UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  November 18, 2005

VIACOM INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:  (212) 258-6000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.):

o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Section 8  -  Other Events

Item 8.01   Other Events.

The information in this Form 8-K reflects reclassifications to conform to the Company’s updated segment presentations and discontinued operations, each for the years ended December 31, 2004, 2003, and 2002, and, except to take into account the foregoing items, does not restate or revise the Consolidated Statements of Operations, Consolidated Balance Sheets, Consolidated Statements of Cash Flows and Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) of the Company and its consolidated subsidiaries as reported in the Company’s Form 10-K for the year ended December 31, 2004.

As required by Statement of Financial Accounting Standards (SFAS) No. 131, “Disclosures about Segments of an Enterprise and Related Information,” consolidated financial statements issued by the Company should reflect modifications to the Company’s segment information including reclassification of all comparative prior period segment information.  Effective July 1, 2005, the Company realigned its segments to reflect the new management structure under its co-presidents and co-chief operating officers.  The Company’s segments, effective July 1, 2005, are as follows:  (i) Cable Networks, (ii) Television, (iii) Radio, (iv) Outdoor, (v) Entertainment, and an all other category, Parks/Publishing.  Showtime (previously reported in the Cable Networks segment) is reported in the Television segment; and Paramount Parks and Simon & Schuster (previously reported in the Entertainment segment) are combined and disclosed in an all other category named Parks/Publishing.

On July 22, 2005, Famous Players, the Company’s Canadian-based theater chain whose results were previously reported in the Entertainment segment, was sold.  Famous Players has been accounted for as a discontinued operation in the consolidated financial statements.   Prior periods have been reclassified to conform to this presentation.

In addition, the “Recent Developments” paragraphs in Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition contained in Exhibit 99.1 to this Form 8-K have been updated to reflect information regarding the proposed separation of the Company into two publicly traded companies as more fully described in the Registration Statement on Form S-4 filed with the Securities and Exchange Commission by the Company and New Viacom Corp. on October 5, 2005.

Exhibit 99.1 contains Item 6. Selected Financial Data; Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition; and Item 8. Financial Statements and Supplementary Data from the Company’s Form 10-K for the year ended December 31, 2004 which have been revised only to reflect reclassifications to conform to updated segment presentations, the treatment of Famous Players as a discontinued operation, each for the years ended December 31, 2004, 2003 and 2002, and updated paragraphs under “Recent Developments.”

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Section 9  -  Financial Statements and Exhibits

Item 9.01   Financial Statements and Exhibits.

(c)  Exhibits.          The following Exhibits are filed as part of this Report on Form 8-K:

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

4

Exhibit Index

5

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-52728 and No. 333-62052) and Form S-8 (No. 333-108105, No. 33-41934, No. 33-55173, No. 33-55709, No. 33-56088, No. 33-59049, No. 33-59141, No. 33-60943, No. 333-34125, No. 333-36440, No. 333-42987, No. 333-55346, No. 333-75752, No. 333-82422, No. 333-88613, No. 333-116918 and No. 333-124172) of Viacom Inc. of our report dated March 15, 2005, except for Notes 2 and 14, as to which the date is November 18, 2005, relating to the financial statements, financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Current Report on Form 8-K of Viacom Inc. dated November 18, 2005.

/s/PRICEWATERHOUSECOOPERS

New York, New York
November 18, 2005

Exhibit 99.1

Item 6.    Selected Financial Data.

VIACOM INC. AND SUBSIDIARIES
(In millions, except per share amounts)

(a) On July 22, 2005, Viacom sold Famous Players, its Canadian-based theater chain, to Cineplex Galaxy L.P.  In 2004, the exchange offer for the split-off of Blockbuster was completed. Blockbuster and Famous Players are presented as discontinued operations.  All prior periods have been reclassified to conform to this presentation.

(b) SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) was adopted in 2002.  In 2004, as a result of the Company’s annual goodwill impairment test, a non-cash charge of $18.0 billion, or $10.43 per diluted share, was recorded to reduce the carrying amount of Radio and Outdoor goodwill and intangibles to their respective estimated fair values.

(c) As a result of the initial adoption of Emerging Issues Task Force Topic No. D-108 “Use of Residual Method to Value Acquired Assets Other than Goodwill”, the Company recorded an after-tax charge of $1.3 billion, or $.77 per diluted share, as a cumulative effect of accounting change, to reduce the intangible balances attributable to television stations FCC licenses.

(d) As a result of the adoption of Statement of Position 00-2, “Accounting by Producers or Distributors of Films”, the Company recorded a non-cash after-tax charge of $452.3 million as a cumulative effect of accounting change.

(e) On May 4, 2000, CBS Corporation merged with and into Viacom Inc., and effective from that date, its results of operations are included in the consolidated financial results of the Company.

(f) The Company announced a quarterly cash dividend of $.06 per share on its common stock during the first three quarters of 2004 and a cash dividend of $.07 per share in the fourth quarter of 2004.  A quarterly cash dividend of $.06 per share was declared during the third and fourth quarter of 2003.

II-1

Item 7.           Management’s Discussion and Analysis of Results of Operations and Financial Condition. (Tabular dollars in millions)

Management’s discussion and analysis of the results of operations and financial condition should be read in conjunction with the Consolidated Financial Statements and related Notes.  Descriptions of all documents incorporated by reference herein or included as exhibits hereto are qualified in their entirety by reference to the full text of such documents so incorporated or included.

Recent Developments

On October 5, 2005, Viacom filed a registration statement on Form S-4 with the Securities and Exchange Commission in connection with the separation of the Company into two publicly traded companies.  The transaction, which is expected to be completed by the end of 2005, will result in stockholders holding shares in both companies, and is expected to be tax-free to stockholders.  The newly created company will be named Viacom Inc. and will be comprised of MTV Networks, BET, Paramount Pictures, Paramount Home Entertainment and Famous Music.  The existing company will change its name upon the separation to CBS Corporation and will consist of the CBS and UPN broadcast networks, Viacom Television Stations Group, Infinity Broadcasting, Viacom Outdoor, the CBS, Paramount and King World television production and syndication operations, Showtime Networks, as well as Simon & Schuster and Paramount Parks.

Effective July 1, 2005, the Company realigned its segments to reflect the new management structure under its Co-Presidents and Co-Chief Operating Officers in anticipation of the separation.  Accordingly, Showtime Networks previously reported in the Cable Networks segment, is reported in the Television segment, and Paramount Parks and Simon & Schuster are combined and disclosed in an “all other” category named Parks/Publishing.  Famous Players, the Company’s Canadian–based theater chain, whose results were included in the Entertainment segment, was sold on July 22, 2005.  Famous Players has been accounted for as a discontinued operation in the consolidated financial statements.  Prior periods have been reclassified to conform to this current presentation.

Overview

Viacom Inc., together with its consolidated subsidiaries (“Viacom” or the “Company”) is a diversified worldwide entertainment company.  Revenues for 2004 increased $1.7 billion, or 8%, to $22.1 billion from $20.5 billion in 2003.  Advertising revenues increased $1.4 billion, or 11%, led by growth of 21% in Cable Networks and 11% in Television.  Viacom reported an operating loss of $13.0 billion versus operating income of $4.5 billion in the prior year.  Full year 2004 net loss from continuing operations was $15.1 billion, or a loss of $8.78 per diluted share, compared with net earnings from continuing operations of $2.2 billion, or $1.27 per diluted share, for 2003.

Full year 2004 results included a non-cash impairment charge of $18.0 billion, or $10.43 per diluted share, to reduce the carrying amount of Radio and Outdoor goodwill and intangibles to their respective estimated fair value in accordance with Statement of Financial Accounting Standards (“SFAS”) 142 “Goodwill and Other Intangible Assets” (“SFAS 142”).  Full year 2004 results also included a second quarter severance charge of $56.2 million, or $.02 per diluted share, due to management changes, and the recognition of a tax benefit of $205.4 million, or $.12 per diluted share, principally from the resolution of income tax audits.

For all periods presented, Blockbuster Inc. has been reported as a discontinued operation as the exchange offer for its split-off from the Company was completed in 2004.

Viacom operates with the following segments:

•                  CABLE NETWORKS: The Cable Networks segment consists of MTV Music Television, Nickelodeon, Nick At Nite, VH1, MTV2, TV Land, Spike TV, CMT: Country Music Television, Comedy Central, BET, and BET Jazz,, among other program services.  Cable Networks revenues are generated primarily from advertising sales and affiliate fees.  Cable Networks contributed 25%, 23% and 20%, respectively, to consolidated revenues for the years ended December 31, 2004, 2003 and 2002.

II-2

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

•                    TELEVISION: The Television segment consists of the CBS and UPN Television Networks, the Company’s 39 owned broadcast television stations, Showtime Networks, and its television production and syndication business, including King World Productions and Paramount Television.  Television revenues are generated primarily from advertising sales, television license fees and affiliate fees.  Television contributed 43%, 42% and 44%, respectively, to consolidated revenues for the years ended December 31, 2004, 2003 and 2002.

•                    RADIO: The Radio segment owns and operates 183 radio stations in 41 U.S. markets through Infinity Radio. Radio revenues are generated primarily from advertising sales.  Radio contributed 9%, 10% and 11%, respectively, to consolidated revenues for the years ended December 31, 2004, 2003 and 2002.

•                  OUTDOOR: The Outdoor segment through Viacom Outdoor displays advertising on media including billboards, transit shelters, buses, rail systems (in-car, station platforms and terminals), mall kiosks and stadium signage. Outdoor revenues are generated primarily from advertising sales.  Outdoor contributed 8% to consolidated revenues for the year ended December 31, 2004 and 9% for the years ended December 31, 2003 and 2002.

•                    ENTERTAINMENT: The Entertainment segment through Paramount Pictures, produces and distributes theatrical motion pictures, and also has music publishing operations.  Entertainment revenues are generated primarily from feature film exploitation and music publishing.  Entertainment revenues contributed 11% of consolidated revenues for the year ended December 31, 2004, 13% for the year ended December 31, 2003 and 12% for the year ended December 31, 2002.

