<PAGE>
 
                          UNITED STATESUNITED STATES

                      SECURITIES AND EXCHANGE COMMISSION

                           WASHINGTON, D. C.  20549

                                 FORM 10-Q


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
     SECURITIES EXCHANGE ACT OF 1934 
     For the quarterly period ended September 30, 1998

                                       OR

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934
     For the transition period from _____ to _____


Commission File Number:  0-21317


                       TCI SATELLITE ENTERTAINMENT, INC.
                       ---------------------------------
            (Exact name of Registrant as specified in its charter)

 
     State of Delaware                                   84-1299995
-------------------------------              ----------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)
 
 
   8085 South Chester, Suite 300
         Englewood, Colorado                                 80112
---------------------------------------                    ---------
(Address of principal executive offices)                   (Zip Code)
 

      Registrant's telephone number, including area code: (303) 712-4600


     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days [X]  Yes  [_] No

     The number of shares outstanding of TCI Satellite Entertainment, Inc.'s
common stock as of October 30, 1998, was:

                 Series A common stock -59,280,466 shares; and
                   Series B common stock -8,465,324 shares.
<PAGE>
 
              TCI STATELLITE ENTERTAINMENT, INC, AND SUBSIDIARIES


                          Consolidated Balance Sheets
                                  (unaudited)


<TABLE>
<CAPTION>
                                                                            September 30,              December 31,            
                                                                               1998                       1997                 
                                                                            ------------               -----------             
                                                                                     amounts in thousands                      
Assets                                                                                                                         
------                                                                                                                         
<S>                                                                         <C>                        <C>                     
Cash and cash equivalents                                                   $      --                      6,084               
                                                                                                                               
Accounts receivable, net of allowance for doubtful accounts                        --                     35,079               
                                                                                   
                                                                                                                               
Investment in PRIMESTAR, Inc. (notes 2 and 8)                                 299,180                         --               
                                                                                                                               
Property and equipment, at cost:                                                                                               
  Satellites (note 9)                                                         463,133                    463,133               
  Satellite reception equipment                                                    --                    674,387               
  Subscriber installation costs                                                    --                    227,131               
  Support equipment                                                                --                     34,389               
                                                                            ---------                  ---------               
                                                                              463,133                  1,399,040               
  Less accumulated depreciation                                                    --                    277,103               
                                                                            ---------                  ---------               
                                                                              463,133                  1,121,937               
                                                                            ---------                  ---------               
                                                                                                                               
Deferred financing costs and other assets,                                                                                     
  net of accumulated amortization                                                  --                     41,756               
                                                                            ---------                  ---------               
                                                                            $ 762,313                  1,204,856               
                                                                            =========                  =========               
                                                                                                                               
Liabilities and Stockholders' Equity                                                                                           
------------------------------------                                                                                           
                                                                                                                               
Accounts payable and accrued expenses                                       $      --                    157,050               
Subscriber advance payments                                                        --                     29,675               
Due to PRIMESTAR, Inc. (note 9)                                               463,133                    463,133               
Debt                                                                               --                    418,729               
                                                                            ---------                  ---------               
                                                                                                                               
          Total liabilities                                                   463,133                  1,068,587               
                                                                            ---------                  ---------               
                                                                                                                               
Stockholders' Equity:                                                                                                          
  Preferred stock, $.01 par value;                                                                                             
   authorized 5,000,000 shares; none issued                                        --                         --               
  Series A common stock, $1 par value; authorized 185,000,000                                                                  
   shares; issued 59,280,466 in 1998, and 58,239,136 in 1997                   59,280                     58,239               
  Series B common stock, $1 par value; authorized 10,000,000                                                                   
   shares; issued 8,465,324 in 1998 and 1997                                    8,465                      8,465               
  Additional paid-in capital                                                  824,527                    523,685               
  Accumulated deficit                                                        (593,092)                  (454,120)              
                                                                            ---------                  ---------               
                                                                                                                               
          Total stockholders' equity                                          299,180                    136,269               
                                                                            ---------                  ---------               
                                                                                                                               
                                                                            $ 762,313                  1,204,856               
                                                                            =========                  =========                
</TABLE>


         See accompanying notes to consolidated financial statements.

                                      I-1
<PAGE>
 
              TCI STATELLITE ENTERTAINMENT, INC, AND SUBSIDIARIES

                     Consolidated Statements of Operations
                                  (unaudited)


<TABLE>
<CAPTION>
                                                            Three months ended                   Nine months ended
                                                              September 30,                        September 30,
                                                   ------------------------------------  ---------------------------------
                                                            1998               1997             1998              1997
                                                   ------------------  ----------------  ---------------  ----------------
<S>                                                <C>                 <C>               <C>              <C>
                                                                           amounts in thousands,
                                                                          except per share amounts
Revenue:
 Programming and equipment
    rental                                               $        --           133,952          154,257           374,182
 Installation                                                     --            11,475           14,243            31,890
                                                            --------           -------         --------          --------
                                                                  --           145,427          168,500           406,072
                                                            --------           -------         --------          --------
Operating costs and expenses:
 Charges from PRIMESTAR
   Partners L.P. (note 10)                                        --            65,880           82,235           188,249
 Operating (note 10)                                              --             7,920            9,847            18,992
 Selling, general and administrative (note 10)                    43            47,784           55,427           139,557
 Stock compensation (note 10)                                     --             3,055            4,869             4,607
 Depreciation                                                     --            64,149           65,105           177,415
                                                            --------           -------         --------          --------
                                                                  43           188,788          217,483           528,820
                                                            --------           -------         --------          --------
 
  Operating loss                                                 (43)          (43,361)         (48,983)         (122,748)
 
Other income (expense):
 Interest expense                                                 --           (12,557)         (14,177)          (33,965)
 Share of losses of PRIMESTAR, Inc. (note 8)                 (36,833)               --          (69,369)               --

 Share of losses of PRIMESTAR Partners L.P.                       --            (3,681)          (5,822)          (11,610)
                                                                  
 Other, net                                                       --               645             (621)            1,779
                                                            --------           -------         --------          --------
                                                             (36,833)          (15,593)         (89,989)          (43,796)
                                                            --------           -------         --------          --------
 
  Loss before income taxes                                   (36,876)          (58,954)        (138,972)         (166,544)
 
Income tax benefit (note 11)                                      --                --               --                --
                                                            --------           -------         --------          --------

  Net loss                                                  $(36,876)          (58,954)        (138,972)         (166,544)
                                                            ========           =======         ========          ========

Basic and diluted loss per common share (note 6)            $   (.54)             (.88)           (2.05)            (2.50)
                                                            ========            ======         ========          ========
                                                            
  </TABLE>

         See accompanying notes to consolidated financial statements.
  
