the periods ended December 31, 2004, 2003, and 2002 and balance sheet data as of December 31, 2004, 2003 and 2002, and March 7, 2002 have been derived from our audited consolidated financial statements included elsewhere in this annual report.

15

Table of Contents

The statement of operations data for the years ended December 31, 2001 and 2000 and the balance sheet data as of December 31, 2001 and 2000 have been derived from our audited consolidated financial statements, which do not appear in this annual report.

16

Table of Contents

Overview

CBD Holdings operates entirely through its wholly-owned subsidiary, CBD Media. The following discussion and analysis of CBD Holdings’ financial condition and results of operations covers periods prior and subsequent to its acquisition of the directory publishing business assets of Cincinnati Bell Inc. CBD Holdings has operated as a stand-alone company since its acquisition of these assets on March 8, 2002. The acquisition was accounted for under the purchase method of accounting. The terms “we,” “us,” “our” or other similar terms refer to CBD Holdings and its subsidiaries, including our directory business, which is operated by CBD Media.

We are the exclusive telephone directory publisher for Cincinnati Bell branded yellow pages in the Cincinnati-Hamilton metropolitan area, which is the 23rd largest metropolitan area in the country according to the most recent U.S. Census. We are a leader in the directory publishing industry, and in 2003, we believe our directories captured over 85% of total directory advertising spending in the Cincinnati-Hamilton metropolitan area.

We generate our revenues primarily through the sale of advertising in our directories. In 2004, we published 15 yellow pages directories and distributed over 2.4 million copies. These directories included advertisements from over 17,000 local customers who are principally small and medium-sized businesses, as well as approximately 1,100 national advertisers. We are also the exclusive publisher of the white pages for Cincinnati Bell Telephone. In 2004, we published one white pages directory and distributed over one million copies to businesses and residences.

On June 13, 2003, we entered into a senior credit facility providing for borrowings in an aggregate principal amount of up to $165.0 million, including a tranche B term loan facility of $160.0 million and a revolving credit facility providing for borrowings of up to $5.0 million. On June 13, 2003, we issued $150.0 million of 8 ⁵/8% senior subordinated notes due 2011, which we refer to as “senior subordinated notes”. We refer to the June 2003 transactions as the “2003 recapitalization”. The tranche B term loan facility was subsequently refinanced in February 2004 with a tranche C facility.

In October 2004, we completed a recapitalization, which we refer to as the “2004 recapitalization”. We issued and sold $100.0 million of 9¼% senior notes due 2012, which we refer to as the “senior notes”. In connection with the 2004 recapitalization, we amended the senior credit facility by replacing the existing tranche C term loan with a $153.0 million tranche D term loan. CBD Media distributed approximately $7.0 million of cash on hand and $23.0 million of net proceeds of the increased term loan to us, and we, in turn, distributed such funds, along with the net proceeds of the senior notes offering of approximately $97.0 million, to our equityholders.

History

Cincinnati Bell Directory Inc. historically operated the print and internet directory businesses of Cincinnati Bell Telephone, the incumbent local exchange operator in the Cincinnati-Hamilton metropolitan area. The financial statements included in this prospectus for periods prior to March 8, 2002 have been derived from the historical financial statements of Cincinnati Bell Directory, and include the assets, obligations and activities of the Cincinnati Bell directory publishing business as conducted prior to the acquisition. Because of Cincinnati Bell Directory’s relationship with Cincinnati Bell Telephone and Cincinnati Bell Inc. and its other affiliates, the historical results of operations, financial position and cash flows of Cincinnati Bell Directory are not indicative of what they would have been had it operated as a stand-alone entity. Accordingly, the financial statements for periods prior to March 8, 2002 are not indicative of our most recent and future results of operations, financial position and cash flows.

Prior to March 8, 2002, Cincinnati Bell Directory reimbursed Cincinnati Bell Telephone for services it and its affiliates provided to Cincinnati Bell Directory based upon either (1) tariffed or negotiated contract rates, (2)

17

Table of Contents

market prices or (3) fully distributed costs. Fully distributed costs include costs associated with employees of Cincinnati Bell Telephone or its affiliates that are entirely dedicated to functions within Cincinnati Bell Directory. Such fully distributed employee costs were paid by Cincinnati Bell Directory through shared payroll and benefit systems as incurred. Other affiliate service costs were paid by Cincinnati Bell Directory based upon presentation of periodic billings from Cincinnati Bell Telephone or its affiliates. Cincinnati Bell Telephone has continued to provide us certain services that it historically provided to Cincinnati Bell Directory, specifically billing and collections. Our agreement with Cincinnati Bell Telephone for billing and collections services expires March 8, 2012 and can be renewed at our option for another ten years. For additional information about this agreement, see “Business—Billing and Collections Services.”

Prior to March 8, 2002, Cincinnati Bell Directory was included in the consolidated federal income tax returns filed by Cincinnati Bell Inc. Since the acquisition, we have operated as a limited liability company and accordingly are not a federal income taxpayer. However, we are obligated to distribute 44% of the amount that would represent our theoretical taxable income to our parent, CBD Holdings. The acquisition was treated as an asset purchase for federal income tax purposes by the equityholders of our parent, CBD Holdings, and they have a tax basis in the acquired assets of $343.5 million. Of this amount we are able to amortize $310.2 million in respect of intangible assets for purposes of determining our tax distributions to our parent. The amortization associated with these intangible assets, which are being amortized over fifteen years for tax purposes, resulted in a cash tax distribution of zero to our parent in 2002, and we estimate will significantly reduce the cash tax distribution to our parent over the remaining fifteen year period. Furthermore, the conservation of cash associated with the amortization will provide additional liquidity.