•                  PARKS/PUBLISHING: This all other category includes Simon & Schuster’s consumer books publishing business with imprints such as Simon & Schuster, Pocket Books, Scribner and The Free Press.  Paramount Parks is principally engaged in the ownership and operation of five theme parks and a themed attraction in the U.S. and Canada.  Parks/Publishing contributed 5% to consolidated revenues for the years ended December 31, 2004 and 2003 and 6% for the year ended December 31, 2002.

Consolidated Results of Operations—2004 vs. 2003 and 2003 vs. 2002

Revenues

The tables below present the Company’s consolidated revenues by type, net of intercompany eliminations, for each of the years ended December 31, 2004, 2003 and 2002.

II-3

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

Advertising sales, which represented 61% of the Company’s consolidated revenues for 2004, increased 11% in 2004 to $13.4 billion reflecting growth primarily in Cable Networks, Television and Outdoor segments.  Cable Networks advertising revenues increased 21% led by double-digit growth at MTV International, Comedy Central, Nickelodeon, VH1, TV Land, Spike TV and BET.  Television’s advertising revenues benefited from the 2004 telecast of Super Bowl XXXVIII, increased political advertising and increases in CBS and UPN Networks primetime and sports.  Outdoor advertising growth reflected 14% higher revenues from European properties, driven in part by favorable foreign exchange rates, and a 4% increase in North American properties.  Advertising sales increased 8% to $12.1 billion in 2003 reflecting growth in Cable Networks, Television, Radio and Outdoor.

Affiliate fees increased 9% to $2.6 billion in 2004 and increased 9% to $2.4 billion in 2003 versus the comparable prior-year periods.  The increases were primarily driven by domestic rate increases and subscriber growth at MTV Networks and BET.  The acquisition of Comedy Central in May 2003 contributed to the growth in both periods.

Feature film exploitation revenues, which includes all revenue sources from the exhibition of motion pictures, decreased 6% to $2.2 billion in 2004 primarily reflecting 11% lower home entertainment revenues.  For 2003, feature film revenues increased 17% to $2.4 billion primarily reflecting 29% higher home entertainment revenues and contributions from increased syndication, theatrical and pay television revenues, partially offset by lower network revenues.

Television license fees decreased 7% to $1.4 billion in 2004 principally reflecting lower network revenues for shows no longer in production.  Television license fees increased 3% to $1.5 billion in 2003 principally reflecting increased syndication revenues from The Dr. Phil Show in 2003 versus 2002.

Publishing revenues increased 8% to $750.7 million in 2004 and increased 3% to $693.4 million in 2003 versus the comparable prior-year periods.  The increases were primarily driven by the success of top selling titles.

       Parks operations revenues increased 9% to $409.9 million in 2004 primarily due to increased attendance partially offset by decreased average per capita spending and the benefit of favorable foreign currency translation.  Parks operations revenues were relatively flat in 2003 versus the prior-year period.

Other revenues, which include revenues from consumer products and home entertainment from television and cable product sales, increased 27% to $1.3 billion in 2004 primarily reflecting growth in home entertainment revenues to $472.2 million in 2004 from $263.1 million in 2003 and higher Nickelodeon consumer products and licensing.  For 2003, other revenues increased 14% to $1.0 billion primarily reflecting higher Nickelodeon consumer products revenues.

International Revenues

The Company generated approximately 15% of its total revenues from international regions in 2004, 14% in 2003 and 13% in 2002.

II-4

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

Operating Expenses

The table below presents the Company’s consolidated operating expenses by type:

For 2004, operating expenses of $12.2 billion increased 6% over 2003.  For 2003, operating expenses of $11.6 billion increased 11% over 2002.  The major components and changes in operating expenses were as follows:

•                  Production and program expenses represented approximately 66% of total operating expenses in 2004, 2003 and 2002, and reflect the costs and amortization of television and theatrical inventory, including direct production costs, residuals and participation expenses, production overhead and acquisition costs as well as costs attributable to television and radio programming expenses including on-air talent and other production costs, and costs and amortization of acquired rights of programs exhibited on the broadcast networks, cable networks and broadcast stations.  Production and program expenses increased 5% to $8.1 billion in 2004 and increased 11% to $7.7 billion in 2003.  For both years, the increases were led by 23% and 31% respective increases at Cable Networks associated with new and existing programming mainly at MTV Networks.  Also 2004 reflected higher program rights expenses for sports events and primetime series at the broadcast networks.  These increases were partially offset by fewer network series produced in 2004.  Also contributing to the increase in 2003 were higher sports rights expenses at Radio and higher feature film amortization.

•                  Distribution expenses, which represented approximately 12% of total operating expenses in 2004, and 13% in 2003 and 2002, reflect advertising and other distribution costs incurred primarily with respect to theatrical and television product.  Distribution expenses for 2004 increased 1% to $1.5 billion primarily reflecting higher television distribution costs due to additional volume of DVD releases of the Star Trek series, partially offset by lower feature film distribution costs for home video releases.  Distribution expenses for 2003 increased 11% to $1.4 billion principally reflecting higher print and advertising costs for feature films in theatrical release.

•                  Other operating expenses, which primarily include expenses incurred for Outdoor, Publishing and Parks operations, increased 10% to $2.7 billion in 2004 over 2003, primarily reflecting higher Outdoor expenses of 9% from higher transit and billboard lease costs and the impact of foreign exchange rates.  In 2004, the increase also reflected higher costs associated with Publishing and Parks operations.  Other operating expenses for 2003 increased 9% to $2.5 billion over 2002, which reflected an increase in Outdoor expenses of 7% from higher billboard lease costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses, which include expenses incurred for selling and marketing costs, occupancy and back office support increased $405.9 million, or 11%, to $4.1 billion in 2004, primarily reflecting higher employee compensation and commissions, second quarter 2004 severance charges of $56.2 million due to management changes, as well as twelve months of expenses for Comedy Central, acquired in May 2003, and the absence of a 2003 pre-tax gain of $40 million from the settlement of a physical damage and business interruption claim.  These increases were partially offset by a gain on the sale of assets in 2004 and a decrease in pension and postretirement costs.  Advertising expenses of $410.6 million included in selling, general and administrative expenses, increased 10% reflecting increased spending primarily at Radio and Cable Networks.

II-5

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

For 2003, selling, general and administrative expenses increased $238.7 million, or 7%, to $3.7 billion reflecting expenses associated with Comedy Central, increased employee-related expenses and higher directors’ and officers’ insurance premiums and professional fees, partially offset by a pre-tax gain of $40 million.  In 2003, advertising expenses of $372.2 million included in selling, general and administrative expenses increased 3%.  Selling, general and administrative expenses as a percentage of revenues were 19%, 18% and 19% for the years ended December 31, 2004, 2003 and 2002, respectively.

Impairment Charge

SFAS 142 requires the Company to perform an annual fair value-based impairment test of goodwill.  The first step of the test examines whether or not the book value of each of the Company’s reporting units exceeds its fair value.  If the book value for a reporting unit exceeds its fair value, the second step of the test compares the implied fair value of that reporting unit’s goodwill with the book value of that goodwill.  The Company’s reporting units are generally consistent with the operating segments underlying the reportable segments.  As a result of the impairment test, the Company recorded an impairment charge of $18.0 billion in the fourth quarter of 2004.  The $18.0 billion reflects charges to reduce the carrying value of goodwill at the Radio segment of $10.9 billion and the Outdoor segment of $7.1 billion as well as a reduction of the carrying value of intangibles of $27.8 million related to the FCC licenses at the Radio segment.

The Company performs its impairment test concurrently with its annual budgeting process which begins in the fourth quarter of each year.  Several factors have led to a reduction in forecasted cash flows and long-term growth rates for both the Radio and Outdoor segments.  Radio and Outdoor fell short of budgeted revenue and operating income growth targets in 2004.  Competition from other advertising media, including internet advertising and cable and broadcast television has reduced Radio and Outdoor growth rates.  Also, the emergence of new competitors and technologies has necessitated a shift in management’s strategy for the Radio and Outdoor businesses, including changes in composition of the sales force and operating management as well as increased levels of investment in marketing and promotion.

The estimated fair values of the Radio and Outdoor reporting units were computed principally based upon the present value of future cash flows (Discounted Cash Flow Method) and prices of comparable businesses (Market Comparable Method).  The discounted Cash Flow Method and Market Comparable Method were weighted equally and resulted in substantially equal fair values.

Depreciation and Amortization

For 2004, depreciation and amortization increased 9% to $760.2 million from $699.6 million primarily reflecting increases related to leasehold improvements, equipment and transponders.  For 2003, depreciation and amortization increased 4% to $699.6 million from $675.5 million principally driven by the addition of broadcasting equipment and outdoor advertising properties.

Interest Expense

For 2004, interest expense decreased 3% to $718.2 million from $739.4 million primarily due to lower average debt balances in 2004 including commercial paper borrowings and lower interest on programming contracts.  For 2003, interest expense decreased 7% to $739.4 million from $795.0 million primarily due to a reduction in debt including lower average commercial paper borrowings.  The Company had approximately $9.9 billion at December 31, 2004 and $10.1 billion at December 31, 2003 of principal amount of debt outstanding (including current maturities) at weighted average interest rates of 6.7% and 6.5%, respectively.

Interest Income

For 2004, interest income increased by $13.6 million to $25.1 million primarily due to increased cash and cash equivalents.  For 2003, interest income decreased by $.5 million to $11.5 million versus the comparable prior-year period.

II-6

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

Other Items, Net

For 2004, “Other items, net” of $7.4 million principally reflected foreign exchange gains of $16.6 million and a net gain on the sale of investments of $34.5 million, partially offset by a non-cash charge of $21.7 million associated with other-than-temporary declines in the Company’s investments, losses associated with securitizing trade receivables of $19.3 million and a loss of $2.7 million on the sale of radio stations.

For 2003, “Other items, net” reflected a net loss of $3.2 million principally consisting of foreign exchange losses of $4.1 million, losses associated with securitizing trade receivables of $14.8 million, and an aggregate loss of $5.0 million resulting from the write-down of several investments to their market value. These losses were partially offset by a net gain on the disposition of investments of $14.8 million and an insurance recoupment of $5.6 million.