                                      I-2
<PAGE>
 
              TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES

                Consolidated Statement of Stockholders' Equity

                     Nine months ended September 30, 1998
                                  (unaudited)


<TABLE>
<CAPTION>
                                                                                 Additional                     Total
                                                             Common stock          paid-in     Accumulated   stockholders'
                                                        -----------------------
                                                          Series A    Series B    capital        deficit       equity
                                                        ------------  --------  ------------  --------------  ---------
                                                                                     amounts in thousands

<S>                                                     <C>           <C>       <C>           <C>             <C>
Balance at January 1, 1998                                   $58,239     8,465      523,685        (454,120)   136,269
 
   Net loss                                                       --        --           --        (138,972)  (138,972)
   Recognition of stock compensation related to stock
    options and restricted stock awards (note 10)                 --        --        1,846              --      1,846    
   Issuance of Series A Common Stock related to
    restricted stock awards                                       50        --          (50)             --         --
   Issuance of Series A Common Stock upon conversion of
    convertible securities of Tele-Communications, Inc.
    (note 4)                                                     991        --           --              --        991
   Issuance of common stock by         
    subsidiary (note 2)                                           --        --      299,046              --    299,046
                                                             -------  --------      -------        --------   -------- 
Balance at September 30, 1998                                $59,280     8,465      824,527        (593,092)   299,180
                                                             =======  ========      =======        ========   ========
</TABLE>

See accompanying notes to consolidated  financial statements.

                                      I-3
<PAGE>
 
              TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES

                     Consolidated Statements of Cash Flows
                                  (unaudited)


<TABLE>
<CAPTION>
                                                                               Nine months ended
                                                                                 September 30,
                                                                   ------------------------------------------
                                                                           1998                  1997
                                                                   --------------------  --------------------
                                                                             amounts in thousands
                                                                                 (see note (7)
<S>                                                                <C>                   <C>
Cash flows from operating activities:
 Net loss                                                                    $(138,972)             (166,544)
 Adjustments to reconcile net loss to
  net cash provided by operating activities:
    Depreciation                                                                65,105               177,415
    Share of losses of PRIMESTAR, Inc.                                          69,369                    --
    Share of losses of PRIMESTAR Partners L.P.                                   5,822                11,610
    Accretion of debt discount                                                   4,682                11,573
    Stock compensation                                                           4,869                 4,607
    Other non-cash items                                                         8,042                 4,158
    Changes in operating assets and liabilities, net of
     the effect of Restructuring:
        Change in receivables                                                   10,845                  (529)
        Change in other assets                                                    (736)                 (457)
        Change in accruals and payables                                        (10,209)               28,131
        Change in subscriber advance payments                                   (3,114)                4,751
                                                                             ---------              --------
 
          Net cash provided by operating activities                             15,703                74,715
                                                                             ---------              --------
 
Cash flows from investing activities:
 Capital expended for property and equipment                                   (73,966)             (151,062)
 Capital expended for satellites                                                    --                (5,448)
 Additional investments in and advances to
   PRIMESTAR Partners L.P.                                                         (75)               (7,060)
 Repayment of advances to PRIMESTAR Partners
   L.P.                                                                             --                 7,806
                                                                             ---------              --------
          Net cash used in investing activities                                (74,041)             (155,764)
                                                                             ---------              --------
Cash flows from financing activities:
 Borrowings of debt                                                            113,000               405,061
 Repayments of debt                                                            (61,735)             (299,461)
 Payment of deferred financing costs                                                --               (17,749)
 Increase in due to PRIMESTAR Partners L.P.                                         --                 5,448
 Proceeds from issuance of common stock                                            989                   469
                                                                             ---------              --------
          Net cash provided by financing activities                             52,254                93,768
                                                                             ---------              --------
          Net increase (decrease) in cash and cash
           equivalents                                                          (6,084)               12,719

         Cash and cash equivalents:
           Beginning of period                                                   6,084                 6,560
                                                                             ---------              --------
           End of period                                                     $      --                19,279
                                                                             =========              ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      I-4
<PAGE>
 
              TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                              September 30, 1998
                                  (unaudited)


(1)  Basis of Presentation
     ---------------------

     The accompanying consolidated financial statements include the accounts of
     TCI Satellite Entertainment, Inc. and those of all majority-owned
     subsidiaries ("TSAT" or the "Company").  All significant inter-company
     transactions have been eliminated.

     The accompanying interim consolidated financial statements of TSAT are
     unaudited.  In the opinion of management, all adjustments (consisting only
     of normal recurring accruals) have been made which are necessary to present
     fairly the financial position of TSAT as of September 30, 1998 and the
     results of its operations for the periods ended September 30, 1998 and
     1997.  The results of operations for any interim period are not necessarily
     indicative of the results for the entire year.  These financial statements
     should be read in conjunction with the financial statements and related
     notes thereto included in TSAT's December 31, 1997 Annual Report on Form
     10-K.

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the reported amounts of assets and liabilities at
     the date of the financial statements and the reported amounts of revenue
     and expenses during the reporting period.  Actual results could differ from
     those estimates.

     Certain amounts have been reclassified for comparability with the 1998
     presentation.

(2)  The Roll-up Plan
     ----------------

     On March 6, 1998, the TSAT stockholders voted to approve a proposal to
     adopt the provisions of certain agreements and the transactions
     contemplated thereby, collectively, referred to herein as the "Roll-up
     Plan."  The Roll-up Plan is a two-step transaction, comprising the
     Restructuring and the proposed TSAT Merger, as described below.