Financial Statement Presentation

Net Revenue. We derive over 95% of our net revenue from the sale of advertising in our printed directories, which we refer to as directory advertising revenue. We also provide related services, including internet-based directory advertising, and the production and distribution of the Cincinnati Bell White Pages and the related sale of advertising for Cincinnati Bell Telephone. Growth in advertising revenue is affected by several factors, including growth in the number of advertising customers, increases in the price of advertising, increases in the quantity of advertising purchased per customer and the introduction of additional products that generate incremental revenues. Advertising revenue also may increase through the publication of newly-introduced printed directories.

Our financial statements have been prepared on the basis of the amortization method, meaning revenue and expenses are recognized ratably over the life of each directory (a twelve-month period), commencing in the month of delivery. We deliver 76% of our directories, constituting approximately 75% of our annual advertising revenue, in June of a given year, and deliver 24% of our directories constituting approximately 25% of our annual advertising revenue in November of a given year. Revenue from internet advertisements is recognized ratably over the twelve-month period we commit to carry the advertisement.

Adjustments to revenue are primarily for estimated losses due to claims resulting from publication errors, omissions in customer advertising, customer early terminations or other customer complaints. They are accrued over the time period for which the associated revenues are billed.

Cost of Revenue. Cost of revenue consists of direct costs associated with the publication of print directories, including sales commissions, paper, printing, transportation, distribution and pre-press production and employee costs relating to each of the foregoing as well as costs of advertising, promotion, marketing, customer billing and collection and internet expenses. Direct costs associated with the publication of print directories are recognized ratably over the life of each directory. Costs not directly associated with the publication of print directories are recognized in the period in which they are incurred. Prior to March 8, 2002, an annual royalty payment of $15.0 million was paid to Cincinnati Bell Inc. and was included in cost of revenue, which ceased to be an ongoing cost upon the close of the acquisition.

18

Table of Contents

Cost recognition begins in the month of directory delivery and continues on a pro rated basis over the estimated twelve-month life of each directory and is accounted for under the amortization method. Accordingly, our cost of revenue recognized in a given period consists of (1) cash expenditures incurred in the given period and recognized in the given period, such as advertising, promotion and marketing and customer billing and collection expenses; (2) cash expenditures incurred in a prior period, a portion of which are amortized and recognized in the given period; and (3) cash expenditures incurred in the given period, a portion of which are amortized and recognized in the given period and the balance of which are deferred until future periods. Consequently, there will be a difference between the cost of revenue recognized in any given period and the cash costs incurred in the given period, which difference may be significant.

Cincinnati Bell Telephone is a wholly-owned subsidiary of Cincinnati Bell Inc., which, through an affiliate, holds an approximately 2.5% equity interest in CBD Holdings. Cincinnati Bell Telephone provides us with billing and collection services pursuant to a contract. Under this contract, we paid Cincinnati Bell Telephone approximately $1.2 million for the year ended December 31, 2004. We had a payable to Cincinnati Bell Telephone of $0.1 million as of December 31, 2004. For additional information about this contract, see “Business—Billing and Collection Services.”

General and Administrative Expense. Our general and administrative expense consists of the costs of administrative staff, real estate, information technology, finance, human resources and corporate management and a consulting fee paid to Applegate & Collatos, Inc., an affiliate of Spectrum Equity Investors. All of our general and administrative expense is recognized in the period in which it is incurred.

Depreciation and Amortization Expense. Our depreciation and amortization expense consists primarily of the amortization of intangible assets and, to a lesser degree, the depreciation of property and equipment. Intangible assets with finite lives are amortized over periods ranging from 10 to 30 years, their estimated useful lives for financial accounting purposes. Property and equipment are depreciated over estimated useful lives of three to five years.

Results of Operations

There are significant differences between the results of operations of our business and the business of our predecessor company that are reflected in the following comparisons. The most significant differences include the following:

Comparison of Results of Operations for the Years Ended December 31, 2004 and 2003

Net Revenue. Net revenue for the year ended December 31, 2004 was $87.7 million, consisting of $70.4 million of local advertising, $13.5 million of national advertising and $3.8 million in internet advertising. Net revenue for the year ended December 31, 2003 was $86.3 million, consisting of $70.2 million of local advertising, $12.7 million of national advertising and $3.4 million in internet advertising. The increase is due to higher internet revenue in 2004 and higher local publication revenue in 2003 recorded in the first five months of 2004 than in 2003. In addition national revenue in the June 2004 publication was greater than in 2003.

Adjustments. Adjustments to revenue for estimated losses due to claims resulting from publication errors, omissions in customer advertising, customer early terminations or other customer complaints were $4.1 million

19

Table of Contents

for the year ended December 31, 2004 and $4.1 million for the year ended December 31, 2003. Adjustments as a percentage of total revenue were 4.5% for the year ended December 31, 2004 as compared to 4.6% for the year ended December 31, 2003.

Cost of Revenue. Cost of revenue was $34.6 million for the year ended December 31, 2004 and $33.4 million for the year ended December 31, 2003. Cost of revenue represented 39.5% of net revenue for the year ended December 31, 2004 and 38.7% of net revenue for the year ended December 31, 2003. The increase is due to higher incremental costs, approximately $0.3 million, associated with increased electronic yellow page revenue. In addition, there were higher marketing costs incurred as management instituted an aggressive advertising program to retain revenue against a new competitor, Verizon, in the market place. We also incurred $0.9 million of expense relating primarily to a management payout associated with the 2004 recapitalization and certain tax distributions to personnel that are included in the cost of revenue expense classification.

