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                      SECURITIES AND EXCHANGE COMMISSION

                           Washington, D.C.  20549

                                  FORM 10-K
(Mark One)
       /X/       ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
            For the period from January 1, 1998 to December 31, 1998

                                      OR

       / /     TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                        Commission file number 0-27492

                UNITED STATES SATELLITE BROADCASTING COMPANY, INC.
              (Exact name of registrant as specified in its charter)

                MINNESOTA                                   41-1407863
     (State or other jurisdiction of                    (I.R.S. Employer
      incorporation or organization)                    Identification No.)

                  3415 UNIVERSITY AVENUE, ST. PAUL, MN  55114
              (Address of principal executive offices) (zip code)

                                (651) 645-4500
              (Registrant's telephone number, including area code)

                                      N/A

Former name, former address and former fiscal year, if changed since last report

<TABLE>
<S>                                                          <C>
Securities registered pursuant to Section 12(b) of the Act:                  None
Securities registered pursuant to Section 12(g) of the Act:  Class A Common Stock, $.0001 par value
</TABLE>
                           -------------------------


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES  X   NO 
                                       ---     ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/

As of March 23, 1999, 30,446,950 shares of the registrant's Class A Common Stock
were issued and outstanding, and the aggregate market value of the Class A
Common Stock held by non-affiliates of the registrant as of March 23, 1999, was
approximately $358,479,393.

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                                     PART I

                               ITEM 1.  BUSINESS


AGREEMENT AND PLAN OF MERGER 

     The Company has entered into an Agreement and Plan of Merger, dated as of
December 11, 1998 (the "Merger Agreement"), with General Motors Corporation, a
Delaware corporation ("GM"), and its subsidiary, Hughes Electronics Corporation,
a Delaware corporation ("Hughes"), pursuant to which, if certain conditions are
satisfied, the Company will be merged with and into Hughes (the "Merger").  The
Merger, which is subject to regulatory and shareholder approval, and to the
satisfaction of other conditions contained in the Merger Agreement, is expected
to take place in the first half of 1999.  If the Merger is completed, each share
of USSB stock will be converted, subject to certain limitations, into either (i)
a fraction of a share of Class H Common Stock of GM equal to the exchange ratio
provided in the Merger Agreement or (ii) cash equal to that exchange ratio
multiplied by the 20-day volume-weighted average price of the GM Class H Common
Stock (the "Merger Consideration").  The Merger Consideration is dependent upon
the GM Class H Common Stock price and will not exceed $18.00 per share.

     The Company is preparing to close the Merger at the earliest practicable
time and has commenced steps to integrate its business into DIRECTV, a wholly
owned subsidiary of Hughes ("DIRECTV").  The following information contained in
this Item 1, "Business," describes the Company on a stand-alone basis.  However
the Merger Agreement requires the Company to take or refrain from taking certain
actions, and these actions are also described in this Item 1.

GENERAL

     United States Satellite Broadcasting Company, Inc. (the "Company") is a
provider of subscription television programming to households throughout the
continental United States via high-power direct broadcast satellite ("DBS"). 
The Company broadcasts a high quality digital television signal using the
DIRECTV/USSB System.  The Company's programming is available to virtually all of
the approximately 98 million U.S. television households upon the purchase of a
DIRECTV/USSB System, which features an 18 inch satellite dish.  The Company
currently delivers 25 channels of video programming, including "premium"
networks such as Multichannel HBO-Registered Trademark- (7 channels),
Multichannel SHOWTIME-Registered Trademark- (5 channels), Multichannel
CINEMAX-Registered Trademark- (3 channels), Multichannel THE MOVIE
CHANNEL-Registered Trademark- (2 channels), FLIX-Registered Trademark-, SUNDANCE
CHANNEL-Registered Trademark-, and fXM:  MOVIES FROM FOX.  The programming
delivered by the Company includes over 900 movie titles per month.  The Company
also broadcasts events and specials on a pay-per-view basis, as well as public
service programming.

     As previously reported, the basic channels carried by USSB were integrated
into the DIRECTV channel line-up on March 10, 1998.  The channels involved were
the MTV Networks (MTV, M2, VH1, Nickelodeon and Nick at Nite's TV LAND),
Lifetime and Comedy Central.  At the same time, USSB added two new 
commercial-free premium movie services: Showtime Extreme and fXM: Movies from 
Fox.