                                                                     (continued)

                                      I-5
<PAGE>
 
              TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements


     Restructuring

     Effective April 1, 1998 (the "Closing Date") and pursuant to (i) a Merger
     and Contribution Agreement dated as of February 6, 1998, (the
     "Restructuring Agreement"), among TSAT, PRIMESTAR, Inc., prior to the
     Restructuring a wholly-owned subsidiary of TSAT ("PRIMESTAR"), Time Warner
     Entertainment Company, L.P. ("TWE"), Advance/Newhouse Partnership
     ("Newhouse"), Comcast Corporation ("Comcast"), Cox Communications, Inc.
     ("Cox"), MediaOne of Delaware, Inc., ("MediaOne"), US WEST Media Group,
     Inc. and GE American Communications, Inc., and (ii) an Asset Transfer
     Agreement dated as of February 6, 1998, (the "TSAT Asset Transfer
     Agreement") between TSAT and PRIMESTAR, a business combination (the
     "Restructuring") was consummated.  In connection with the Restructuring,
     TSAT contributed and transferred to PRIMESTAR (the "TSAT Asset Transfer")
     all of TSAT's assets and liabilities except (i) the capital stock of TSAT's
     wholly-owned subsidiary, Tempo Satellite, Inc. ("Tempo"), (ii) the
     consideration to be received by TSAT in the Restructuring and (iii) the
     rights and obligations of TSAT under certain agreements with PRIMESTAR and
     others.  In addition, the business of PRIMESTAR Partners L.P. ("PRIMESTAR
     Partners") and the business of distributing the PRIMESTAR(R) programming
     service ("PRIMESTAR(R)") of each of TWE, Newhouse, Comcast, Cox and
     affiliates of MediaOne was consolidated into PRIMESTAR.

     In connection with the TSAT Asset Transfer, PRIMESTAR assumed all of TSAT's
     indebtedness on such date, and TSAT received from PRIMESTAR such number of
     shares of Class A Common Stock of PRIMESTAR ("PRIMESTAR Class A Common
     Stock") and Class B Common Stock of PRIMESTAR ("PRIMESTAR Class B Common
     Stock" and together with the PRIMESTAR Class A Common Stock, "PRIMESTAR
     Common Stock"), respectively, as equals the number of shares of Series A
     Common Stock of TSAT ("Series A Common Stock") and Series B Common Stock of
     TSAT ("Series B Common Stock"), respectively, issued and outstanding on the
     Closing Date, in accordance with the Restructuring Agreement and the TSAT
     Asset Transfer Agreement.  In addition, TSAT received one share of
     PRIMESTAR Class A Common Stock for each share of Series A Common Stock
     issuable at the Closing Date ("Issuable TSAT Shares") pursuant to certain
     TSAT stock options, restricted stock awards and other arrangements.  TSAT
     received 66.3 million shares of PRIMESTAR Class A Common Stock and 8.5
     million shares of PRIMESTAR Class B Common Stock, and as a result, owns
     approximately 37% of the outstanding shares of common equity of PRIMESTAR
     at the closing of the Restructuring, representing approximately 38% of the
     combined voting power of such common equity.  As a result of the dilution
     of TSAT's investment in PRIMESTAR from 100% to approximately 37%, TSAT
     recognized an increase in its investment in PRIMESTAR and an increase in
     additional paid-in capital of $299,046,000, net of income taxes.  Such
     increase represents the difference between TSAT's historical investment
     basis in PRIMESTAR and TSAT's proportionate share of PRIMESTAR's equity
     subsequent to the Restructuring.

     As a result of the TSAT Asset Transfer, TSAT is a holding company, with no
     substantial assets or liabilities other than (i) 100% of the outstanding
     capital stock of Tempo, (ii) its ownership interest in PRIMESTAR, and (iii)
     its rights and obligations under certain agreements with PRIMESTAR and
     others.

                                                                     (continued)

                                      I-6
<PAGE>
 
              TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements


     TSAT Merger

     Pursuant to an Agreement and Plan of Merger dated as of February 6, 1998
     (the "TSAT Merger Agreement"), between TSAT and PRIMESTAR, it is
     contemplated that TSAT will be merged with and into PRIMESTAR, with
     PRIMESTAR as the surviving corporation (the "TSAT Merger").  In connection
     therewith (i) each outstanding share of Series A Common Stock will be
     converted into the right to receive one share of PRIMESTAR Class A Common
     Stock, and (ii) each outstanding share of Series B Common Stock will be
     converted into the right to receive one share of PRIMESTAR Class B Common
     Stock, subject to adjustment.  Each share of PRIMESTAR Common Stock then
     held by TSAT will be canceled.  The number of shares of PRIMESTAR Common
     Stock issued to TSAT shareholders will be less than the number of shares of
     PRIMESTAR Common Stock owned by TSAT prior to the TSAT Merger to the extent
     Issuable TSAT Shares are not issued and outstanding at the time of the TSAT
     Merger.  However, PRIMESTAR shall assume all obligations of TSAT in respect
     of the Issuable TSAT Shares.

     Consummation of the TSAT Merger is subject to regulatory approval and other
     conditions to closing set forth in the TSAT Merger Agreement.  Accordingly,
     there can be no assurance that the  TSAT Merger will be consummated.


(3)  The ASkyB Transaction
     ---------------------

     In a separate proposed transaction (the "ASkyB Transaction"), pursuant to
     an asset acquisition agreement, dated as of June 11, 1997 (the "ASkyB
     Agreement") among PRIMESTAR Partners, The News Corporation Limited ("News
     Corp."), MCI Telecommunications Corporation, the principal domestic
     operating subsidiary of MCI Communications Corporation ("MCI"), American
     Sky Broadcasting LLC, a wholly-owned subsidiary of News Corp. ("ASkyB") and
     for certain purposes only, each of the partners of PRIMESTAR Partners
     (collectively, the "Partners"), PRIMESTAR had agreed to acquire from MCI
     two high-power communications satellites currently under construction,
     certain authorizations granted to MCI by the Federal Communications
     Commission ("FCC") to operate a direct broadcast satellite business at the
     110 West Longitude ("W.L.") orbital location using 28 transponder channels,
     and certain related contracts in exchange for approximately $1.1 billion of
     PRIMESTAR convertible securities.