For 2002, “Other items, net” reflected a net loss of $32.5 million principally consisting of foreign exchange losses of $55.3 million, losses of $19.7 million associated with securitizing trade receivables and an aggregate loss of approximately $12.5 million resulting from the write-down of several investments to their market value. These losses were partially offset by the recovery of advertising commitments of $29.8 million, a gain of $18.8 million on the sale of a telephone kiosk advertising business and a net gain of $4.5 million from the sale of investments.

Provision for Income Taxes

The provision for income taxes represents federal, state and local, and foreign income taxes on earnings before income taxes.
The annual effective tax rate before the cumulative effect of accounting change was (10.1%) in 2004 versus 40.0% in 2003 and 39.4% in 2002.  Included in the 2004 rate was the impact of the non-cash impairment and severance charges and the recognition of a tax benefit from the resolution of certain income tax audits in 2004.

Equity in Earnings (Loss) of Affiliated Companies, Net of Tax

“Equity in earnings (loss) of affiliated companies, net of tax” reflected a loss of $20.8 million for 2004, earnings of $.1 million for 2003 and a loss of $37.3 million for 2002.  For 2004, the loss principally reflected losses from the sale of international theater ventures and losses from internet investments, partially offset by the positive results of Westwood One, Inc. (“Westwood One”).  For 2003 and 2002, results principally reflected operating losses from internet investments and international ventures, partially offset by the positive results of Westwood One and Comedy Central prior to its acquisition in May 2003.

Minority Interest, Net of Tax

Minority interest primarily represented the minority ownership of certain international pay television companies.

Net Earnings (Loss) from Discontinued Operations

Net earnings (loss) from discontinued operations reflect the operating results of Famous Players prior to its disposition on July 22, 2005 and the operating results of Blockbuster Inc. (“Blockbuster”) which was split-off from the Company in 2004.  Discontinued operations reflected a loss of $1.1 billion in 2004 versus a loss of $802.8 million in 2003 and earnings of $167.8 million in 2002.  The loss from discontinued operations in 2004 included a non-cash charge of $1.5 billion ($1.2 billion net of minority interest and tax) for the impairment of Blockbuster goodwill and other long-lived assets in accordance with SFAS 142 and SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”).  Blockbuster performed an interim impairment test of its goodwill during the third quarter of 2004 because of factors surrounding Viacom’s exchange offer for the split-off of Blockbuster.

II-7

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

In March 2005, Blockbuster announced its intention to restate its previously issued financial statements to reflect appropriate lease accounting practices.  Viacom has reflected the cumulative impact of the adjustment in 2004.  This cumulative impact increased both the loss from discontinued operations and minority interest of discontinued operations, offset by a corresponding decrease in the loss on disposal of discontinued operations, resulting in no impact to Viacom’s consolidated 2004 net loss from discontinued operations.  The Company’s discontinued operation presentation of Blockbuster for prior years has not been revised to reflect this adjustment due to the immateriality of this amount for the current year or any individual prior period consolidated statement of operations or financial position.

In 2003, the Company recorded a non-cash impairment charge related to Blockbuster of approximately $1.3 billion ($1.0 billion, net of minority interest and tax) in accordance with SFAS 142.  In completing its analysis of the fair value of the video business, several events led Blockbuster to conclude that the business had incremental risks that were required to be included in its evaluation of goodwill.  Additionally, Blockbuster’s review of long-lived assets in conjunction with SFAS 144 resulted in an impairment charge of approximately $18.5 million to reduce the carrying value of certain fixed assets in four international markets.

Cumulative Effect of Accounting Change, Net of Minority Interest and Tax

Effective December 31, 2004, the Company elected early adoption of Emerging Issues Task Force Topic No. D-108 “Use of the Residual Method to Value Acquired Assets Other Than Goodwill” (“D-108”). D-108 requires companies who have applied the residual value method in the valuation of intangible assets for purposes of impairment testing to use the direct value method.  As a result of the adoption, the Company recorded a charge of $2.2 billion ($1.3 billion net of tax), or $.77 per share, to reduce the intangible balances attributable to its television stations’ FCC licenses.  This charge has been reflected as a cumulative effect of accounting change, net of tax.

For 2003, the cumulative effect of accounting change, net of minority interest and tax, of $18.5 million, or $.01 per share, resulted from the adoption of SFAS No. 143 “Accounting for Asset Retirement Obligations.”  For 2002, the cumulative effect of accounting change of $1.5 billion (net of minority interest of $336.1 million), or $.84 per basic and $.83 per diluted share, resulted from the initial adoption of SFAS 142.

Net Earnings (Loss)

For 2004, the Company reported a net loss of $17.5 billion versus net earnings of $1.4 billion for the prior year. For 2004, the loss was driven by the non-cash impairment charge of $18.0 billion.  For 2003, net earnings reflected revenue growth in advertising, feature film exploitation, and affiliate fees partially offset by a non-cash charge of $1.0 billion, net of minority interest and tax, reflected in discontinued operations and higher operating expenses, primarily programming and production costs.  For 2002, net earnings were $725.7 million.

II-8

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

Segment Results of Operations—For the Years Ended December 31, 2004, 2003 and 2002

The tables below present the Company’s revenues, operating income, and depreciation and amortization by segment, for each of the years ended December 31, 2004, 2003 and 2002.

(a)                                  Primarily includes pension and postretirement benefit costs for benefit plans retained by the Company for previously divested businesses.

(b)                                 Eliminations in all periods principally reflect the timing of intercompany transactions from the sale of television product to Cable Networks and the sale of feature films to cable and broadcast networks.

II-9

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

Segment Results of Operations—2004 vs. 2003 and 2003 vs. 2002

Cable Networks (Basic Cable Television Services through MTV Networks (“MTVN”) including, MTV Music Television, Nickelodeon, Nick at Nite, VH1, MTV2, TV Land, Spike TV, CMT: Country Music Television and Comedy Central; BET and BET Jazz.)

(Contributed 25% of consolidated revenues for the year ended December 31, 2004, 23% for the year ended December 31, 2003 and 20% for the year ended December 31, 2002.)

2004 vs. 2003

For 2004, Cable Networks revenues increased $923.8 million, or 20%, to $5.6 billion principally driven by a 21% increase in advertising revenues and a 13% increase in affiliate fees. Approximately 13% of Cable Networks revenues were generated from international regions in 2004, of which approximately 73% came from Europe. Comedy Central, which was acquired in May 2003, contributed 5% to Cable Networks revenue growth for the year.

For 2004, MTVN advertising revenues grew 22%, reflecting an increase in the number of units sold and higher average unit rates at domestic channels. BET advertising revenues increased 11% as a result of an increase in the number of units sold, partially offset by a decline in average unit rates and an increase in reserves for audience deficiency liabilities.  Affiliate fees increased 13% principally driven by rate increases and subscriber growth.   Ancillary revenues, which represent approximately 10% of Cable Networks revenues in 2004 and 9% in 2003, increased 32% benefiting from higher Nickelodeon consumer products revenues, higher home video revenues led by Chappelle’s Show DVD, and higher licensing revenues.

For 2004, Cable Networks operating income increased $336.1 million, or 17%, to $2.3 from $1.9 billion reflecting higher revenues, partially offset by a 21% increase in total expenses. The increase in total expenses for the year was driven by a 23% increase in operating expenses driven by higher programming costs. Selling, general and administrative expenses for the year increased 17% primarily due to higher sales and marketing-related costs at MTVN and increased compensation. Total expenses also included the full-year impact of Comedy Central. Operating income as a percentage of revenues was 40% for 2004 and 41% for 2003.

In 2004, the Company acquired 97.8% of VIVA Media AG for a total purchase price of $393.6 million. VIVA Media AG results are included as part of MTVN, contributing $63.0 million of revenues to Cable Networks since the date of acquisition.

2003 vs. 2002

For 2003, Cable Networks revenues increased $935.3 million, or 25%, to $4.7 billion principally driven by 26% growth in advertising revenues and a 18% increase in affiliate fees. The increase in advertising revenues reflected 27% growth at MTVN principally due to selling more units and higher average unit rates and the impact of Comedy Central.   BET delivered 17% advertising revenue growth for 2003 over the prior year as a result of higher average rates.  The growth in affiliate fees was primarily due to rate and subscriber increases at MTVN and BET and the impact of Comedy Central.  Other ancillary revenues for Cable Networks grew 44% reflecting higher consumer product licensing revenues at Nickelodeon and contributions from co-produced feature films. 

II-10

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

For 2003, Cable Networks operating income increased $373.3 million, or 24%, to $1.9 billion reflecting higher revenues, partially offset by increased expenses. Operating expenses increased 33% led by increases at MTVN and BET primarily for new programming initiatives and the impact of Comedy Central. Selling, general and administrative expenses increased 20% primarily due to higher marketing costs at MTVN and the inclusion of Comedy Central. Operating income as a percentage of revenues was 41% for 2003 and for 2002.

Television (CBS and UPN Television Networks and Stations, Television Production and Syndication, and Showtime Networks Inc. (“SNI”), owner of several premium subscription television program services,)

(Contributed 43% of consolidated revenues for the year ended December 31, 2004, 42% for the year ended December 31, 2003 and 44% for the year ended December 31, 2002.)

2004 vs. 2003

For 2004, Television revenues increased $768.0 million, or 9%, to $9.4 billion principally driven by advertising revenue growth at the broadcast networks and the Stations group and higher television license revenues. CBS and UPN Networks combined advertising revenues increased 12% with an 11% increase in CBS and UPN primetime due to 11% average rate increases. CBS Network and the Stations group advertising revenues benefited from the 2004 telecast of Super Bowl XXXVIII. The combination of the Super Bowl and increased political advertising contributed 3% of Television’s total revenue growth. For the year, the Stations group advertising revenues increased 10% reflecting higher political advertising with more units sold at higher average unit rates. The Stations group also benefited from higher ad sales in the automotive, leisure and media, and restaurant industries.