     The Company broadcasts from a single satellite, DBS-1, which is able to
reach the entire continental United States.  DBS-1 broadcasts with minimal
signal interference because of its favorable orbital location at 101DEG.  west
longitude, greater orbital spacing than that provided for non-DBS satellites and
its high-power 120 watt transponders.  DBS-1 was manufactured by Hughes
Electronics Corporation ("Hughes") and is owned and operated jointly by the
Company and DIRECTV.  The Company believes that the DIRECTV/USSB System, which
incorporates the 


                                       2
<PAGE>

MPEG 2 digital compression standard, results in a higher picture quality than 
any other existing terrestrial domestic television broadcasting system. In 
addition to its FCC license to broadcast from 101DEG. west longitude, the 
Company also holds an FCC authorization to construct and launch a high power 
direct broadcast satellite system consisting of three transponders at the 
110DEG. west longitude orbital location.  Pursuant to the Merger Agreement, 
the Company and DIRECTV filed applications for approval of a change of 
control of the Company's FCC authorizations in December 1998.  On April 1, 
1999, the FCC staff issued an order approving the transfer of control of the 
Company's license at 101DEG. west longitude and the Company's authorizaation 
to construct and launch at 110DEG. west longitude to DIRECTV.  This order 
will become final May 12, 1999, unless the FCC acts to set it aside before 
that date.

     The DIRECTV/USSB System consists of an unobtrusive 18 inch satellite dish,
an integrated receiver/decoder similar in size to a VCR and a remote control. 
The DIRECTV/USSB System features an easy to use on-screen electronic program
guide, a ratings control function and the capability to switch easily between
DIRECTV/USSB System signals and local programming signals.  DIRECTV/USSB Systems
are currently manufactured by leading consumer electronics manufacturers and
sold at over 26,000 retail locations.

     The Company and DIRECTV were the first domestic providers of high-power DBS
programming.  The Company and DIRECTV share the use of the technology underlying
the DIRECTV/USSB System, cooperate to promote and build awareness of the
DIRECTV/USSB System and currently offer complementary programming packages.  The
Company estimates that the majority of DIRECTV/USSB System households receive
both USSB-Registered Trademark- programming and DIRECTV-Registered Trademark-
programming.  DIRECTV offers approximately 185 channels of digital video and
audio programming, including basics, news, sports, entertainment and 
pay-per-view movies and events.

STRATEGY

     As a stand-alone business, the Company seeks to offer the highest quality,
most-sought-after premium television programming at a competitive price, enhance
the DIRECTV/USSB System position as the leading provider of satellite
television, increase the market share of USSB programming by offering the
premier movie networks and a variety of pay-per-view events, and achieve
profitability.  If the Merger is not completed, the Company intends to remain
independent and continue to build its business by increasing the number of
subscribers and developing and offering new programming.

     To accomplish these objectives as an independent business, the Company has
focused on (i) building on its lead in the high power DBS market; (ii)
capitalizing on its relationships with leading program suppliers, with which it
has multi-year agreements; (iii) maintaining its strategic relationship with
Hughes and DIRECTV to further benefit from the technological advantages of 
high-power DBS and the DIRECTV/USSB System and to promote and build awareness 
of the DIRECTV/USSB System; (iv) enhancing its strong relationships and joint 
marketing efforts with leading consumer electronics manufacturers and retailers 
to further promote the sale of DIRECTV/USSB Systems and USSB programming; (v) 
expanding and continuing to support the large and established retail 
distribution network for DIRECTV/USSB Systems and adding other distribution 
opportunities; (vi) continuing to provide the highest broadcast quality; and 
(vii) emphasizing customer service to maintain a high level of customer 
satisfaction.  If the Merger is not completed, the Company intends to continue 
to implement and build upon these strategies.


                                       3
<PAGE>

THE MARKET

     The Company believes that there is significant unsatisfied demand for high
quality, reasonably priced television programming.  The Company believes,
therefore, that the potential market in the United States for high-power DBS
broadcasting consists of all of the approximately 98 million households with
television sets, as well as certain commercial markets, such as hotels, motels,
bars and restaurants.