     On May 12, 1998, the U.S. Department of Justice ("DOJ") filed a civil
     antitrust action opposing the ASkyB Transaction (the "DOJ Action").  The
     DOJ Action sought to prevent PRIMESTAR from acquiring the direct broadcast
     satellite assets of News Corp. and MCI or, in the alternative, to allow
     such acquisition to go forward and require PRIMESTAR's stockholders
     affiliated with the cable industry to divest their ownership interests in
     PRIMESTAR.  The Federal District Court had set a trial date for February 1,
     1999.

     On October 15, 1998, PRIMESTAR announced that it and ASkyB had agreed to
     terminate the ASkyB Agreement.  News Corp., PRIMESTAR and PRIMESTAR's
     stockholder defendants, including TSAT, have notified the DOJ of their
     intention to abandon the ASkyB Transaction. On November 6, 1998, the DOJ
     and all defendants filed a Stipulated Voluntary Dismissal Without
     Prejudice, which when entered by the district court, will terminate the DOJ
     Action.

                                                                     (continued)

                                      I-7
<PAGE>
 
              TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements


(4)  TSAT Spin-off Transaction
     -------------------------

     General

     On December 4, 1996 (the "Spin-off Date"), Tele-Communications, Inc.
     ("TCI") distributed (the "Spin-off") all the capital stock of the Company
     to the holders of Tele-Communications, Inc. Series A TCI Group Common Stock
     (the "Series A TCI Group Stock") and Tele-Communications, Inc. Series B TCI
     Group Common Stock (the "Series B TCI Group Stock" and together with the
     Series A TCI Group Stock, the "TCI Group Stock").  The Spin-off did not
     involve the payment of any consideration by the holders of TCI Group Stock
     (such holders, the "TCI Group Stockholders"), and was intended to qualify
     as a tax-free spin-off.  TCI Group Stockholders received one share of
     Series A Common Stock for each ten shares of Series A TCI Group Stock owned
     and one share of Series B Common Stock for each ten shares of Series B TCI
     Group Stock owned.

     Since the Spin-off, TSAT and TCI have operated independently.  For purposes
     of governing certain of the ongoing relationships between TSAT and TCI
     after the Spin-off, and to provide mechanisms for an orderly transition,
     TSAT and TCI entered into various agreements, including the "Reorganization
     Agreement" (see below), the "Fulfillment Agreement" (see note 10), the
     "Transition Services Agreement" (see note 10), and an amendment to TCI's
     then existing "Tax Sharing Agreement (see note 11).

     Reorganization Agreement

     Pursuant to the Reorganization Agreement, among other items, TSAT assumed
     TCI's obligations under options granted on the Spin-off Date to certain key
     employees of TCI (who are not employees of TSAT) representing, in the
     aggregate, 1,660,190 shares of Series A Common Stock; and TSAT granted to
     TCI an option to purchase up to 4,765,000 shares of Series A Common Stock,
     at an exercise price of $1.00 per share, as required by TCI from time to
     time to meet its obligations under the conversion features of certain
     convertible securities of TCI as such conversion features were adjusted as
     a result of the Spin-off.

(5)  Comprehensive Income
     --------------------

     In June 1997, the Financial Accounting Standards Board issued Statement of
     Financial Accounting Standards No. 130, Reporting Comprehensive Income,
     ("SFAS No. 130") which establishes standards for reporting and disclosure
     of comprehensive income and its components (revenue, expenses, gains and
     losses).  SFAS No. 130 is effective for fiscal years beginning after
     December 15, 1997 and requires reclassification of financial statements for
     earlier periods to be provided for comparative purposes.  The Company's
     total comprehensive loss for all periods presented herein did not differ
     from those amounts reported as net loss in the consolidated statements of
     operations.

                                                                     (continued)

                                      I-8
<PAGE>
 
              TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

(6)  Loss Per Common Share
     ---------------------

     The basic and diluted loss per common share is based on the weighted
     average number of shares outstanding during the period (67,746,000 and
     66,676,000 shares for the three months ended September 30, 1998 and 1997,
     respectively; and 67,708,000 and 66,642,000 shares for the nine months
     ended September 30, 1998 and 1997, respectively).  Excluded from the
     computation of diluted loss per common share for the nine months ended
     September 30, 1998 and 1997 are options and convertible securities to
     acquire 6,799,000 and 7,860,000 shares of Series A Common Stock,
     respectively, because inclusion of such options would be anti-dilutive.

(7)  Supplemental Disclosures to Combined Statements of Cash Flows
     -------------------------------------------------------------

     Cash paid for interest was $13,844,000 and $17,837,000 during the nine
     months ended September 30, 1998 and 1997, respectively.  Cash paid for
     income taxes was not significant during either of such periods.

<TABLE>
<CAPTION>
                                                                           September 30,
                                                                  ------------------------------------
                                                                        1998                 1997
                                                                  ---------------      ---------------
                                                                         amounts in thousands
     <S>                                                          <C>                  <C> 
     Significant non-cash investing activity-
      increase in equity due to issuance of   
      common stock by subsidiary                                  $       299,046                   --
                                                                  ===============      =============== 
</TABLE>

(7)  Investment in PRIMESTAR
     -----------------------

     Summarized unaudited operating information for PRIMESTAR for the nine
     months ended September 30, 1998 is as follows (amounts in thousands):

<TABLE>
<CAPTION>
     Results of Operations
     ---------------------
     <S>                                                                             <C>
      Revenue                                                                        $ 911,372
      Operating, selling, general and
       administrative expenses                                                        (806,371)
      Depreciation and amortization                                                   (365,473)
                                                                                     ---------
 
       Operating loss                                                                 (260,472)
 
      Other expense, net                                                              (111,088)
                                                                                     ---------
 
       Loss before income taxes                                                       (371,560)
 
      Income tax benefit                                                               115,718
                                                                                     ---------

        Net loss                                                                     $(255,842)
                                                                                     =========
 
</TABLE>

                                                                     (continued)

                                      I-9
<PAGE>
 
              TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements


(9)  Satellites
     ----------

     Tempo DBS System

     TSAT, through Tempo, holds a permit (the "FCC Permit") issued by the
     FCC authorizing construction of a high-power direct broadcast satellite
     ("DBS") system consisting of up to two satellites delivering DBS service in
     11 frequencies at the 119 W.L. orbital position.