General and Administrative Expense. General and administrative expense was $7.3 million for the year ended December 31, 2004 and $3.7 million for the year ended December 31, 2003. The increase of approximately $3.6 million was the result of $2.0 million relating primarily to a management payout associated with the 2004 recapitalization and certain tax distributions to personnel that are included in the general and administrative expense classification and an increase of $0.7 million in the management fee. In addition, we incurred $1.1 million of professional fees in connection with the examination of alternative capital structures.

Depreciation and Amortization Expense. Depreciation and amortization expense was $25.8 million for the year ended December 31, 2004 and $26.5 million for the year ended December 31, 2003. The decrease is due to the accelerated amortization method for advertiser related intangible assets.

Interest Expense. Interest expense was $21.9 million for the year ended December 31, 2004 and $25.5 million for the year ended December 31, 2003. The decrease is related to lower interest rate, approximately 1%, on the bank facility which was repriced in February, 2004. In addition, the company continued to lower its outstanding bank facility throughout 2004, until it issued a dividend in October, 2004 at which time the company issued $100 million in senior notes and increased its senior credit facility by $23 million to $153 million.

Net Loss. Net loss was $1.8 million for the year ended December 31, 2004 compared to net loss of $2.7 million for the year ended December 31, 2003. The decrease in loss is primarily related to the decrease in interest expense as a result of the lower rate on the senior credit facility and the reduction on debt on the bank facility through October offset by increased interest due to the senior notes and higher general and administrative expenses.

Comparison of Results of Operations for the Year Ended December 31, 2003 and the Period From March 8, 2002 to December 31, 2002

The following results of operations comparisons demonstrate a significant increase between the compared periods. As we were acquired on March 8, 2002, the majority of the first quarter was a predecessor period not reflected in our results of operations. Hence the comparison periods are of differing lengths.

Net Revenue. Net revenue for the year ended December 31, 2003 was $86.3 million, consisting of $70.2 million of local advertising, $12.7 million of national advertising and $3.4 million in internet advertising. Net revenue for the period from March 8, 2002 to December 31, 2002 was $67.5 million, consisting of $54.8 million of local advertising, $10.4 of national advertising and $2.3 million in internet advertising. The difference is primarily related to the time discrepancy between the compared periods of operations.

Adjustments. Adjustments to revenue for estimated losses due to claims resulting from publication errors, omissions in customer advertising, customer early terminations or other customer complaints were $4.1 million for the year ended December 31, 2003 and $3.2 million for the period from March 8, 2002 to December 31, 2002.

20

Table of Contents

Adjustments as a percentage of total revenue were 4.6% for the year ended December 31, 2003 as compared to 4.5% for the period ended from March 8, 2002 to December 31, 2002.

Cost of Revenue. Cost of revenue was $33.4 million for the year ended December 31, 2003 and $26.1 million for the period from March 8, 2002 to December 31, 2003. Cost of revenue represented 38.7% of net revenue for the year ended December 31, 2003 and the period from March 8, 2002 to December 31, 2003.

General and Administrative Expense. General and administrative expense was $3.7 million for the year ended December 31, 2003 and $1.6 million for the period from March 8, 2002 to December 31, 2002. The increase of approximately $2.1 million was the result of $1.7 million relating primarily to a one-time management payout associated with the 2003 recapitalization to personnel that are included in the general and administrative expense classification and an increase in the management fee. The remaining increase was primarily the result of $0.4 million in time discrepancy between the compared periods of operations.

Depreciation and Amortization Expense. Depreciation and amortization expense was $26.5 million for the year ended December 31, 2003 and $22.8 million for the period from March 8, 2002 to December 31, 2002. The difference is primarily related to the time discrepancy between the compared periods of operations.

Interest Expense. Interest expense was $25.5 million, for the year ended December 31, 2003 and $10.5 million, the period from March 8, 2002 to December 31, 2002. The increase is primarily related to the increase in outstanding borrowings as a result of the senior credit facility and the senior subordinated notes.

Net Income (Loss). Net loss was $2.7 million for the year ended December 31, 2003 compared to net income of $6.6 million for the period from March 8, 2002 to December 31, 2002. The change is primarily related to the increase in interest expense as a result of the senior credit facility and the senior subordinated notes and the time discrepancy between the compared periods of operations.

Liquidity and Capital Resources

Our principal source of liquidity has been cash flow generated from operations. The timing of our cash flows throughout the year is reasonably predictable, as our customers typically pay for their advertisements in equal payments over a twelve-month period. The payment of our material expenses is based on our contractual arrangements and occurs predictably at set times during the year. Our primary liquidity requirements have been for debt service on the senior credit facility, the senior subordinated notes and related party notes payable and for working capital needs. We have historically generated sufficient cash flow to fund our operations and capital expenditures and to make required debt service payments.

Our management believes that cash flow generated from operations will be sufficient to continue to fund our interest and principal payment obligations, working capital requirements and future capital expenditures. The revolving credit facility provides an additional source of capital to fund these obligations, subject to the restrictions contained in the senior credit facility and the indentures governing the senior notes and senior subordinated notes. Any future acquisitions may require additional capital, which may be financed through borrowings under the revolving portion of the senior credit facility, the issuance of additional indebtedness or, issuance of equity securities of us or CBD Media, net cash provided by operations, other third-party financing or a combination of these alternatives. Such capital may not be available to us on acceptable terms or at all.

Total capital expenditures were $74,000 and $48,000 in 2004 and 2003, respectively. We anticipate that the amount of capital expenditures will remain at historical levels and will not significantly increase for the foreseeable future.