Television revenues included an increase in television license revenues of 2% benefiting from the basic cable availability of Star Trek: Deep Space Nine, the initial domestic syndication of CSI and the renewal by incumbent stations of Everybody Loves Raymond, partially offset by lower network revenues for shows no longer in production including Frasier. Home entertainment revenues increased due to the DVD releases of Star Trek: Voyager and Star Trek: Original Series. Showtime affiliate revenues increased 1%.

For 2004, Television operating income increased $326.0 million, or 22%, to $1.8 billion principally due to the revenue increases noted above. Total expenses increased 6% for the year primarily due to higher production and programming expenses and higher selling, general and administrative expenses. Production costs and programming expenses increased 5% reflecting higher program rights expense for sports events and primetime series.  Included in selling, general and administrative expenses was a severance charge of $10.4 million recorded in the second quarter of 2004 related to a management change. Television operating income in 2003 included approximately $27 million in insurance recoveries. Operating income as a percentage of revenues was 19% in 2004 versus 17% in 2003.

License fees for completed television programming in syndication and on cable are recorded as revenue in the period that the products are available for exhibition, which, among other reasons, may cause substantial fluctuation in operating results. Unrecognized revenues attributable to such licensing agreements were approximately $734.4 million and $634.9 million at December 31, 2004 and 2003, respectively, including intercompany revenues of $176.3 million and $345.2 million for these periods, respectively.

II-11

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

2003 vs. 2002

For 2003, Television revenues increased $315.6 million, or 4%, to $8.7 billion primarily driven by higher advertising revenues at the broadcast networks and the Stations group, and higher syndication revenues. CBS and UPN Networks combined advertising revenues increased 6%, with 8% growth in CBS primetime due primarily to a 6% average rate increase. Late night, daytime and news advertising revenues were up with average rate increases, partially offset by a rate decrease at sports, due primarily to the impact of the war on the broadcast of the NCAA basketball tournament. The Stations group delivered 2% year-over-year advertising revenue growth led by ratings improvements for the CBS Network, particularly at 10 pm, which improved the stations’ local news and syndication as well as higher sales in the automotive, leisure and media industries. The Stations group also benefited from the full year results of KCAL-TV Los Angeles, acquired in May 2002, which contributed 3% to the revenue growth in 2003. These increases were more than offset by the absence of political advertising which was down over 80% versus 2002.

Higher syndication revenues for 2003 were partially offset by a decrease in domestic syndication availabilities and home entertainment revenues. Syndication revenues were higher primarily due to increases in license fees and barter revenues for The Dr. Phil Show which debuted in September 2002 and higher barter revenues from Everybody Loves Raymond. Revenues from domestic syndication availabilities in 2003 included The Parkers, Sabrina, the Teenage Witch and the off-network syndication of seasons one through five of Becker, and did not match 2002’s initial basic cable syndication availabilities including 7^th Heaven, Charmed and Seven Days. Home entertainment revenues for 2003 decreased as contributions from the DVD release of seasons one through seven of Star Trek: Deep Space Nine did not match the contributions from the 2002 DVD release of seasons one through seven of Star Trek: The Next Generation.  Showtime affiliate revenues decreased 1%.

For 2003, Television operating income increased $87.2 million, or 6%, to $1.5 billion principally due to the revenue increases noted above. Operating expenses principally comprised of production costs and programming expenses increased 5%. CBS Network experienced higher programming costs due to more hours of original summer programming, contractual series increases in primetime and increased sports rights payments which were associated with the first year of new contracts with both the NCAA and the PGA Tour. The Stations group incurred higher operating expenses in 2003 principally due to expansion of news coverage and talent, partially offset by reduced advertising and promotion.  Television operating income for 2003 included approximately $27 million from insurance recoveries. Operating income as a percentage of revenues was 17% for 2003 and 2002.

Radio (Radio Stations)

(Contributed 9% of consolidated revenues for the year ended December 31, 2004, 10% for the year ended December 31, 2003 and 11% for the year ended December 31, 2002.)

NM—Not meaningful

II-12

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

2004 vs. 2003

Radio’s revenues are generated domestically from 183 radio stations. For 2004, Radio revenues were primarily flat at $2.1 billion reflecting continued weakness in national and local radio advertising revenues in part due to increased competition from other advertising media. Advertising revenues reflected a decline in the units sold, partially offset by an increase in average unit rates and higher affiliated revenues. Radio receives consideration for management services provided to Westwood One, an affiliated company. Revenues from these arrangements were approximately $65.9 million for the year ended December 31, 2004 versus $64.3 million for the prior year.

For 2004, Radio reported an operating loss of $10.0 billion which included a $10.9 billion non-cash impairment charge to reduce goodwill and intangibles. Expenses, including operating, selling, general and administrative expenses, and depreciation and amortization, increased 5% to $1.2 billion. Operating expenses, primarily comprised of radio programming expenses including on-air talent, program rights amortization and other production costs, increased 5% to $513.9 million primarily due to higher contractual talent costs. Selling, general and administrative expenses increased 5% to $634.0 million mainly from higher advertising and promotion expenditures and employee-related expenses.

2003 vs. 2002

For 2003, Radio revenues decreased $24.0 million to $2.1 billion reflecting a 1% increase in advertising revenues which was more than offset by lower revenues for management services provided to Westwood One. Revenues from these arrangements were approximately $64.3 million for the year ended December 31, 2003 and $110.4 million for the year ended December 31, 2002.

For 2003, Radio operating income decreased $32.6 million, or 3%, to $975.0 million principally due to the revenue decrease and an increase in expenses. Operating expenses increased 7% in 2003 primarily reflecting contractual talent increases as well as increased sports rights. Selling, general and administrative expenses decreased 3%, reflecting $13 million of insurance recoveries and lower advertising and promotional expenditures in 2003. Operating income as a percentage of revenues was 46% in 2003 versus 47% in 2002.

Outdoor (Outdoor Advertising Properties)

(Contributed 8% of consolidated revenues for the year ended December 31, 2004 and 9% for years ended December 31, 2003 and 2002.)

NM—Not meaningful

2004 vs. 2003

For 2004, Outdoor revenues increased $131.9 million, or 8%, to $1.9 billion reflecting a 14% increase from its European properties and a 4% increase in North America. North American properties reflected a 16% increase in Canadian revenues and a 5% increase in U.S. billboards revenues, partially offset by Mexico billboards revenues decrease of 11%. Revenue growth from its European properties benefited from favorable foreign exchange rates. The impact of foreign exchange translation on revenues was approximately $68 million, or four percentage points of the increase for the year. Approximately 45% of Outdoor revenues were generated from international regions, principally Europe, in 2004 versus 43% in 2003.

II-13

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

For 2004, Outdoor reported an operating loss of $6.8 billion, which included a non-cash impairment charge of $7.1 billion to reduce goodwill. Operating expenses, which exclude the non-cash charge, increased 9% due to higher transit and billboard lease costs, as well as the negative impact of foreign exchange translation.

2003 vs. 2002

For 2003, Outdoor revenues increased $114.8 million, or 7%, to $1.7 billion reflecting a 17% increase from its European properties and a 2% increase in North America. Revenue growth from its European properties was principally driven by favorable foreign exchange rates. North American results reflected higher revenues from U.S. billboards, driven by an increase in the number of displays, partially offset by lower revenues from the U.S. transit business, due to a decrease in the number of displays and in the average per unit rate, and lower revenues from billboards in Mexico.

For 2003, Outdoor operating income decreased $10.1 million, or 5%, to $207.9 million as the revenue increase was more than offset by a 9% increase in total expenses principally due to higher billboard lease costs and sales-related expenses as well as in transit guarantees and posting rotation expenses due to shorter campaigns. Operating income as a percentage of revenues was 12% versus 13% in 2002.

Entertainment (Paramount Pictures and music publishing)

(Contributed 11% of consolidated revenues for the year ended December 31, 2004, 13% for the year ended December 31, 2003 and 12% for the year ended December 31, 2002.)

2004 vs. 2003

For 2004, Entertainment revenues decreased $142.1 million, or 5%, to $2.5 billion principally reflecting lower Features revenues.  Approximately 39% of Entertainment’s revenues were generated from international regions in 2004, principally Europe and Canada.

For 2004, Features revenues decreased 6% principally reflecting lower domestic home entertainment revenues as contributions from 2004 titles including School of Rock and Mean Girls did not match the success of the prior year’s titles led by The Adventures of Indiana Jones—the Complete DVD Movie Collection.

For 2004, Entertainment operating income decreased $35.5 million, or 19%, to $154.2 million primarily due to the revenue decreases noted above, partially offset by an overall 4% decrease in total expenses.  The decrease in expenses was principally associated with lower feature film amortization and distribution costs.  Included in selling, general and administrative expenses was a severance charge of $10.4 million recorded in the second quarter of 2004 related to a management change. Operating income as a percentage of revenues was 6% in 2004 versus 7% in 2003.

II-14

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

License fees for television exhibition of completed motion pictures are recorded as revenue in the period that the products are available for such exhibition, which, among other reasons, may cause substantial fluctuation in operating results. Unrecognized revenues attributable to such licensing agreements were approximately $1.2 billion as of December 31, 2004 and 2003 including intercompany revenues of $287.4 million and $281.1 million, respectively.

2003 vs. 2002

For 2003, Entertainment revenues increased $358.0 million, or 16%, to $2.7 billion principally reflecting higher Features revenues.

Features revenues were higher principally due to increased worldwide home entertainment, theatrical and pay television revenues, partially offset by lower network revenues.  Domestic theatrical revenues were lower than the prior year due in part to fewer titles in domestic theatrical release.  Foreign theatrical revenues were higher than the prior year primarily due to contributions from How To Lose A Guy In 10 Days, Lara Croft Tomb Raider: The Cradle Of Life and The Italian Job.  Pay television revenues were higher while network revenues were lower compared to the prior year, both reflecting a change in the mix of titles available.

For 2003, Entertainment operating income decreased $77.6 million, or 29%, to $189.7 million, as the revenue increases noted above were more than offset by increased Features distribution and film amortization costs. Operating income as a percentage of revenues was 7% in 2003 versus 12% in 2002.

Parks/Publishing (Theme Parks Operations and Consumer Book Publishing)

(Contributed 5% to consolidated revenues for the year ended December 31, 2004 and 2003 and 6% for the year ended December 31, 2002.)