     Tempo is also a party to a construction agreement (the "Satellite
     Construction Agreement") with Space Systems/Loral, Inc. ("Loral"), pursuant
     to which Tempo has arranged for the construction of two high power
     communications satellites (the "Tempo Satellites") at a fixed contract
     price of $487,159,500, and has an option to purchase up to three additional
     satellites.

     One of the Tempo Satellites ("Tempo DBS-1") was launched into
     geosynchronous orbit on March 8, 1997. During 1997, Loral notified TSAT of
     at least nine separate occurrences of power reductions on Tempo DBS-1. TSAT
     does not currently know the extent of such power reductions, and cannot
     confirm the precise causes thereof; however, such reductions could
     eventually affect the proposed operation of Tempo DBS-1, either alone or
     together with other events that may arise during the expected life of the
     satellite. As a result of such power reductions, in-orbit testing has been
     extended and Tempo DBS-1 has not yet been accepted. Pursuant to the
     Satellite Construction Agreement, Loral bears the risk of loss of the Tempo
     Satellites until Tempo accepts delivery of the Tempo Satellites. TSAT
     currently believes that Tempo DBS-1 may not fully comply with
     specifications, but has not yet determined the extent of any such non-
     compliance. Tempo and Loral are currently engaged in negotiations regarding
     this matter, including the timing, extent and methodology of any further
     tests to be conducted and the terms of any monetary settlement with respect
     to the satellite to which Tempo may be entitled under the Satellite
     Construction Agreement. Certain launch defects or damages affecting Tempo
     DBS-1 could cause a substantial monetary loss to TSAT or, following
     consummation of the TSAT Merger, to PRIMESTAR.

     Under the FCC Permit, the time by which the Tempo Satellites must be
     operational was due to expire in May 1998.  On April 3, 1998, Tempo filed a
     request with the FCC for an extension of that deadline pending FCC review
     of (i) TSAT's request for consent to the transfer of control of Tempo to
     PRIMESTAR (the "Transfer Application") and (ii) PRIMESTAR Partners'
     application for consent to the assignment to PRIMESTAR of the high power
     DBS authorizations and certain assets owned by MCI (the "Assignment
     Application") should the FCC determine that an extension is necessary for
     Tempo to maintain its FCC authorizations at 119 degrees W.L. and 166 
     degrees W.L.

                                                                     (continued)

                                     I-10
<PAGE>
 
              TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements


     On April 30, 1998, the FCC determined that Tempo's satellite at 119 degrees
     W.L. was not operational. It did find, however, that an extension of time
     was warranted for that orbital location and granted an extension to Tempo
     for 119 W.L. Such extension was granted until six months after the FCC
     determination on the Transfer Application and the Assignment Application,
     with the condition that Tempo not enter into a lease agreement with
     PRIMESTAR or any similar lease arrangement prior to the FCC's decision on
     the Transfer Application and the Assignment Application. In addition, Tempo
     voluntarily surrendered its permit for 166 degrees W.L.

     Upon delivery of each of the Tempo Satellites, PRIMESTAR, on behalf of
     Tempo, is obligated to make a $10 million incentive payment to Loral.
     PRIMESTAR is eligible to receive a pro rata warranty payback of each such
     incentive payment to the extent that transponder failures occur during the
     twelve-year period following delivery.  Satellite incentive payments and
     any related warranty paybacks are treated as adjustments of the cost of the
     applicable Tempo Satellite.

     Tempo Option

     In February 1990, Tempo entered into an option agreement with PRIMESTAR
     Partners granting PRIMESTAR Partners the right and option (the "Tempo
     Option"), upon exercise, to purchase or lease 100% of the capacity of the
     DBS system to be built, launched and operated by Tempo pursuant to the FCC
     Permit with the purchase price (or aggregate lease payments) being
     sufficient to cover the costs of constructing, launching and operating such
     DBS system. In connection with the Tempo Option and certain related
     matters, Tempo and PRIMESTAR Partners subsequently entered into two letter
     agreements (the "Tempo Letter Agreements"), which provided for, among other
     things, the funding by PRIMESTAR Partners of milestone and other payments
     due under the Satellite Construction Agreement, and certain related costs,
     through advances by PRIMESTAR Partners to Tempo. The aggregate funding
     provided to Tempo by PRIMESTAR Partners ($463,133,000 at September 30,
     1998) is reflected in due to PRIMESTAR, Inc. in the accompanying
     consolidated balance sheets.

     On February 7, 1997, the Partners Committee of PRIMESTAR Partners adopted a
     resolution (i) affirming that PRIMESTAR Partners had unconditionally
     exercised the Tempo Option, (ii) approving the proposed launch of Tempo 
     DBS-1 into the 119 degrees W.L. orbital position and the use of the second
     Tempo Satellite as a spare or back-up for Tempo DBS-1, pending other
     deployment or disposition as determined by PRIMESTAR Partners, and (iii)
     authorizing the payment by PRIMESTAR Partners to Tempo of a $1,000,000
     exercise fee (the "Exercise Fee") and other amounts in connection with the
     Tempo Option and the Tempo Letter Agreements, including funding of
     substantially all construction and related costs relating to the Tempo
     Satellites not previously funded by PRIMESTAR Partners.