Net Cash Provided by (Used in) Operations. Net cash provided by operations for the year ended December 31, 2004, was $27.3 million as compared to $28.0 million for the same period in 2003. This difference is

21

Table of Contents

primarily related to the $2.9 million payment made to terminate the interest rate swap. Net cash provided by operations for the year ended December 31, 2003, was $28.0 million as compared to $34.0 million for the period ended December 31, 2002. The changes in net cash provided by operations were primarily impacted by the changes associated with the 2003 recapitalization in June 2003. Cash paid for interest in 2003 was approximately $12.6 million higher than in the period from March 8, 2002 to December 31, 2002 due primarily to the higher level of debt, differences in interest rates charged and the terminated interest rate swap. Offsetting the impact of these higher interest related payments, we generated higher cash receipts from sales due to the time discrepancies between periods of operations.

Net Cash Provided by (Used in) Financing Activities. Net cash used in financing activities for the year ended December 31, 2004, was $34.7 million as compared to $38.7 million for the same period in 2003. The net cash used in financing activities for the 2004 period was the result of pre-payments of $28.6 million on the senior credit facility, debt issuance costs of $4.4 million, distributions to our equityholders of $127.6 million and proceeds from new borrowings of $123.0 million. Net cash used in financing activities for the 2003 period was the result of a distribution to our equityholders and the repayment of CBD Media’s former credit facility. Net cash used in financing activities for the year ended December 31, 2003 was $38.7 million, as compared to $342.7 million of net cash provided by financing activities for the period ended December 31, 2002. The net cash used in financing activities in 2003 related primarily to the 2003 recapitalization in June 2003, including the repayments of $211.4 million under the former credit facility of CBD Media and distributions to our equityholders of $128.3 million. Other components included $10.1 million of debt issuance costs related to the 2003 recapitalization. In 2002, cash from financing activities related primarily to the acquisition of the Cincinnati Bell Directory, including $220.0 million of debt incurrence and $139.0 million of contributions from members. Other components included $6.2 million of debt issuance costs and $10.0 million of debt repayment.

Net Cash Provided by (Used in) Investing Activities. Net cash used in investing activities for the years ended December 31, 2004 and 2003 was insignificant. Net cash used in investing activities for the period from March 8, 2002 to December 31, 2002 was related to the acquisition of the directory publishing business from Cincinnati Bell Telephone for $343.4 million on March 8, 2002.

Indebtedness. In connection with our acquisition of the directory publishing business, CBD Media incurred indebtedness of $220.0 million under its former credit facility, which was repaid and terminated on June 13, 2003 in connection with the 2003 recapitalization. On June 13, 2003, CBD Media entered into the senior credit facility providing for borrowings in an aggregate principal amount of up to $165.0 million and issued the senior subordinated notes. The senior credit facility contains financial, negative and affirmative covenants and requirements affecting CBD Holdings, CBD Media and its subsidiaries, including the maintenance of ratios measuring consolidated total leverage and consolidated senior leverage to EBITDA (as defined in the senior credit facility) as well as EBITDA (as defined in the senior credit facility) to consolidated interest expense. The senior credit facility also includes interest rate and similar arrangements that we may enter into with the lenders under the senior credit facility and/or the affiliates of those lenders. In the February 2004 refinancing, CBD Media amended the senior credit facility whereby the $160.0 million tranche B term loan facility was replaced with a $150.0 million tranche C term loan facility. In connection with the issuance of the senior notes, CBD Media executed an amendment to its senior credit facility that, among other things, (i) increased the size of the term loan portion of the senior credit facility by $23.0 million; (ii) replaced the $150.0 million tranche C term loan facility with a $153.0 million tranche D term loan facility; (iii) permitted us to issue the senior notes; (iv) permitted CBD Media, so long as there was no default or event of default under the senior credit facility, to make distributions to us necessary to make regularly scheduled payments of interest in respect of the senior notes; (v) so long as there was no default or event of default under the senior credit facility, set aside funds for the distribution to our equityholders of an amount not to exceed $130 million; (vi) deleted from the senior credit facility the requirement that CBD Media maintain a “fixed charge coverage ratio” and modified other financial ratios that CBD Media was required to maintain; and (vii) made other amendments and modifications to the senior credit facility related to the issuance of the senior notes.

22

Table of Contents

In connection with the 2003 recapitalization, on June 16, 2003, CBD Media paid a breakage fee of approximately $2.9 million to cancel a fixed interest rate swap agreement related to its former credit facility and substantially increased its leverage and significantly increased its liquidity requirements, primarily due to increased debt service obligations.

In June 2003, also as part of the 2003 recapitalization, CBD Media issued the senior subordinated notes. Interest is payable on the senior subordinated notes on June 1 and December 1 of each year and the senior subordinated notes will mature on June 1, 2011. The senior subordinated notes were issued pursuant to an indenture containing financial, negative and affirmative covenants and requirements affecting CBD Media and its affiliates, including limits on CBD Media’s ability to incur additional indebtedness, pay distributions or dividends or make other types of restructured payments, sell assets, consolidate, merge, sell or otherwise dispose of all or substantially all of its assets, enter into transactions with affiliates, create liens and enter into new lines of business.

In October 2004, CBD Holdings issued $100.0 million of senior notes due in 2012 with an interest rate of 9¼%. Interest on the senior notes is due semi-annually on January 15 and July 15, beginning on January 15, 2005. The aggregate principal amount of the senior notes will be due on July 15, 2012. The indenture governing the senior notes limits our ability to incur additional indebtedness, pay distributions or dividends or make other types of restricted payments, sell assets, consolidate, merge, sell or otherwise dispose of all or substantially all of our assets, enter into transactions with affiliates, create liens and enter into new lines of business.

Liquidity. Our operations are conducted through CBD Media. Our ability to make payments on our consolidated indebtedness, and to fund our working capital needs and planned capital expenditures will depend upon our ability to generate cash in the future. This, to an extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Our liquidity could also be impacted by a decline in usage of printed yellow page directories. While in the short term any impact could be offset by price increases, in the long term any such impact could limit our ability to meet our financial obligations.