     The primary target markets for high-power DBS broadcasting include (i) 
existing cable subscribers who desire a greater choice and variety in 
programming, improved video and audio quality, better customer service and 
fewer signal interruptions; and (ii) all of the U.S. television households 
unserved by cable.  Based upon the most recently available FCC data, there 
are approximately 65 million U.S. cable subscribers.  These subscribers 
reportedly pay an average of approximately $33 per month for television 
programming services.  The Company also views as a high-power DBS 
broadcasting market the approximately 30 million U.S. television households 
which have access to cable television but are not customers of the local 
cable operator.

     The Company believes that the demand for satellite television services in
the United States will continue to grow.  The Company also believes that the
DIRECTV/USSB System, with its digital picture and CD-quality sound, provides the
consumer with the highest quality subscription television programming currently
available.  While the high-power DBS share of the U.S. television market is
currently small compared to cable, it has been steadily increasing.  At December
31, 1998, approximately 6.1 million households received subscription television
programming via high-power DBS, compared to 4.3 million at December 31, 1997,
and 2.7 million at December 31, 1996.  The Company has conducted extensive
research to better understand the television market in the United States, the
desires and preferences of consumers and the features and benefits that will
attract subscribers.  This research indicates that a substantial number of
consumers are dissatisfied with cable television, that former cable subscribers
who subscribe to the DIRECTV/USSB System are more satisfied with it than cable
and that 79% of DIRECTV/USSB System owners who were cable subscribers purchased
premium movie programming.  This research also indicates that the most likely
USSB customers are homeowners with families who currently have or have had
cable, subscribed to the premium movie channels and consider television a
significant component of their entertainment activities.  The Company believes,
based on this research, that demand for more choice in television programming,
dissatisfied cable subscribers, and consumers unserved or underserved by cable
will contribute to the market growth of the DIRECTV/USSB System and the
Company's subscriber base.

     The Company's research also indicates that the growth of the DIRECTV/USSB
System market has been hampered by the misperception that reception of local
television broadcasts is incompatible with the DIRECTV/USSB System.  The Company
and DIRECTV have initiated programs designed to inform consumers and retailers
about reception of local television broadcasts and to facilitate local broadcast
reception. 

MARKETING

     The Company engages in extensive marketing, advertising and promotional
activities to increase consumer awareness of the DIRECTV/USSB System and USSB
programming, to promote the sale of DIRECTV/USSB Systems and to generate
subscriptions to USSB programming.  The Company intends to continue these
efforts and, if the Merger is not completed, anticipates that it will continue
to make substantial expenditures for new and intensified marketing, advertising
and promotional activities, including the following:


                                       4
<PAGE>

     ADVERTISING.  The Company's advertising activities presently consist of
television commercials aired nationally, radio commercials, and print
advertisements promoting the DIRECTV/USSB System and USSB programming service.

     PROMOTIONS.  The Company promotes subscriptions to its programming service
by offering all owners of DIRECTV/USSB Systems, upon initial purchase of a
DIRECTV/USSB System, one free promotional month of its premier programming
package, Entertainment Unlimited-SM-.  During the free promotional month of
programming, the Company engages in targeted telemarketing and mailings designed
to convert free subscribers to paying subscribers.  The Company believes that
its free promotional month of Entertainment Unlimited is an effective marketing
tool.

     To support its marketing, the Company also delivers a free channel that is
available to all owners of DIRECTV/USSB Systems and, in conjunction with its
programmers, regularly provides USSB FREEVIEWs-Registered Trademark-, or access
to programming channels during certain periods of the year without charge.  The
Company also engages in joint advertising and promotions with its programmers.

     TV GUIDE-TM-. The Company has a relationship with the publisher of TV
GUIDE, whereby the Company offers a "Satellite Edition of TV GUIDE", available
to all DIRECTV/USSB System households.  The Satellite Edition of TV GUIDE
provides a comprehensive listing of all subscription channels offered on the
DIRECTV/USSB System, and features special inserts reviewing programming offered
by USSB each week.