                                                                     (continued)

                                     I-11
<PAGE>
 
              TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements


     The Tempo Letter Agreements permit PRIMESTAR to apply its advances to Tempo
     against any payments (other than the Exercise Fee) due under the Tempo
     Option with respect to its purchase or lease of satellite capacity.
     Although TSAT and PRIMESTAR have not entered into an agreement with respect
     to the purchase or lease of 100% of the capacity of the proposed Tempo DBS
     system pursuant to the Tempo Option, TSAT believes that its obligations to
     PRIMESTAR with respect to such advances will be satisfied in connection
     with the completion of such purchase or lease.  However, if notwithstanding
     the exercise of the Tempo Option such purchase or lease of satellite
     capacity is not completed, TSAT believes that alternative courses of action
     are available that would allow TSAT to recover its costs of constructing
     the Tempo Satellites.

(10) Transactions with Related Parties
     ---------------------------------

     Pursuant to the terms of the TSAT Merger Agreement, PRIMESTAR reimburses
     TSAT for all reasonable costs and expenses incurred by TSAT (i) to comply
     with its tax and financial reporting obligations, (ii) to maintain certain
     insurance coverage and (iii) to maintain its status as a publicly traded
     company.  During the nine months ended September 30, 1998, such
     reimbursements aggregated $86,000.  The effects of such reimbursements have
     been reflected as a reduction of TSAT's investment in PRIMESTAR.

     Certain former employees of TSAT, who are now employees of PRIMESTAR, hold
     stock options, stock options with tandem stock appreciation rights, and
     restricted shares of TSAT (collectively, the "TSAT Options").  Subsequent
     to the Restructuring, compensation expense related to the TSAT Options
     aggregated $791,000 and has been reflected as an increase in TSAT's
     investment in PRIMESTAR in the accompanying consolidated financial
     statements.

     Prior to the Restructuring, PRIMESTAR Partners programming services to the
     Company and other authorized distributors in exchange for a fee based upon
     the number of subscribers receiving programming services.  In addition,
     PRIMESTAR Partners arranged for satellite capacity and uplink services, and
     provided national marketing  and administrative support services in
     exchange for a separate authorization fee.

     During 1997, TCI provided certain installation, maintenance, retrieval and
     other customer fulfillment services to TSAT pursuant to a fulfillment
     agreement (as amended, the "Fulfillment Agreement").  During the nine
     months ended September 30, 1997, TSAT's capitalized installation costs
     included amounts charged by TCI to TSAT of $43,762,000.  Maintenance,
     retrieval and other operating expenses charged by TCI to TSAT aggregated
     $7,216,000 during the nine months ended September 30, 1997.  The
     Fulfillment Agreement terminated on December 31, 1997.

                                                                     (continued)

                                     I-12
<PAGE>
 
              TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements


     TCI also provided corporate administrative services to TSAT pursuant to a
     transition services agreement (the "Transition Services Agreement").
     Pursuant to the Transition Services Agreement, TSAT was required to pay TCI
     a monthly fee of $1.50 per qualified subscriber up to a maximum of
     $3,000,000 per month, and to reimburse TCI quarterly for direct, out-of-
     pocket expenses incurred by TCI to third parties in providing the services.
     Charges under the Transition Services Agreement aggregated $3,174,000 and
     $8,611,000 during the nine months ended September 30, 1998 and 1997,
     respectively.  The Transition Services Agreement was terminated in
     connection with the consummation of the Restructuring.

     Beginning in March 1997, and through the Closing Date, TCI provided TSAT
     with customer support services from its Boise, Idaho call center.  Amounts
     charged by TCI to TSAT for such services aggregated $5,026,000 and
     $5,939,000 during the nine months ended September 30, 1998 and 1997,
     respectively.

     Prior to the Restructuring, certain key employees of TSAT held stock
     options in tandem with stock appreciation rights with respect to certain
     common stock of TCI.  Estimates of the compensation related to the options
     and/or stock appreciation rights granted to employees of TSAT have been
     recorded in the accompanying consolidated financial statements.
     Compensation expense recognized by TSAT related to such options aggregated
     $3,814,000 and $3,039,000 during the nine months ended September 30, 1998
     and 1997, respectively.

(11) Income Taxes
     ------------

     Through the Spin-off Date, TSAT's results of operations were included in
     TCI's consolidated U.S. Federal income tax returns, in accordance with the
     existing tax sharing arrangements among TCI and its consolidated
     subsidiaries.  Effective July 1, 1995,  TCI, and certain subsidiaries of
     TCI entered into a tax sharing agreement (the "Tax Sharing Agreement"),
     which formalized such pre-existing tax sharing arrangements and implemented
     additional provisions regarding the allocation of certain consolidated
     income tax attributes and the settlement procedures with respect to the
     inter-company allocation of current tax attributes. The Tax Sharing
     Agreement encompasses U.S. Federal, state, local and foreign tax
     consequences and relies upon the U.S. Internal Revenue Code of 1986, as
     amended, (the "Code") and any applicable state, local and foreign tax law
     and related regulations.  In connection with the Spin-off, the Tax Sharing
     Agreement was amended to provide that TSAT be treated as if it had been a
     party to the Tax Sharing Agreement, effective July 1, 1995.

     In connection with the Restructuring,  TSAT and TCI entered into a tax
     sharing agreement dated June 1997, to confirm that pursuant to the amended
     Tax Sharing Agreement (i) neither TSAT nor any of its subsidiaries has any
     obligation to indemnify TCI or the TCI shareholders for any tax resulting
     from the Spin-off failing to qualify as a tax-free distribution pursuant to
     Section 355 of the Code; (ii) TCI is obligated to indemnify TSAT and its
     subsidiaries for any taxes resulting from the Spin-off failing to qualify
     as a tax-free distribution pursuant to Section 355 of the Code; (iii) to
     the best knowledge of TCI, TSAT's total payment obligation under the Tax
     Sharing Agreement could not reasonably be expected to exceed $5 million;
     and (iv) the sole agreement between TCI, on the one hand, and TSAT or any
     of its subsidiaries, on the other, relating to taxes is the Tax Sharing
     Agreement

                                                                     (continued)