2004 vs. 2003

For 2004, Parks/Publishing revenues increased $91.5 million, or 9%, to $1.2 billion reflecting higher revenues for each of the two businesses.  Parks revenues increased 9%, primarily due to higher attendance, up 12%, partially offset by lower average per capita spending.  Parks also benefited from favorable foreign currency translation.  Publishing revenues increased 8% primarily due to several top-selling titles including “Angels & Demons” by Dan Brown and “Family First” by Dr. Phil McGraw.

For 2004, Parks/Publishing operating income increased $33.7 million, or 43%, to $111.2 million primarily due to the revenue increases noted above, partially offset by an overall 6% increase in total expenses driven by higher expenses at Parks and Publishing of 7% and 5%, respectively.

2003 vs. 2002

For 2003, Parks/Publishing revenues increased $18.8 million, or 2%, to $1.1 billion primarily reflecting an increase in Publishing revenues.  Parks revenues increased slightly primarily due to a 1% increase in average per capita spending and the benefit of favorable foreign currency translation, partially offset by a 2% decline in attendance.  Publishing revenues increased 3% on the strength of its top-selling titles for the year which included “The Ultimate Weight Solution” by Dr. Phil McGraw, “Living History” by Hillary Rodham Clinton and “The Dark Tower V (Wolves Of The Calla)” by Stephen King.

II-15

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

For 2003, Parks/Publishing operating income decreased $16.3 million, or 17%, to $77.5 million, as the revenue increases noted above were more than offset by a 4% increase in expenses.  The expense growth was primarily related to 5% higher expenses at Publishing, principally from higher royalties, and 1% higher expenses at Parks.

Financial Position

Current assets decreased by $274.9 million to $7.5 billion at December 31, 2004 from $7.8 billion at December 31, 2003 primarily due to a $962.3 million decrease in current assets of discontinued operations. This decrease was partially offset by an increase in cash and cash equivalents of $311.2 million, deferred tax assets of $146.0 million, other current assets of $140.3 million and receivables of $66.8 million. The allowance for doubtful accounts as a percentage of receivables was 6.1% at December 31, 2004 compared with 6.5% at December 31, 2003.

Net property and equipment remained relatively flat at $4.3 billion as capital expenditures of $402.7 million, the addition of capital leases of $139.9 million and the effects of acquisitions were partially offset by depreciation expense of $615.5 million.
Goodwill of $38.5 billion decreased $15.9 billion from December 31, 2003, primarily reflecting the impairment of goodwill at the Radio and Outdoor segments, partially offset by acquisitions.  Intangibles, principally consisting of FCC licenses, decreased by $2.3 billion to $10.6 billion at December 31, 2004 from $12.9 billion at December 31, 2003.  This decrease reflected the $2.2 billion reduction of television station’s FCC licenses due to a change in accounting.

Current liabilities decreased $715.2 million to $6.9 billion primarily due to a $1.2 billion decrease in current liabilities of discontinued operations, partially offset by increases of $134.4 million in participants’ share, residuals and royalties payable, primarily for feature films and television product, and other current liabilities of $300.4 million.

Cash Flows

Cash and cash equivalents increased by $77.5 million for the year ended December 31, 2004.  The change in cash and cash equivalents was as follows:

Operating Activities.  In 2004, cash provided by operating activities from continuing operations increased $514.6 million, or 18%, to $3.4 billion principally reflecting growth in net earnings from continuing operations, after adjusting for the non-cash impairment charge, partially offset by higher taxes paid in 2004.  In 2003, cash provided by operating activities from continuing operations increased $190.5 million, or 7%, to $2.9 billion principally reflecting higher earnings, partially offset by higher taxes paid in 2003 compared to 2002.

Cash paid for income taxes of $1.2 billion for 2004 was higher than 2003 payments of $933.9 million principally due to higher operating income (excluding the non-cash 2004 impairment charge).  The Company anticipates that higher operating income and the absence of audit refunds in 2005 will result in an increase in cash payments for taxes of approximately $400 million to $450 million over 2004 payments.

II-16

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

Investing Activities.  In 2004, cash used for investing activities from continuing operations of $100.4 million reflected acquisitions of $427.7 million, primarily consisting of the acquisition of 97.8% of VIVA Media AG, the remaining interest in SportsLine.com, Inc. and Outdoor properties and capital expenditures of $402.7 million, offset by the $738.1 million special distribution paid by Blockbuster in the third quarter.  Capital expenditures increased $54.3 million, or 16%, to $402.7 million in 2004 principally reflecting investment in systems upgrades and building improvements.  Net cash expenditures for investing activities from continuing operations of $1.7 billion for the year ended December 31, 2003 principally reflected acquisitions of $1.3 billion and capital expenditures of $348.4 million principally for broadcasting equipment and outdoor advertising structures.
Acquisitions in 2003 included the acquisition of the remaining 50% interest in Comedy Central for $1.2 billion, as well as the acquisition of a billboard operator in Puerto Rico.  Net cash expenditures for investing activities from continuing operations of $1.2 billion in 2002 primarily reflected acquisitions of $818.0 million, principally for KCAL-TV and the remaining interest in Noggin, as well as capital expenditures of $381.4 million.

Capital expenditures for 2005 are anticipated to be in the range of $595 million to $645 million. The increase over 2004 levels principally reflects investments in information systems, technology and building improvements.

Financing Activities.  In 2004, cash flow used for financing activities from continuing operations of $3.0 billion principally reflected the purchase of Company stock for $2.5 billion, repayment of notes and debentures of $80.3 million and the net repayment of bank debt, including commercial paper and financing costs, of $26.1 million. In addition, the Company paid dividends of $415.2 million. These uses were partially offset by proceeds from the exercise of employee stock options of $119.6 million. In 2003, cash flow used for financing activities from continuing operations of $1.1 billion principally reflected the purchase of Company stock for $945.1 million, repayment of notes and debentures of $765.4 million, and the net repayment of bank debt, including commercial paper and financing costs, of $162.1 million.  The Company paid dividends of $104.6 million in 2003.  These uses were partially offset by proceeds from the issuance of notes of $736.5 million, net of financing costs, and from the exercise of employee stock options of $245.2 million.  Net cash flow used for financing activities from continuing operations of $1.5 billion for 2002 principally reflected the repayment of notes and debentures of $1.0 billion, the net repayment of bank debt, including commercial paper, of $963.8 million, and the purchase of Company stock for $1.1 billion.  These uses were partially offset by proceeds from the issuance of notes of $1.3 billion and from the exercise of employee stock options of $315.1 million.

In 2005, the declarations of a $.07 per share quarterly dividend would result in an annual payment to Viacom’s stockholders of approximately $450 million.  On January 26, 2005, the Company declared a $.07 per share quarterly dividend payable April 1, 2005 to Viacom’s stockholders of record at the close of business on February 28, 2005.

Stock Purchase Program and Cash Dividends

On October 28, 2004, the Company announced a new stock purchase program under which the Company is authorized to acquire from time to time up to $8.0 billion in Viacom Class A Common Stock and non-voting Class B Common Stock.  The program succeeded and replaced the Company’s $3.0 billion stock purchase program announced in 2002, under which 40.7 million shares of Class B Common Stock had been purchased for $1.7 billion.  The Company will finance the purchase program using a combination of cash and investments, future cash flows and borrowing capacity.  NAIRI, Inc. and National Amusements, Inc., each closely held corporations controlled by Sumner M. Redstone, Chairman of the Board of Directors and Chief Executive Officer of the Company, have entered into an agreement with the Company to participate in the program on a pro-rata basis.  The agreement, which has been approved by an independent committee of Viacom directors, will prevent the buyback from increasing NAIRI, Inc.’s economic interest in Viacom. National Amusements, Inc., through its wholly owned subsidiary, NAIRI, Inc., beneficially owns Viacom’s Class A Common Stock representing approximately 71% of the voting power of all classes of the Company’s Common Stock and approximately 12% of Viacom’s Class A and Class B Common Stock on a combined basis at December 31, 2004 (See Related Parties).  In 2004, on a trade date basis, the Company purchased 68.4 million shares of Viacom Class B Common Stock for approximately $2.5 billion, of which approximately $2.0 billion was spent under the new $8.0 billion program.  As of December 31, 2004, there was approximately $6.0 billion remaining under the current $8.0 billion purchase program.  From January 1 through March 14, 2005, the Company purchased an additional 34.7 million shares for approximately $1.3 billion.

During 2003, on a trade date basis, the Company purchased approximately 23.6 million shares of its Class B Common Stock for approximately $981.4 million under its stock purchase programs.

II-17

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

During the first three quarters of 2004, Viacom declared a quarterly cash dividend of $.06 per share on Viacom Class A and Class B Common Stock.  During the fourth quarter of 2004, the Company declared a quarterly cash dividend of $.07 per share on Viacom Class A and Class B Common Stock, which was paid on January 1, 2005 to stockholders of record at the close of business on November 30, 2004.  Approximately $415.2 million was paid to these shareholders during 2004 and $116.2 million was paid in January 2005.

During the third and fourth quarters of 2003, Viacom declared a quarterly cash dividend of $.06 per share and paid $104.6 million in 2003 and $104.4 million in January 2004.

Acquisitions

In August 2004, the Company acquired 75.8% of VIVA Media AG for $306.9 million. Pursuant to a tender offer, the Company subsequently purchased additional shares of VIVA Media AG, raising the Company’s total ownership to 97.8% for a total purchase price of $393.6 million.  VIVA Media AG’s results have been included as part of Cable Networks since the date of acquisition.  The allocation of the purchase price is pending a final evaluation of the fair value of VIVA Media AG’s assets acquired and liabilities assumed.

On December 30, 2004 the Company acquired a 10% interest in Spanish Broadcasting System, Inc., in exchange for a San Francisco radio station. In addition to the 10% interest, the Company received warrants that would allow the Company to increase its equity stake by an additional 5%.