     RETAIL SUPPORT.  The Company engages in an active retail support program,
which provides dealers with point-of-sale literature and displays, incentives
and training.  DIRECTV/USSB System retailers promote the Company's programming
and encourage customers to activate their free promotional month and to
subscribe to Entertainment Unlimited.  The Company generally pays commissions to
eligible retailers when their customers become paying subscribers, regardless of
which manufacturer's DIRECTV/USSB System was purchased.  In addition, the
Company makes USSB programming available for demonstration to the customer at
the point of sale.

     The Company has a sales agency agreement with Thomson Consumer Electronics
("Thomson"), pursuant to which Thomson acts as the Company's sales agent for
consumer electronics outlets that Thomson services.  Thomson is the top selling
television manufacturer in the United States, marketing the "RCA," "GE" and
"ProScan-Registered Trademark-" brands. Both the Company, with a dedicated staff
of approximately 30 sales personnel, and Thomson, with a sales and support staff
of approximately 400, service retail outlets.

     MANUFACTURER INCENTIVE PROGRAM AND OTHER JOINT MARKETING.  The Company
engages in a number of joint marketing efforts with DIRECTV and DIRECTV/USSB
System manufacturers.  One of these efforts, the Manufacturer Incentive program,
is a joint financial incentive arrangement with DIRECTV which has had the effect
of contributing to DIRECTV/USSB System manufacturers lowering the price of
DIRECTV/USSB Systems.  Such arrangements, which commenced in August 1996, run
for up to four years depending on the manufacturer.

     The Company also shares costs with other DIRECTV/USSB System participants
for advertising, public relations and retail promotions.  The Company believes
it also benefits from the marketing efforts of all DIRECTV/USSB System
participants.  All current manufacturers of DIRECTV/USSB Systems include
information regarding USSB programming in their retail packaging and all new
DIRECTV/USSB System manufacturers are expected to continue this practice. 


                                       5
<PAGE>

PROGRAMMING

     The Company has multi-year agreements with content providers and currently
broadcasts over 900 movie titles per month and a wide variety of specialty
sports events and entertainment specials on a pay-per-view basis.  The Company
delivers premium networks in multichannel format to increase viewer choice and
variety.  The Company is not aware of any cable system with a comparable level
of multichannel premium programming.  The Company's research indicates that
multichannel programming is a popular attraction with its subscribers, as each
programmer generally "counter programs" certain of its multiple channels; i.e.,
the programmer will, for example, run an action movie, a comedy movie and a
family movie in the same general time slot.  The Company's delivery of premium
channels in multichannel format allows a USSB subscriber to receive multiple
channels of a premium service at a price generally paid by cable subscribers for
one premium channel.

     The Company's programming is currently available in four primary
subscription packages:  Entertainment Unlimited, Select Three, Select Two, and
Select One.  The Company's top programming package, Entertainment Unlimited,
contains all of the premium movie channels offered by the Company.  In addition
to Entertainment Unlimited, as the package names imply, DIRECTV/USSB System
owners can choose to put together their own package by selecting any one or any
combination of the premium networks offered by the Company.  Current
subscription prices for the packages range from $10.99 to $32.99 per month. 
Management believes that the Company offers the greatest number of premium movie
channels with the highest degree of flexibility as compared to its competitors.

     The Company makes its pay-per-view events available to all residential
DIRECTV/USSB System owners. The Company also distributes some of its 
pay-per-view events to commercial establishments through a third party.

     The Company offers a complimentary channel to all DIRECTV/USSB System
owners, whether or not they are USSB programming subscribers.  This channel is
currently utilized by the Company to broadcast marketing messages to maximize
viewership of upcoming USSB programming, as well as for public service
broadcasting. The Company also broadcasts in Spanish all of the programming
which is provided to it with a Spanish language soundtrack.

     Since the DIRECTV/USSB System poses no technical barriers to receiving both
USSB programming and DIRECTV programming, all purchasers of DIRECTV/USSB Systems
have access to more than 200 channels of programming.  DIRECTV programming
currently includes approximately 50 channels of pay-per-view movies, as well as
subscription sports packages, established basic networks and audio services. 
The Company provides programming that complements DIRECTV's existing programming
packages, thus maximizing the consumer appeal of the DIRECTV/USSB System.  There
is currently no overlap between USSB programming and DIRECTV programming.