Our ability to make payments on the senior notes is also subject to the terms and restrictions set forth in the senior credit facility and the indenture governing the senior subordinated notes. For example, under the terms of the senior credit facility, during any period that CBD Media is in default under the senior credit facility (including for failure to maintain required financial ratios) it would be prohibited from making distributions to us for the purpose of allowing us to make regularly scheduled interest payments on the senior notes. Moreover, the terms of the senior credit facility currently do not permit CBD Media to make distributions to us in order to permit us to repurchase senior notes in connection with a change of control or asset sale as may be required under the indenture governing the senior notes. Any failure by us to make such payments or to repurchase senior notes would be a default under the indenture governing the senior notes.

Further, the terms of the indenture governing the senior subordinated notes significantly restrict CBD Media and its subsidiaries from paying dividends or distributions to us and otherwise transferring assets to us if the aggregate amount of such dividends, distributions and transfers, together with all other “restricted payments” made by CBD Media since July 1, 2003, would exceed the sum of an amount calculated pursuant to a formula taking into account, among other things, the amount of CBD Media’s consolidated cash flow since July 1, 2003. There is no exception to this restriction in the indenture governing the senior subordinated notes that would specifically permit us to pay interest and liquidated damages, if any, on the senior notes, repay the senior notes at maturity or to repurchase senior notes in connection with an asset sale or change of control transaction. Moreover, CBD Media’s ability to make any such dividends, distributions or other restricted payments requires that CBD Media (1) not be in default under the indenture and (2) be in compliance with the leverage ratio set forth in such indenture (which measures its ratio of indebtedness to consolidated cash flow).

23

Table of Contents

In June and July 2003 as part of the 2003 recapitalization, CBD Media made to us, and correspondingly we made to our equityholders, aggregate distributions of approximately $128.3 million. As part of the 2004 recapitalization, CBD Media made distributions to us of approximately $30.0 million, including $7.0 million from available cash. We paid a distribution to our equityholders of approximately $127.0 million, consisting of the aforementioned $30.0 million received from CBD Media together with the net proceeds from the offering of the senior notes. Employee equityholders received distributions as follows: 50% (approximately $1.3 million) was paid at closing and the remaining 50% (approximately $1.3 million) escrowed subject to time vesting of three years. As a result of these distributions, a significant amount of cash is unavailable to make payments on CBD Media’s indebtedness or on the senior notes. We have had, and expect to continue to have in the future, limited cash and cash equivalents on hand. Our primary source of liquidity is, and is expected to continue to be, cash flow generated from operations as well as our ability to borrow up to $5.0 million under the revolving portion of the senior credit facility.

Following the payment of these distributions to us, CBD Media has limited capacity to make distributions to us in the near future. Given the restrictions on CBD Media under the debt covenants, we currently anticipate that, in order to make scheduled payments of interest and liquidated damages, if any, on the senior notes, CBD Media will be required to (1) generate, every six months, restricted payment capacity under the restricted payment covenant under the indenture governing the senior subordinated notes in excess of $4.625 million and (2) have the ability to incur at least $1.00 of additional debt under such indenture.

Based on our current levels of operations, we believe that our cash flow from operations and available borrowings under the senior credit facility will be adequate to meet our consolidated liquidity for the foreseeable future and to permit CBD Media to make distributions to us to make scheduled interest payments on the senior notes. We cannot assure you, however, that in the long-term our business will generate sufficient cash flow from operations or that future borrowings will be available to us under the senior credit facility or otherwise in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. To the extent that such sources were not adequate to fund our liquidity needs, we would need to raise additional capital, restructure our indebtedness or cut costs in order to lower our liquidity needs. If we consummate an acquisition, our debt service requirements could increase. We may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. We will require a significant amount of cash to service our debt, including the senior notes, and our ability to generate cash depends on many factors beyond our control.

Advisory agreement. CBD Media is a party to an advisory agreement dated March 7, 2002 and further amended on June 13, 2003, with a related party, Applegate & Collatos, Inc., or ACI. This advisory agreement requires CBD Media to make quarterly payments of $500,000 to ACI and reimburse ACI for its reasonable expenses. Pursuant to a letter of instruction effective October 1, 2003, ACI directed CBD Media to make quarterly payments to CBD Holdings (capped at $500,000) and without additional payments for reimbursement of expenses. Such quarterly payments were received by CBD Holdings for the period from October 1, 2003 until September 30, 2004, and then paid by CBD Holdings to ACI. The letter of instruction has been withdrawn and, pursuant to the advisory agreement, CBD Media makes quarterly payments of $500,000 to ACI directly and will reimburse ACI for reasonable expenses, effective October 1, 2004.

24

Table of Contents

Contractual Obligations

The following table is a summary of our contractual obligations (including fixed interest) as of December 31, 2004:

25

Table of Contents

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. The application of these principles requires that in certain instances we make estimates and assumptions regarding future events that impact the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Predicting future events is inherently an imprecise activity and as such requires the use of judgments. On an ongoing basis, we review the basis for our estimates and will make adjustments based on historical experience, current and anticipated economic conditions, accepted actuarial valuation methodologies or other factors that we consider to be reasonable under the circumstances. There can be no assurance that actual results will not differ from those estimates.

We consider the following policies to be important in understanding the judgments involved in preparing our financial statements and the uncertainties that could affect our financial condition, results of operations or cash flows.

Revenue recognition. The sale of advertising in telephone directories published by us is our primary source of revenue. We recognize revenues ratably over the life of each directory using the deferral and amortization method, with revenue recognition commencing in the month of delivery.