On May 22, 2003, the Company acquired the remaining 50% interest in Comedy Central that it did not own for $1.2 billion in cash.  Comedy Central’s results have been consolidated as part of Cable Networks, effective from the date of acquisition.  The excess purchase price over the fair value of the tangible and identifiable intangible net assets acquired of approximately $1.0 billion was allocated to goodwill and other intangibles.  The final allocation of the purchase price was based on comprehensive evaluations of the fair value of Comedy Central’s assets acquired and liabilities assumed.

On May 15, 2002, the Company acquired the assets of KCAL-TV Los Angeles for approximately $650 million.  During 2002, the Company also acquired the remaining 50% interest in Noggin, the 24-hour digital network for kids that it did not already own for approximately $100 million.

Capital Structure

Total debt of $9.9 billion at December 31, 2004 and $10.1 billion at December 31, 2003 was 19% and 14%, respectively, as a percentage of total capitalization of the Company.

II-18

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

The senior debt of Viacom Inc. is fully and unconditionally guaranteed by its wholly owned subsidiary Viacom International Inc. Senior debt in the amount of $52.2 million of the Company’s wholly owned subsidiary, CBS Broadcasting Inc., is not guaranteed.

The Company’s total debt included, as of December 31, 2004 and December 31, 2003, respectively, (i) an aggregate unamortized premium of $35.3 million and $41.4 million and (ii) the net change in the carrying value of the debt relating to fair value swaps of $17.4 million and $48.2 million.

For the years ended December 31, 2004 and 2003, the following debt issuances, maturities and redemptions occurred:

Debt Issuances

May 14, 2003, $300.0 million 4.625% senior notes due 2018

May 14, 2003, $450.0 million 5.50% senior debentures due 2033

Interest on the above debt instruments is paid semi-annually.

Debt Maturities

September 1, 2003, 6.875% notes, $275.0 million

January 15, 2003, 6.75% senior notes, $333.8 million

Debt Redemptions

July 15, 2004, all of the outstanding Go Outdoor Systems Holdings S.A. 10.50% senior subordinated notes due 2009 at 105.25% of principal

July 15, 2003, $150.0 million 7.50% senior debentures due 2023 at 103.6% of principal

For the years ended December 31, 2004 and 2003, the Company repurchased approximately $20.0 million and $1.0 million of its debt, respectively.

During 2004, the Company acquired SportsLine.com, Inc., which had outstanding $16.9 million 5% convertible subordinated notes due 2006. These notes were redeemed in January 2005.

The Company’s scheduled maturities of long-term debt at face value, excluding commercial paper and capital leases, outstanding at December 31, 2004 were as follows:

Viacom Credit Agreement

As of December 31, 2004, the Company’s credit facilities totaled $4.5 billion comprised of a $3.0 billion revolving facility due February 2009 and a $1.5 billion revolving facility due March 2006 (collectively, the “Credit Facilities”). The Company, at its option, may also borrow in certain foreign currencies up to specified limits under the $3.0 billion and $1.5 billion facilities. Borrowing rates under the facilities are determined at the Company’s option at the time of each borrowing and are based generally on the prime rate in the United States or the London Interbank Offer Rate (“LIBOR”) plus a margin based on the Company’s senior unsecured debt rating. The Company pays a facility fee based on the total amount of the commitments. As of December 31, 2004, the Company had unused revolving credit facilities of $4.27 billion in the aggregate.

II-19

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

The facilities contain covenants, which, among other things, require that the Company maintain a minimum interest coverage ratio. At December 31, 2004, the Company was in compliance with all covenants under the Credit Facilities.

The primary purpose of the credit facilities is to support commercial paper borrowings. At December 31, 2004, the Company had no commercial paper borrowings under its $4.5 billion commercial paper program.

At December 31, 2004, the Company had classified as long-term debt approximately $1.38 billion of other debt scheduled to mature within the next twelve months, reflecting its intent and ability, through the existence of unused revolving credit facilities, to refinance this debt on a long-term basis.

Accounts Receivable Securitization Programs

As of December 31, 2004 and December 31, 2003, the Company had an aggregate of $1.0 billion outstanding under revolving receivable securitization programs. The programs result in the sale of receivables on a non-recourse basis to unrelated third parties on a one-year renewable basis, thereby reducing accounts receivable and debt on the Company’s Consolidated Balance Sheets. The Company enters into these arrangements because they provide an additional source of liquidity. Proceeds from the programs were used to reduce outstanding borrowings. The terms of the revolving securitization arrangements require that the receivable pools subject to the programs meet certain performance ratios. As of December 31, 2004, the Company was in compliance with the required ratios under the receivable securitization programs.

Liquidity and Capital Resources

The Company believes that its operating cash flows ($3.6 billion in 2004), cash and cash equivalents ($927.1 million at December 31, 2004), borrowing capacity under committed bank facilities (which consisted of unused revolving credit facilities of $4.27 billion in the aggregate at December 31, 2004), and access to capital markets are sufficient to fund its operating needs, including commitments and contingencies, capital and investing commitments and its financing requirements for the foreseeable future. The funding for commitments to purchase sports programming rights, television and film operations, and talent contracts will come primarily from cash flow from operations.

The Company continually projects anticipated cash requirements, which include capital expenditures, share purchases, acquisitions, dividends and principal payments on its outstanding indebtedness, as well as cash flows generated from operating activity available to meet these needs. Any net cash funding requirements are financed with short-term borrowings (primarily commercial paper) and long-term debt. Commercial paper borrowings, which also accommodate day-to-day changes in funding requirements, are backed by committed bank facilities that may be utilized in the event that commercial paper borrowings are not available. The Company’s credit position affords sufficient access to the capital markets to meet the Company’s financing requirements.

The Company anticipates that future debt maturities will be funded with cash and cash equivalents, and cash flows generated from operating activities and other debt financing. There are no provisions in any of the Company’s material financing agreements that would cause an acceleration of the obligation in the event of a downgrade in the Company’s debt ratings.

The Company filed a shelf registration statement with the Securities and Exchange Commission registering debt securities, preferred stock and warrants of Viacom that may be issued for aggregate gross proceeds of $5.0 billion. The registration statement was first declared effective on January 8, 2001. The net proceeds from the sale of the offered securities may be used by Viacom for general corporate purposes, including repayment of borrowings, working capital and capital expenditures, or for such other purposes as may be specified in the applicable prospectus supplement. To date, the Company has issued $2.385 billion of securities under the shelf registration statement.

For the year ended December 31, 2004, the Company had a total of $86.3 million of long-term debt maturities, redemptions and repurchases.

II-20

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

As of December 31, 2004, the Company’s significant contractual obligations, including payments due by period, were as follows:

(1)   Programming and talent commitments of the Company include $10.9 billion for the acquisition of sports programming rights, $3.7 billion relating to television, radio and feature film production and acquisitions and $1.0 billion for talent contracts.

(2)   Includes long-term noncancelable operating lease commitments for office space and equipment, transponders, studio facilities and vehicles.

(3)   Viacom’s outdoor advertising business has franchise rights entitling it to display advertising on media including billboards, transit shelters, buses, rail systems (in-car, station platforms and terminals), mall kiosks and stadium signage. Under most of these franchise agreements, the franchisor is entitled to receive the greater of a percentage of the relevant advertising revenues, net of advertising agency fees, or a specified guaranteed minimum annual payment.

(4)   Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including open purchase orders.

(5)   Includes capital leases for satellite transponders.

(6)   Long-term debt obligations are presented at face value.

(7)   Long-term contractual obligations including program liabilities and participations due to producers and residuals.

Off-Balance Sheet Arrangements

The Company follows the recognition provisions of FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”) for guarantees issued or modified after December 31, 2002. FIN 45 requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of an obligation assumed by issuing a guarantee. FIN 45 also requires additional disclosures for certain guarantees.

The Company’s off-balance sheet arrangements primarily consist of the following guarantees.

In the fourth quarter of 2004, the Company sold its 50% equity interest in United Cinemas International Multiplex B.V. (“UCI”), which operated movie theaters in Europe, Latin America and Asia. The Company had guaranteed UCI’s debt obligations under a revolving credit facility which was repaid during the fourth quarter of 2004. The Company contributed $29.1 million toward the repayment of UCI’s debt obligations under the terms of this guarantee. The Company continues to guarantee certain UCI theater leases which are secured by bank guarantees provided by the buyer. The Company’s guarantee totaled approximately $177.0 million at December 31, 2004. The Company also owns a 50% interest in WF Cinema Holdings, L.P. and Grauman’s Theatres LLC and guarantees certain theater leases for approximately $13.3 million. The lease guarantees would only be triggered upon non-payment by the respective primary obligors. These guarantees are not recorded on the balance sheet as of December 31, 2004 as they were provided by the Company prior to the adoption of FIN 45. Additionally, in connection with the July 2005 divestitures of Famous Players, the Company’s liability under FIN 45 for obligations associated with theater leases assigned to the buyer was recorded in the Consolidated Balance Sheet as of September 30, 2005.

II-21

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

The Company continues to remain as guarantor on certain Blockbuster store leases approximating $359 million at December 31, 2004 and secured by a $150 million letter of credit. Certain leases contain renewal options that can extend the primary lease term and remain covered by the guarantees. Blockbuster has agreed to indemnify the Company with respect to any amounts paid under these guarantees. The Company recorded a liability of $53.6 million reflecting the fair value of such guarantees.

Additionally, the Company has indemnification obligations with respect to letters of credit and surety bonds primarily used as security against non-performance in the normal course of business. The outstanding letters of credit and surety bonds approximated $342.4 million at December 31, 2004 and are not recorded on the balance sheet as of December 31, 2004.

Legal Matters

Asbestos and Environmental.  The Company is a defendant in lawsuits claiming various personal injuries related to asbestos and other materials, which allegedly occurred principally as a result of exposure caused by various products manufactured by Westinghouse, a predecessor, generally prior to the early 1970s. Westinghouse was neither a producer nor a manufacturer of asbestos. The Company is typically named as one of a large number of defendants in both state and federal cases. In the majority of asbestos lawsuits, the plaintiffs have not identified which of the Company’s products is the basis of a claim. Claims against the Company in which a product has been identified principally relate to exposures allegedly caused by asbestos-containing insulating material in turbines sold for power-generation, industrial and marine use, or by asbestos-containing grades of decorative micarta, a laminate used in commercial ships.