                                     I-13
<PAGE>
 
              TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements


     TSAT recognized no income tax benefit during either of the nine month
     periods ended September 30, 1998 and 1997. As a result of the Spin-off,
     TSAT is no longer a part of the TCI consolidated tax group, and
     accordingly, is only able to realize income tax benefits for financial
     reporting purposes to the extent that such benefits offset TSAT's income
     tax liabilities or TSAT generates taxable income. For financial reporting
     purposes, all of TSAT's income tax liabilities had been fully offset by
     income tax benefits at September 30, 1998 and December 31, 1997.
     Additionally, during the foreseeable future, TSAT believes that it will
     incur net losses for income tax purposes, and accordingly, will not be in a
     position to realize income tax benefits on a current basis

                                     I-14
<PAGE>
 
              TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements


Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
  Results of Operations
  ---------------------

General
-------

     The following discussion and analysis provides information concerning the
financial condition and results of operations of TSAT and should be read in
conjunction with (i) the accompanying financial statements of TSAT, and (ii) the
financial statements, and related notes thereto, of TSAT, and Management's
                                                              ------------
Discussion and Analysis of Financial Condition and Results of Operations
------------------------------------------------------------------------
included in TSAT's Annual Report on Form 10-K for the year ended December 31,
1997.

   Certain statements in this Quarterly Report on Form 10-Q constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995.  Such forward-looking statements involve known and unknown
risks, uncertainties and other important factors that could cause the actual
results, performance or achievements of TSAT, or industry results, to differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements.  Such risks, uncertainties and other
factors include, among others:  general economic and business conditions and
industry trends; the continued strength of the multichannel video programming
distribution industry and the satellite services industry and the growth of
satellite delivered television programming; uncertainties inherent in proposed
business strategies, new product launches and development plans, including
uncertainties regarding possible regulatory issues under the Investment Company
Act of 1940, as amended (the "Investment Company Act"); the TSAT Merger;
PRIMESTAR's high-power strategy; future financial performance, including
availability, terms and deployment of capital; the ability of vendors to deliver
required equipment, software and services; availability of qualified personnel;
changes in, or the failure or the inability to comply with, government
regulations, including, without limitation, regulations of the FCC, and adverse
outcomes from regulatory proceedings; changes in the nature of key strategic
relationships with partners and joint venturers; competitor responses to
PRIMESTAR's products and services, and the overall market acceptance of such
products and services, including acceptance of the pricing of such products and
services; reliance on software programs used by the Company or its suppliers
containing problems related to the Year 2000; and other factors referenced in
this Report.  These forward-looking statements speak only as of the date of this
Report. TSAT expressly disclaims any obligation or undertaking to disseminate
any updates or revisions to any forward-looking statement contained herein to
reflect any change in TSAT's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based.

                                     I-15
<PAGE>
 
              TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES


Material Changes in Results of Operations
-----------------------------------------

     As described in note 2 to the accompanying consolidated financial
statements, the Restructuring was consummated on April 1, 1998.  As a result of
such consummation, TSAT is a holding company whose primary assets are (i)
Tempo's authorizations granted by the FCC and other assets and liabilities
relating to a proposed direct broadcast system being constructed by Tempo and
(ii) its investment in PRIMESTAR.  Until the consummation of the TSAT Merger (of
which there can be no assurance), TSAT's operations will consist of expenses
incurred to maintain TSAT as a public company, including accounting and legal
fees, and TSAT's share of PRIMESTAR's earnings or losses.  PRIMESTAR is a
significantly larger entity than TSAT, and it is anticipated that PRIMESTAR will
initially incur significantly greater losses than TSAT due primarily to
disproportionately higher levels of depreciation, amortization and interest
expense.  In addition, it is anticipated that PRIMESTAR will develop a high-
power DBS service.  Under such circumstances, PRIMESTAR would necessarily be
operating under a different cost structure than that of its current medium-power
business. In addition, TSAT has entered into certain binding agreements,
including, among others, the TSAT Merger Agreement.  Upon consummation of the
TSAT Merger, TSAT will be consolidated into PRIMESTAR and TSAT will no longer be
a separate public company.  As closing of the TSAT Merger is subject to
regulatory and other conditions, no assurance can be given that the TSAT Merger
will be consummated.

     TSAT recognized no income tax benefit during either of the nine month
periods ended September 30, 1998 and 1997.  TSAT is only able to realize income
tax benefits for financial reporting purposes to the extent that such benefits
offset TSAT's income tax liabilities or TSAT generates taxable income.  For
financial reporting purposes, all of TSAT's income tax liabilities had been
fully offset by income tax benefits at September 30, 1998 and December 31, 1997.
Additionally, TSAT believes that it will incur net losses for income tax
purposes during the foreseeable future, and accordingly, will not be in a
position to realize income tax benefits on a current basis.

Material Changes in Financial Position
--------------------------------------

     As a holding company, TSAT's ability to satisfy any liabilities or
obligations is dependent solely upon the cash flows of Tempo and PRIMESTAR and
the distribution or the payment of such cash flows to TSAT in the form of
dividends, loans or other advances.  Moreover, during the term of the TSAT
Merger Agreement, TSAT will be subject to the covenants provided for therein,
including limitations on TSAT's ability to conduct business activities, incur
liabilities, and acquire or dispose of assets.  The payment of dividends or the
making of loans or advances to TSAT by Tempo and PRIMESTAR may be subject to
statutory, regulatory or contractual restriction, will be contingent upon the
earnings of those subsidiaries and affiliates, and will be subject to various
business considerations.  Moreover, TSAT does not control PRIMESTAR, and
PRIMESTAR has no obligation, contingent or otherwise, to make any funds
available to TSAT, whether by dividends, loans or other payments (except for the
obligation of PRIMESTAR to reimburse TSAT for certain financial reporting,
legal, accounting and other obligations of TSAT as a public company, as provided
in the TSAT Merger Agreement).  In addition, PRIMESTAR is subject to loan
agreements that prohibit or limit the transfer of funds to TSAT in the form of
dividends, loans, or advances and/or require that any indebtedness of such
subsidiaries or affiliates of TSAT be subordinate to the indebtedness under such
loan agreements.