Revenue from internet advertisements is recognized ratably over the twelve-month period we commit to carry the advertisement.

Cost of revenue. Direct costs related to the publication of print directories, including sales commissions, paper, printing, transportation, distribution and pre-press production and employee costs relating to each of the foregoing are recognized ratably over the life of each directory under the deferral and amortization method, with cost recognition commencing in the month of delivery.

Allowance for sales adjustments. Adjustments to revenue are primarily for estimated losses due to claims resulting from publication errors, omissions in customer advertising, customer early terminations or other customer complaints. They are accrued over the time period for which the associated revenues are billed.

Vendor incentives. We have long-term contracts with certain vendors under which the vendors pay cash incentives to us for entering into the contracts. These incentives are recorded as deferred income and amortized as a reduction of cost of revenue over the related contract terms. The amount of deferred vendor incentives that are expected to be amortized within one year are recorded as a current liability within other current liabilities. The remaining portion of deferred vendor incentives are recorded within other long-term liabilities.

Goodwill and other intangible assets. Recorded goodwill is not amortized, but is tested for impairment at least annually. All other finite lived intangible assets are amortized over their useful lives and are reviewed for impairment in accordance with SFAS No. 144.

We consider the following policies to be important in understanding the judgments involved in preparing our predecessor company financial statements:

Income taxes. Cincinnati Bell Directory’s operations were included in the combined U.S. federal and state income tax returns filed by Cincinnati Bell Inc. During such time, income tax in Cincinnati Bell Directory’s financial statements was calculated as if Cincinnati Bell Directory had filed separate income tax returns. Allocations of income taxes payable were considered to have been remitted, in cash, in the period the related income tax expense was recorded.

Corporate allocations. General corporate overhead costs related to Cincinnati Bell Inc.’s corporate headquarters and shared service functions were allocated to Cincinnati Bell Directory, to the extent such amounts

26

Table of Contents

were applicable to Cincinnati Bell Directory, primarily were based on the ratio of anticipated support provided to Cincinnati Bell Directory as compared to other subsidiaries of Cincinnati Bell Inc. The allocation was calculated as a function of revenue, payroll and property. The allocations were recorded in the period that they were incurred.

Forward-Looking Statements

In this annual report on Form 10-K, we make some “forward-looking” statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. All statements other than statements of historical facts included in this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.

These forward-looking statements are based on our expectations and beliefs concerning future events affecting us. Factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by us in those statements include, among others, the following:

Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, we can give no assurance that we will attain these expectations or that any deviations will not be material. Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this annual report on Form 10-K to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

27

Table of Contents

Our former credit facility required us in specific instances to hedge the interest rate portion of our variable rate debt.

Interest on the senior subordinated notes issued is charged at a fixed rate. As of December 31, 2004, approximately 50% of our total outstanding debt has a fixed interest rate. Interest rate changes generally do not affect the market value of floating rate debt but do impact the amount of our interest payments and our future earnings and cash flows. Conversely, for fixed rate debt, interest rate changes do not impact future cash flows and earnings, but do impact the fair market value of such debt. As a portion of our debt bears a variable interest rate, changes in market rates for interest can impact our operating results and cash flows. For example, holding the amount of senior credit facility debt outstanding constant, a one percentage point increase in interest rates would have caused an estimated decrease in annual pre-tax earnings and cash flows of $1.5 million.

The Financial Statements and Supplementary Data required by this item is filed as part of this Form 10-K. See Index to Financial Statement Information at page F-1 of this Form 10-K.

Not applicable.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report at the reasonable assurance level.

There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

None.

28

Table of Contents

PART III

The following table sets forth certain information with respect to each of our executive officers and directors.

Douglas A. Myers became our President and Chief Executive Officer in March 2002. Previously, he was President and Chief Executive Officer of our predecessor, Cincinnati Bell Directory, from February 1999 until March 2002, and also served as Vice President—Business Market Operations for Cincinnati Bell Telephone and Cincinnati Bell Inc. from November 2000 to March 2002. Additionally, he served as Vice President—Sales & Marketing and Director—Marketing & Operations with Cincinnati Bell Directory from 1992 to 1999 and prior to that, he held a variety of marketing and management positions at Cincinnati Bell Telephone beginning in 1982. Mr. Myers has been a director since the acquisition.

John P. Schwing became our Vice President of Finance and Administration and Chief Financial Officer in March 2002. Previously, Mr. Schwing was the Vice President of Finance and Administration for Cincinnati Bell Directory from 1992 through March 2002. Mr. Schwing has also had financial responsibility for Cincinnati Bell Messaging Services from 1994 to 1995, Cincinnati Bell Long Distance in 2000, as well as the Information Technology, Human Resources, Legal, Regulatory Affairs, and Public Affairs operating units for Cincinnati Bell Telephone in 2001.

David D. Miller became our Vice President—Sales and Operations in March 2002. Mr. Miller joined Cincinnati Bell Directory in 1989 where he served as Director of Yellow Pages Operations from April 1999 until March 2002. He also served as Director-Print Media and Operations, Senior Manager Manufacturing and Distribution, in addition to other product management and business planning management positions.

Brion B. Applegate co-founded Spectrum Equity Investors in 1993, and serves as general partner of various partnerships affiliated with Spectrum. Prior to forming Spectrum, he began his career in the private equity industry in 1979. Mr. Applegate is currently a director of Nassau Broadcasting Partners, Inc., and prior directorships include American Cellular Corp., H.O. Systems, Inc., and PriCellular Corp. He is also President and a director of CBD Investor and a director of CBD Holdings. Mr. Applegate has been a director since the acquisition.