Claims are frequently filed and/or settled in large groups, which may make the amount and timing of settlements, and the number of pending claims, subject to significant fluctuation from period to period. The Company does not report as pending those claims on inactive, stayed, deferred or similar dockets which some jurisdictions have established for claimants who allege minimal or no impairment. As of December 31, 2004, the Company had pending approximately 112,140 asbestos claims, as compared with approximately 112,280 as of December 31, 2003 and approximately 103,800 as of December 31, 2002. Of the claims pending as of December 31, 2004, approximately 82,370 were pending in state courts, 27,180 in federal courts and approximately 2,590 were third party claims. During 2004, the Company received approximately 16,060 new claims and closed or moved to an inactive docket approximately 16,200 claims. The Company reports claims as closed when it becomes aware that a dismissal order has been entered by a court or when the Company has reached agreement with the claimants on the material terms of a settlement.

Settlement costs depend on the seriousness of the injuries that form the basis of the claim, the quality of evidence supporting the claims and other factors. To date, the Company has not been liable for any third party claims. The Company’s total costs (recovery) for the years 2004 and 2003 for settlement and defense of asbestos claims after insurance recoveries and net of tax benefits were approximately $58.4 million and $(8.7) million, respectively. A portion of such costs relates to claims settled in prior years. If proceeds received in 2003 from an insurance commutation were excluded from the Company’s total costs in 2003, the Company’s total costs after insurance recoveries and net of tax benefits would have been $56.6 million. The Company’s costs for settlement and defense of asbestos claims may vary year to year as insurance proceeds are not always recovered in the same period as the insured portion of the expenses.

Filings include claims for individuals suffering from mesothelioma, a rare cancer, the risk of which is allegedly increased primarily by exposure to asbestos; lung cancer, a cancer which may be caused by various factors, one of which is alleged to be asbestos exposure; other cancers, and conditions that are substantially less serious, including claims brought on behalf of individuals who are asymptomatic as to an allegedly asbestos-related disease. Claims identified as cancer remain a small percentage of asbestos claims pending at December 31, 2004. In a substantial number of the pending claims, the plaintiff has not yet identified the claimed injury.

The Company believes that its reserves and insurance are adequate to cover its asbestos liabilities and that these asbestos liabilities are not likely to have a material adverse effect on its results of operations, financial position or cash flows.

II-22

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

The Company from time to time receives claims from federal and state environmental regulatory agencies and other entities asserting that it is or may be liable for environmental cleanup costs and related damages principally relating to discontinued operations conducted by companies acquired by the Company. In addition, the Company from time to time receives personal injury claims including toxic tort and product liability claims arising from historical operations of the Company and its predecessors.

Antitrust.  In July 2002, judgment was entered in favor of the Company, Blockbuster, Paramount Home Entertainment and other major motion picture studios and their home video subsidiaries with respect to a complaint filed in the United States District Court for the Western District of Texas. The complaint included federal antitrust and California state law claims. In August 2003, the Fifth Circuit Court of Appeals affirmed the federal court judgment. The Supreme Court of the United States refused plaintiffs’ petition for writ of certiorari in March 2004. In February 2003, a similar complaint that had been filed in a Los Angeles County Superior Court was also dismissed with prejudice. The plaintiffs have appealed the California state court dismissal, as well as a prior denial of class certification. As a result of the split-off of Blockbuster in 2004, any judgment in this matter adverse to the Company, Blockbuster and/or Paramount Home Entertainment will be allocated 33.33% to Blockbuster and 66.67% to the Company. The Company believes that the plaintiffs’ positions in these litigations are without merit and intends to continue to vigorously defend itself in the litigations.

Litigation is inherently uncertain and always difficult to predict. However, based on its understanding and evaluation of the relevant facts and circumstances, the Company believes that all of the above-described legal matters and other litigation to which it is a party are not likely, in the aggregate, to have a material adverse effect on its results of operations, financial position or cash flows.

Market Risk

The Company is exposed to market risk related to foreign currency exchange rates and interest rates. The Company uses derivative financial instruments to modify exposure to risks from fluctuations in foreign currency exchange rates and interest rates. In accordance with its policy, the Company does not use derivative instruments unless there is an underlying exposure and therefore, the Company does not hold or enter into financial instruments for speculative trading purposes.

Foreign Exchange Risk

The Company conducts business with companies in various countries outside the United States, resulting in exposure to movements in foreign exchange rates when translating from the foreign local currency to the U.S. dollar. In order to hedge anticipated cash flows and foreign currency balances in such currencies as the British Pound, the Australian Dollar, the Japanese Yen, the Canadian Dollar, the Singapore Dollar and the Euro, foreign currency forward and option contracts are used. Additionally, the Company designates forward contracts used to hedge future production costs as cash flow hedges, and designates certain forward contracts as a hedge of the foreign currency exposure of a net investment in a foreign operation. The change in fair value of the non-designated contracts is included in current period results as part of “Other items, net.” The Company manages the use of foreign exchange derivatives centrally. At December 31, 2004, the notional value of all foreign exchange contracts was $633.0 million, of which $82.9 million related to the hedging of future production costs and $157.2 million related to the hedging of a net investment in a foreign operation. The remaining $392.9 million represents hedges of underlying foreign currency balances, expected foreign currency net cash flows and investment hedges. At December 31, 2003, the notional value of all foreign exchange contracts was $296.9 million, of which $12.0 million related to the hedging of future productions costs. The remaining $284.9 million represented hedges of underlying foreign currency balances, expected foreign currency net cash flows and investment hedges.

II-23

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

Interest Rate Risk

The Company’s interest expense is exposed to movements in short-term rates. Swap agreements may be used to modify this exposure. The Company has entered into fixed to variable rate swaps, which are designated as fair value hedges. Based on the amount of variable rate debt and receivable securitization programs outstanding at December 31, 2004, a 100 basis point change in interest rates would cause a $26.1 million change to pre-tax earnings. As of December 31, 2004, if all parties were to agree, the swaps could have been terminated by a net payment from the counterparties of approximately $23.1 million.

At December 31, 2004, the Company was a party to the following outstanding fair value hedges, which were fully effective.

Interest rate swaps totaling $250 million in notional amount, which mature on June 1, 2005, receive interest at a weighted average rate of approximately 4.54% and pay interest based on three-month LIBOR in advance.

Interest rate swaps totaling $350 million in notional amount, which mature on January 30, 2006, and (i) receive interest on $200 million at a weighted average rate of approximately 2.78% and pay interest based on three-month LIBOR in advance and (ii) receive interest on $150 million at a weighted average rate of approximately 3.57% and pay interest based on six-month LIBOR in arrears.

Interest rate swaps totaling $700 million in notional amount, which mature on May 1, 2007, and (i) receive interest on $400 million at 5.11% and pay interest based on three-month LIBOR in advance and (ii) receive interest on $300 million at a weighted average rate of approximately 5.35% and pay interest based on three-month LIBOR in arrears.

Interest rate swaps totaling $300 million in notional amount, which mature on May 15, 2018, receive interest at a weighted average rate of approximately 4.55% and pay interest based on three-month LIBOR in advance.

At December 31, 2004, the Company did not have any interest rate cash flow hedges outstanding.

Credit Risk

The Company continually monitors its positions with, and credit quality of, the financial institutions which are counterparties to its financial instruments. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the agreements. However, the Company does not anticipate nonperformance by the counterparties.

The Company’s receivables do not represent significant concentrations of credit risk at December 31, 2004, due to the wide variety of customers, markets and geographic areas to which the Company’s products and services are sold.

Related Parties

National Amusements, Inc. (“NAI”) is a closely held corporation that beneficially owned Class A Common Stock of the Company representing approximately 71% of the voting power of all classes of the Company’s Common Stock, and approximately 12% of the Company’s Class A Common Stock and Class B Common Stock on a combined basis at December 31, 2004. Owners of the Company’s Class A Common Stock are entitled to one vote per share. The Company’s Class B Common Stock does not have voting rights. NAI is not subject to the reporting requirements of the Securities Exchange Act of 1934, as amended. Sumner M. Redstone, the controlling shareholder of NAI, is the Chairman of the Board of Directors and Chief Executive Officer of the Company. On October 28, 2004, the Company entered into an agreement (the “NAIRI Agreement”) with NAI and NAIRI, Inc. (“NAIRI”), a wholly-owned subsidiary of NAI, pursuant to which the Company agreed to buy, and NAI and NAIRI agreed to sell, a number of shares of Viacom Class B Common Stock each month such that the ownership percentage of Viacom Class A Common Stock and Class B Common Stock (considered as a single class) held by NAI and/or NAIRI would not increase as a result of purchases of shares of Viacom Common Stock under the Company’s $8.0 billion stock purchase program announced in October 2004. Pursuant to this agreement, Viacom recorded the purchase of 6.3 million shares of Viacom Class B Common Stock from NAIRI for $226.6 million in 2004.

II-24

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

NAI licenses films in the ordinary course of business for its motion picture theaters from all major studios including Paramount Pictures. During the years ended December 31, 2004, 2003 and 2002, NAI made payments to Paramount Pictures in the aggregate amounts of approximately $11.2 million, $9.6 million and $12.3 million, respectively.

NAI and Mr. Redstone owned in the aggregate approximately 75% of the common stock of Midway Games Inc. (“Midway”) as of December 31, 2004. Midway places advertisements on various of the Company’s cable networks from time to time. During the years ended December 31, 2004, 2003 and 2002, transactions with Midway totaled approximately $5.5 million, $1.4 million and $2.0 million, respectively.

The Company owns approximately 17% in Westwood One, Inc. (“Westwood One”) which is treated as an equity investment. Most of Infinity’s radio stations are affiliated with Westwood One, and Westwood One distributes nationally certain of the Company’s radio programming. In connection with these arrangements, the Company receives affiliation fees as well as programming cost reimbursements and in certain instances, shares in revenue from the sale by Westwood One of Infinity’s programming. In addition, certain employees of Infinity serve as officers of Westwood One for which the Company receives a management fee. CBS Television and Cable Networks also enter into programming agreements with Westwood One. Revenues from these arrangements were approximately $86.9 million, $85.5 million and $127.7 million in 2004, 2003 and 2002, respectively.