                                     I-16
<PAGE>
 
              TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES


Material Changes in Financial Position, continued
-------------------------------------------------

     TSAT's right to participate in the distribution of assets of either
PRIMESTAR or Tempo upon the liquidation or reorganization of such entity would
be subject to the prior claims of the creditors of such entity, including trade
creditors, except to the extent that TSAT may itself be a creditor with
recognized claims against such entity.

     Consummation of the TSAT Merger is subject to regulatory and other
conditions, including the right of PRIMESTAR to terminate the TSAT Merger
Agreement under certain circumstances.  Accordingly, there can be no assurance
that the TSAT Merger will be consummated.  If the TSAT Merger is not consummated
then TSAT will continue to be subject to the risks associated with operating as
a holding company including possible regulation under the Investment Company
Act.  TSAT does not currently intend to be an investment company within the
meaning of the Investment Company Act.  TSAT has made no decision as to what
course of action it would pursue if the TSAT Merger is not consummated.

     Certain contingent liabilities of TSAT related to (i) indemnification
agreements entered into between TSAT and TCI and (ii) other obligations were
assumed by PRIMESTAR in connection with the Restructuring.

     The Company is in the process of identifying and addressing issues
surrounding the Year 2000 ("Y2K") and its impact on the Company's operations.
The issue surrounding the Year 2000 is whether the Company's operations and
financial systems or the systems used by companies with whom the Company
conducts business will properly recognize and process date sensitive information
before and after January 1, 2000.  Pursuant to the TSAT Merger Agreement,
PRIMESTAR provides the Company with accounting services and the use of any and
all related information systems.  Therefore, TSAT is coordinating its Y2K
assessment with PRIMESTAR.  The following discussion of PRIMESTAR's Y2K project
is based on information currently available to the Company.

     PRIMESTAR has approached the Year 2000 project in phases.  In Phase I of
the project, which was completed in October 1998, PRIMESTAR (i) established a
Year 2000 Enterprise Project Office to oversee PRIMESTAR's Y2K project, (ii)
reviewed major exposure areas, (iii) identified information technology ("IT")
and non-IT systems used throughout the company, and (iv) estimated the minimum
costs associated with the Y2K project.  In Phase II, which is to be completed by
the end of 1998, PRIMESTAR will (i) complete a detailed inventory, (ii) finalize
costs estimates, (iii) complete detailed project work plans and initiate
contingency planning.  Phase III, which will take place throughout 1999, will
include (i) remediation, upgrade and/or replacement of IT and non-IT systems,
(ii) testing and (iii) contingency planning.
 
     PRIMESTAR has identified three areas of its business (all of which are
provided by third-party vendors) as critical to PRIMESTAR's ability to continue
providing service to its customers -- operation and availability of IRDs and
related software; ability to deliver programming to customers; and ability to
authorize, service and bill customers.  Any event of failure of any one of these
three aspects of PRIMESTAR's business could have a material adverse effect on
PRIMESTAR's results of operations.  Based upon discussions with each vendor
providing these services and a review of such vendor's ongoing Y2K compliance
initiative, PRIMESTAR believes that each business partner will be Y2K compliant
by the end of March 1999.  PRIMESTAR intends to monitor the Y2K efforts of such
business partners, and will devise contingency plans as part of Phase III.

                                     I-17
<PAGE>
 
              TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES


Material Changes in Financial Position, continued
-------------------------------------------------

     For those vendors not considered critical, PRIMESTAR is developing a vendor
compliance database to be used for the periodic update and continual evaluation
of vendor compliance.

     PRIMESTAR has analyzed and continues to analyze its internal IT and non-IT
systems.  PRIMESTAR believes that most of such systems are currently capable of
functioning without substantial Y2K compliance problems, and that those which
are not currently Y2K compliant, will be Y2K capable in a time frame that will
avoid any material adverse effect on TSAT.

     Through October 1998, PRIMESTAR has spent approximately $125,000 for Y2K
issues.  While PRIMESTAR has not completed its final budget for Y2K costs,
management currently estimates the cost of resources to remediate Y2K issues
will be not less than $2,100,000.  PRIMESTAR expects that the final budget will
be completed by December 1998.

     As noted above, PRIMESTAR intends to initiate contingency planning in the
fourth quarter of 1998 and complete such planning in the first quarter of 1999.

     The Company does not currently believe that any of the foregoing will have
a material adverse effect on its financial condition or its results of
operations.  However, the process of evaluating PRIMESTAR's products and third
party products and systems is ongoing.  Although not expected, failures of
critical suppliers and/or systems could have a material adverse effect on the
Company's financial condition or results of operations.  As widely publicized,
Y2K compliance has many issues and aspects, not all of which the Company is able
to accurately forecast or predict.  There is no way to assure that Y2K will not
have adverse effects on the Company, some of which could be material.

                                     I-18
<PAGE>
 
              TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES


PART II - OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K.
------   -------------------------------- 

         (a)  Exhibit

              27 - Financial Data Schedule

         (b)  Reports on Form 8-K filed during quarter ended September 30, 1998

              None.

                                     II-1
<PAGE>
 
              TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES


                                   SIGNATURES


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


                                          TCI SATELLITE ENTERTAINMENT, INC.



Date:  November 12, 1998                  By:  /s/  Gary S. Howard
                                               -------------------------------
                                               Gary S. Howard
                                               Chief Executive Officer
                                               
                                               
                                               
                                               
Date:  November 12, 1998                  By:  /s/  Kenneth G. Carroll
                                               -------------------------------
                                               Kenneth G. Carroll
                                               Senior Vice President and      
                                               Chief Financial Officer
                                                 (Principal Financial Officer)
                                               
                                               
Date:  November 12, 1998                  By:  /s/  Scott D. Macdonald
                                               -------------------------------
                                               Scott D. Macdonald
                                               Vice President and Controller
                                                 (Chief Accounting Officer)

                                     II-2