Benjamin M. Coughlin is a Principal at Spectrum Equity Investors, which he joined in 1997. Prior to Spectrum, Mr. Coughlin worked as an Associate at Apax Partners in Munich, Germany, where he was involved with later-stage and buyout opportunities in the technology and information services industries. Mr. Coughlin serves as a director of Security, Inc. He is also Secretary and a director of CBD Investor and a director of CBD Holdings. Mr. Coughlin has been a director since the acquisition.

29

Table of Contents

Audit Committee Financial Expert

Our Board of Directors has not established an audit committee of the Board. Our Board has determined that we have at least one “audit committee financial expert” (with the meaning of Item 401(h) of Regulation S-K) serving on the Board of Directors, and that director Benjamin M. Coughlin is such an audit committee financial expert. Mr. Coughlin is not “independent” (as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934).

Code of Ethics

CBD Media has adopted a code of ethics that applies to its executive officers. A copy of the code of ethics will be provided to any person without charge. Requests should be made in writing to Douglas Myers at CBD Media LLC, 312 Plum Street, Suite 900, Cincinnati, OH 45202.

The following table sets forth information with respect to compensation for services in all capacities for the last three fiscal years paid to our President and Chief Executive Officer and our two other most highly compensated executive officers serving as executive officers on December 31, 2004, whom we refer to as the named executive officers.

COMPENSATION OF DIRECTORS

The Board of Directors receive no compensation for their duties.

EMPLOYEE INCENTIVE PLAN

In connection with the 2003 recapitalization, CBD Investor, an affiliate of Spectrum, established an incentive compensation program for employees of CBD Media, who held equity interests in CBD Holdings at the time of the prior recapitalization. Pursuant to the program, CBD Investor agreed to provide an incentive pool to these employees of up to $4,000,000. This incentive amount is subject to vesting over a five-year period and is not payable unless and until a sale by CBD Media of 50% or more of its assets to a third party, a sale by CBD Investor of 50% or more of its interests in CBD Holdings to a third party, a sale by CBD Holdings of 50% or more of the equity interests in CBD Media to a third party or a sale by affiliates of Spectrum of 50% or more of the equity interests in CBD Investor to a third party, but excluding any such event in which the employees of CBD Media purchase such interests (a “Spectrum exit event”). Additionally, in order for any incentive amount to be payable, the aggregate value of the employees’ Class C units of CBD Holdings must equal or exceed a threshold amount, but may not exceed a ceiling amount at the time of the Spectrum exit event. The amount of the

30

Table of Contents

incentive pool actually payable at a Spectrum exit event will be determined by subtracting the total value of the employees’ equity from the ceiling amount, but in no event shall the incentive pool exceed $4,000,000 in the aggregate. The current threshold and ceiling amounts are $8,600,000 and $13,250,000 respectively. Upon consummation of the offering of the outstanding notes the threshold and ceiling amounts were reduced by the distributions received on the Class C units made upon completion of the offering. The threshold and ceiling amounts are subject to further reduction in the event distributions are made on the Class C units in the future, other than tax distributions. The incentive pool, if payable, will be allocated among the employees based on their relative percentage ownership in CBD Holdings. For administrative reasons, such amounts will actually be paid by CBD Media and CBD Investor will fund all amounts payable through contributions to us, which we in turn will contribute to CBD Media.

CBD Investor has also agreed that upon a Spectrum exit event, if the value of the Class C units held by employees is between the threshold and ceiling amounts as described above, then CBD Investor will pay Mr. Schwing an amount equal to $350,000. For administrative reasons, such amounts will actually be paid by CBD Media, and CBD Investor will fund all amounts payable through contributions to us, which in turn we will contribute to CBD Media.

RESTRICTIONS ON EMPLOYEE DISTRIBUTIONS

In connection with the October 2004 recapitalization, holders of the Class C units in CBD Holdings were eligible to receive $2.6 million of distributions, $1.3 million of which was paid immediately. The holders of Class C units will generally vest in and be paid the remaining distributions over a three-year period on each anniversary of the recapitalization subject to continued employment with the CBD Media. Upon termination of employment the holder of Class C units will forfeit any unpaid distributions and the forfeited amount will be allocated among the remaining Class C unit holders. The holders of Class C units will fully vest in the remaining unpaid distributions upon a change in control. The amount of the distributions is charged to expense over the vesting period.

EMPLOYMENT AGREEMENTS

Douglas A. Myers Employment Agreement

Under an amended and restated employment agreement entered into with us in connection with the acquisition and the 2003 recapitalization, Mr. Myers was retained to serve as our Chief Executive Officer. Under the agreement, Mr. Myers is entitled to receive a minimum base salary in the following amounts through 2008: $350,000 (2004); $400,000 (2005); $425,000 (2006); $450,000 (2007); and $475,000 (2008). Mr. Myers is also entitled to a bonus under our incentive bonus compensation plan in the following minimum bonus amounts: $125,000 (2004); $150,000 (2005); $175,000 (2006); $200,000 (2007); and $225,000 (2008). Under the agreement, Mr. Myers is entitled to participate during the term of the agreement in medical, health, retirement, welfare and insurance plans available to our senior executives and is entitled to receive from us a matching contribution to his 401(k) plan and life and disability insurance coverage. Mr. Myers is also entitled to an allowance for use of an automobile and reimbursement of up to $5,000 a year for personal financial and estate planning services (plus taxes incurred), up to $10,000 in legal fees incurred in the negotiation of the employment agreement and up to $25,000 for his initial membership fees to a country club, as well as certain annual membership dues. Under the agreement, Mr. Myers was granted a 1.25% membership interest on a fully diluted basis in CBD Holdings, subject to a vesting schedule of 25% of the interests per year, with vesting accelerating upon a change of control as a result of which Spectrum and its affiliates do not control at least 50% of the voting securities of CBD Media or CBD Holdings. The agreement continues until September 2008. We are obligated to make a severance payment to him of up to two times his then-current base salary and target bonus under the terms of the agreement in the event Mr. Myers’ employment is terminated without cause or if he resigns for good reason.