The Company, through the normal course of business, is involved in transactions with other affiliated companies that have not been material in any of the periods presented.

Recent Pronouncements

In December 2004, the FASB issued SFAS No. 123 (revised 2004) “Share-Based Payment” (“SFAS 123R”), effective the first interim period or annual reporting period that begins after June 15, 2005. SFAS 123R revises SFAS No. 123 “Accounting for Stock-based Compensation” and supersedes APB Opinion No. 25 “Accounting for Stock Issues to Employees.” SFAS 123R requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on grant-date fair value of the award. That cost will be recognized over the vesting period during which an employee is required to provide service in exchange for the award.

On March 8, 2005, the Compensation Committee of the Board of Directors of the Company approved the acceleration of the vesting of unvested stock options having an exercise price of $38.00 or greater granted under the Company’s 2000 and 1997 Long-Term Management Incentive Plans. Stock Option awards granted from 1999 through 2004 with respect to approximately 29 million shares of the Company’s Class B Common Stock are subject to this acceleration which is effective as of March 8, 2005. Since these options had exercise prices in excess of the current market value and were not fully achieving their original objectives of incentive compensation and employee retention, the Company expects the acceleration to have a positive effect on employee morale, retention and perception of option value. The acceleration also eliminates future compensation expense the Company would otherwise recognize in its Consolidated Statements of Operations once SFAS 123R becomes effective on July 1, 2005.

Critical Accounting Policies

Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” (“FRR 60”), suggests companies provide additional disclosure and commentary on those accounting policies considered most critical. FRR 60 considers an accounting policy to be critical if it is important to the Company’s financial condition and results of operations, and requires significant judgment and estimates on the part of management in its application. For a summary of the Company’s significant accounting policies, including the critical accounting policies discussed below, see the accompanying notes to the consolidated financial statements.

II-25

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, which are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions. The following accounting policies require significant management judgments and estimates.

•                  Accounting for the production and distribution of motion pictures and television programming is in accordance with SOP 00-2, which requires management’s judgment as it relates to total revenues to be received and costs to be incurred throughout the life of each program. These judgments are used to determine the amortization of capitalized production costs, expensing of participation and residual cost and any necessary net realizable value adjustments.

•                  The Company accounts for its business acquisitions under the purchase method of accounting. The total cost of acquisitions is allocated to the underlying net assets, based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the tangible net assets acquired is recorded as intangibles. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives, and market multiples, among other items.

•                  In accordance with SFAS 142, the Company tests goodwill and other intangible assets for impairment during the fourth quarter of each year, and on an interim date should factors or indicators become apparent that would require an interim test. A significant downward revision in the present value of estimated future cash flows for a reporting unit or intangible assets could result in an impairment under SFAS 142 and a non-cash charge would be required.

•                  Balance sheet reserves and liabilities related to legal issues, restructuring charges and discontinued businesses, including asbestos and environmental matters, require significant judgments and estimates by management. The Company continually evaluates these estimates based on changes in the relevant facts and circumstances and events that may impact estimates. While management believes that the current reserves for matters related to discontinued businesses, including environmental and asbestos are adequate, there can be no assurance that circumstances will not change in future periods.

•                  Pension benefit obligations and net periodic pension costs are calculated using many actuarial assumptions. Two key assumptions used in accounting for pension liabilities and expenses are the discount rate and expected rate of return on plan assets. The discount rate reflects the rate at which the pension benefit obligations could effectively be settled. The Company used investment grade corporate bond yields to support its discount rate assumption. The expected return on plan assets assumption was derived using the current and expected asset allocation of the pension plan assets and considering historical as well as expected returns on various classes of plan assets. For 2004, the unrecognized actuarial loss for pension increased principally as a result of lowering the discount rate for the Company’s major plans from 6.0% in 2003 to 5.75% in 2004. A decrease in the discount rate or a decrease in the expected rate of return on plan assets would increase pension expense. The estimated impact of a 25 basis point change in the discount rate would be a change of approximately $15 million on 2005 pension expense and will change the projected benefit obligation by approximately $162 million. The estimated impact of a 25 basis point change in the expected rate of return on plan assets is a change of approximately $11 million.

II-26

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

•                  The Company is subject to income taxes in both the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes. The Company is continually audited by U.S. federal and state as well as foreign tax authorities. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, the Company believes that its tax reserves reflect the probable outcome of known contingencies. An estimated effective tax rate for a year is applied to quarterly operating results. In the event there is a significant or unusual item recognized in the quarterly operating results, the tax attributable to that item is separately calculated and recorded in the same quarter. A number of years may elapse before a tax return containing tax matters, for which a reserve has been established, is audited and finally resolved. During 2004, the Company recognized $205.4 million of tax benefits related to the resolution of certain prior year tax audits.

Risk Factors

The risk factors listed below, in addition to those set forth elsewhere in this report, could affect the business and future results of the Company. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.

•                  The Company derives substantial revenues from the sale of advertising on its over-the-air networks, basic cable networks, television stations, radio stations and outdoor businesses. The sale of advertising is affected by viewer demographics, viewer ratings and market conditions for advertising. Adverse changes to any of these factors, including as a result of acts of terrorism or war, could have a negative effect on revenues.

•                  The Company’s basic cable networks and premium subscription television networks are dependent upon affiliation agreements with cable and direct-to-home satellite (“DTH”) distributors on acceptable terms. The loss of carriage on such distributors, or continued carriage on less favorable terms, could adversely affect, with respect to basic cable networks, revenues from subscriber fees and the ability to sell advertising and, with respect to premium subscription television networks, subscriber fee revenues. In addition, continued consolidation among cable programming and/or DTH distributors and vertical integration of such distributors into the cable or broadcast network business, could have an adverse effect on subscriber fees and advertising revenues, as the Company’s ability to launch new networks or maintain or obtain additional distribution for existing networks is impacted by these factors.

•                  Operating results derived from the Company’s motion picture and television production businesses fluctuate depending primarily upon cost of such productions and acceptance of such productions by the public, which are difficult to predict. Motion picture and television production has experienced cycles in which increased costs of talent, reduced availability of co-financing opportunities, and other factors have resulted in higher production costs. In addition, the commercial success of the Company’s motion picture and television productions depends upon the quality and acceptance of other competing productions, and the availability of alternative forms of entertainment and leisure time activities.

•                  The Company’s operating results fluctuate due to the timing and availability of theatrical and home video releases, as well as the recording of license fees for television exhibition of motion pictures and for syndication and basic cable exhibition of television programming in the period that the products are available for such exhibition.

•                  In accordance with SFAS 142, the Company tests goodwill and other intangible assets for impairment during the fourth quarter of each year, and on an interim date should factors or indicators become apparent that would require an interim test. A downward revision in the fair value of a reporting unit or intangible assets could result in an impairment under SFAS 142 and a non-cash charge would be required. Such a charge could have a significant effect on the Company’s reported net earnings.

II-27

Management’s Discussion and Analysis of

Results of Operations and Financial Condition

•                  While the Company seeks to ensure compliance with FCC indecency laws and regulations, the definition of “indecency” is subject to interpretation and there can be no assurance that employees of the Company will not make decisions resulting in the broadcast of programming that is viewed by regulators or the public as not meeting such standards. Such programming could subject the Company to regulatory review or investigation, fines, adverse publicity or other sanctions including the loss of station licenses.

•                  Technology developments, including digital copying and file compression, and the growing penetration of high-bandwidth Internet connections, increase the threat of content piracy by making it easier to duplicate and widely distribute pirated material. The Company takes actions to vigorously enforce its rights and protect its copyrighted materials and products, however there can be no assurance that it will be successful in preventing the distribution of pirated content. Increased piracy of the Company’s copyrighted materials could negatively affect its operations and financial results.

•                  Newer technologies, including video on demand, personal video recorders and other devices that allow users to view television or motion pictures from a remote location or on a time-delayed basis, and technologies which implement the ability for users to fast-forward, rewind, pause and skip programming may cause changes in consumer behavior that could affect the attractiveness of the Company’s offerings to viewers, advertisers and/or distributors and could therefore have an adverse effect on the Company’s businesses, particularly its television business.

•                  The Company has contingent liabilities related to discontinued businesses, including environmental liabilities, liabilities related to illnesses of former employees, asbestos liabilities and other pending and threatened litigation. While the pending or threatened litigations and environmental and other liabilities should not have a material adverse effect on the Company, there can be no assurance in this regard.

•                  In the operation of its businesses, the Company engages the services of writers, directors, actors and others, which are subject to collective bargaining agreements. Work stoppages and/or higher costs in connection with these agreements could adversely impact the Company’s operations.

•                  Changes in laws and regulations, including in particular FCC ownership rules and rules related to the carriage of broadcast and multichannel distribution programming, could, directly or indirectly, adversely affect the operations and ownership of the Company’s properties.

•                  The Company’s advertiser-supported businesses experience fluctuations based on the timing of advertising expenditures by retailers, which typically increase in the fourth quarter.

•                  NAI, through its beneficial ownership of the Company’s Class A common stock, has voting control of the Company. Sumner M. Redstone, the controlling shareholder of NAI, is the chairman of the board and chief executive officer of the Company, and Shari Redstone, president of NAI, is a director of the Company. NAI is in a position to control the outcome of corporate actions that require shareholder approval, including the election of directors, issuance of securities and transactions involving a change of control.

•                  On June 1, 2004, the Company announced the appointment of Tom Freston and Leslie Moonves as co-presidents and co-chief operating officers. Until that time, Mr. Freston was the chairman and chief executive officer of MTV Networks and Mr. Moonves was the chairman and chief executive officer of CBS. Until this recent management change, the Company had a sole president and chief operating officer. The Company does not have experience with a co-president and co-chief operating officer management structure and there can be no assurance that this new management structure will be successful.

These risk factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed by the Company. Other unknown or unpredictable economic, business, competitive, regulatory or other factors also could have material adverse effects on the Company’s future results.

II-28

Management’s Discussion and Analysis of

Results of Operations and Financial Condition