31

Table of Contents

John P. Schwing Employment Agreement

Under an employment agreement entered into with us in connection with the acquisition and the 2003 recapitalization, John Schwing was retained to serve as our Vice President—Finance & Administration and Chief Financial Officer. Under the agreement, Mr. Schwing is entitled to receive a minimum base salary in the following amount through 2008: $200,000 (2004); $225,000 (2005); $240,000 (2006); $260,000 (2007); and $285,000 (2008). Mr. Schwing is also entitled to a bonus under our incentive bonus compensation plan in the following minimum amounts: $63,000 (2004); $75,000 (2005); $88,000 (2006); $100,000 (2007); and $115,000 (2008). Under the agreement, Mr. Schwing is entitled to participate during the term of the agreement in medical, health, retirement, welfare and insurance plans available to our employees and is entitled to receive from us a matching contribution to his 401(k) plan and life and disability insurance coverage. Mr. Schwing is also entitled to an allowance of up to $400 per month for use of an automobile. Under the employment agreement, Mr. Schwing was granted a 0.276% membership interest on a fully diluted basis in CBD Holdings, subject to a vesting schedule of 25% of the interests per year, with vesting accelerating upon a change of control as a result of which Spectrum and its affiliates do not control at least 50% of the voting securities of CBD Media or CBD Holdings. The employment agreement continues until September 2008. Mr. Schwing is prohibited from competing with us during the term of his employment and for a period of one-year following termination of his employment. We are obligated to make a severance payment to him of up to two times his then-current base salary and target bonus under the terms of the agreement in the event Mr. Schwing’s employment is terminated without cause.

David D. Miller Employment Agreement

Under an employment agreement entered into with us in connection with the acquisition and the 2003 recapitalization, David Miller is entitled to receive a minimum base salary in the followings amounts through 2008: $150,000 (2004); $165,000 (2005); $180,000 (2006); $190,000 (2007); and $200,000 (2008). Mr. Miller is also entitled to a bonus under our incentive bonus compensation plan in the following amounts: $63,000 (2004); $75,000 (2005); $88,000 (2006); $100,000 (2007); and $115,000 (2008). Under the agreement, Mr. Miller is entitled to participate during the term of the agreement in medical, health, retirement, welfare and insurance plans available to our employees and is entitled to receive from us a matching contribution to his 401(k) plan and life and disability insurance coverage. Mr. Miller is also entitled to an allowance of up to $400 per month for use of an automobile. Under the employment agreement, Mr. Miller was granted a 0.276% membership interest on a fully diluted basis in CBD Holdings, subject to a vesting schedule of 25% of the interests per year, with vesting accelerating upon a change of control as a result of which Spectrum and its affiliates do not control at least 50% of the voting securities of CBD Media or CBD Holdings. The employment agreement continues until September 2008. Mr. Miller is prohibited from competing with us during the term of his employment and for a period of one-year following termination of his employment. We are obligated to make a severance payment to him of up to two times his then-current base salary and target bonus under the terms of the agreement in the event Mr. Miller’s employment is terminated without cause.

401(K) AND PROFIT SHARING PLAN

CBD Media currently sponsors a defined contribution benefit plan covering substantially all management and occupational employees. We have 100% participation by all employees. Under the plan, employees may contribute a percentage of their annual compensation to the Plan up to a maximum percentage identified in the plan. The annual dollar contribution by the employees is limited to a maximum amount determined by the Internal Revenue Service. CBD Media matches a percentage of employee contributions, and those funds are invested by each employee in a variety of investment options with the plan’s administrator. CBD Media contributed its share of matching contributions to the plan amounting to $74,000 in 2004 and $62,000 in 2003.

32

Table of Contents

Supplemental Executive Retirement Plan

Effective January 1, 2004, CBD Media established a supplemental executive retirement plan (SERP), which is a non-qualified deferred compensation plan. Participants may elect to defer receipt of compensation under the SERP until termination of employment, death, disability, change of control (unless assumed by a successor) or termination of the SERP. CBD Media contributes a matching contribution equal to 50% of the participant’s compensation deferral. The participants’ deferrals and CBD Media’s contributions are credited with interest equal to the greater of (1) 5% or (2) the prime rate plus 2%. The SERP is an unfunded plan, as no assets have been set aside for the benefit of participants. As a result, participants only have an unsecured unfunded promise to pay and will be treated as general unsecured creditors in the event of the insolvency or bankruptcy of CBD Media. The financing transactions did not constitute a change of control under the SERP.

All of the issued and outstanding equity interests of CBD Media LLC are owned by CBD Holdings. CBD Investor, which is owned by certain affiliates of Spectrum Equity Investors, owns membership interests in CBD Holdings that represent approximately 95% of the economic interests of CBD Holdings (assuming full vesting of the issued and outstanding Class C units) and 100% of the voting power of CBD Holdings. The remainder of the membership interests in CBD Holdings are owned by BRHI Inc., an affiliate of Cincinnati Bell Inc., Douglas A. Myers, John P. Schwing, David D. Miller and other members of our management. CBD Media is the sole stockholder of CBD Finance, Inc.

The following table sets forth information with respect to the beneficial ownership of the membership units of CBD Holdings as of March 30, 2005 by:

Each unitholder possesses sole voting and investment power with respect to the units listed, unless otherwise noted. Unless otherwise noted, the address of each unitholder is c/o CBD Media LLC, 312 Plum Street, Suite 900, Cincinnati, Ohio 45202.

33

Table of Contents