     Local television stations are readily received using a standard television
antenna with the DIRECTV/USSB System.  DIRECTV/USSB System owners can easily
switch between DIRECTV/USSB System programs and local stations by using the
DIRECTV/USSB System remote control. According to the Company's research,
approximately 60% of DIRECTV/USSB System households currently receive local
programming signals from standard television antennas.  DIRECTV/USSB System
owners who are not able to receive local programming signals because of their
distance from terrestrial broadcasting towers may receive national network
programming through the DIRECTV/USSB System.  Local programming is also
available to DIRECTV/USSB System owners through a basic "lifeline" cable
subscription.


                                       6
<PAGE>

DISTRIBUTION OF DIRECTV/USSB SYSTEMS

     Since its introduction four and one-half years ago, more than seven million
DIRECTV/USSB Systems have been shipped to retailers.  DIRECTV/USSB Systems are
currently sold at over 26,000 retail locations, including national retailers
such as Best Buy, Circuit City, Radio Shack, Sears and WalMart.  DIRECTV/USSB
Systems are also available at regional and independent consumer electronics
stores, satellite specialty stores, and other specialty retailers including
catalog, internet and television shopping networks.  DIRECTV/USSB Systems are
also distributed by National Rural Telecommunications Cooperative affiliates
that sell satellite equipment predominately in rural areas.  The Company has
arrangements with the video subsidiaries of two regional telephone operating
companies whereby such companies will market, sell and provide billing and
customer service for DIRECTV/USSB System and USSB programming.

     DIRECTV/USSB Systems are currently manufactured and distributed by many of
the most prominent consumer electronics companies, including: RCA, Sony, GE and
Hughes Network Systems.

THE DIRECTV/USSB SYSTEM

     The DIRECTV/USSB System consists of an unobtrusive 18 inch satellite dish,
an integrated receiver/decoder similar in size to a VCR and a remote control. 
The dish, which must be aimed in the direction of the 101DEG.  west longitude
orbital location, can be mounted on the exterior of the home.  Company research
indicates that approximately 57% of purchasers of DIRECTV/USSB Systems choose to
install their units themselves, while the balance have their units
professionally installed.

     The DIRECTV/USSB System has been designed to be as easy to use as a basic
television set.  The consumer-friendly remote control allows subscribers to
quickly and easily access desired programming via a colorful on-screen program
guide and menu system.  Subscribers can create lists of favorite channels, limit
access to certain types of programming and establish budget limits on 
pay-per-view selections.  The remote control has been designed to be compatible 
with a wide variety of television sets, allowing subscribers to operate both the
television set and the DIRECTV/USSB System with the same remote control.

     The DIRECTV/USSB System is also designed to receive local television
broadcasts by using readily available television antennas.  Many antennas on the
market today provide convenient ways to receive local stations with the
DIRECTV/USSB System.

     The DIRECTV/USSB System's on-screen programming guide provides convenient
and easy-to-use information regarding all programming and channels, as well as
program ratings for most programs carried by the premium services and permits
parents to set rating limits and "lock out" programming which the subscriber
does not wish to receive.

     The DIRECTV/USSB System is designed to be available (i.e., free from
outages) 99.7% of the time. Outages are generally the result of severe storms
passing between the satellite and the customer's dish or between the Company's
transmission facility and the satellite. 


                                       7
<PAGE>

OPERATIONS

     The Company's program suppliers deliver signals to the Company via
commercial satellites, fiber optics or microwave transmissions.  These signals
are then uplinked, or transmitted, to the Company's transponders on the DBS-1
satellite, through antennas located at the Company's National Broadcast Center
in Oakdale, Minnesota.  DBS-1 then broadcasts the signal to DIRECTV/USSB System
households. The Company also maintains a separate Auxiliary Broadcast Center
which provides redundant uplinking capability.

     All of the Company's video channels are encrypted to prevent unauthorized
reception of the signal.  The conditional access system utilized in the
DIRECTV/USSB System, which controls the encryption and decryption of the
television signal, was developed and is operated by NDS Americas Inc.  The
signal processing system, which is responsible for the transmission of audio and
video, was developed by Thomson.  Both technologies were developed under
contract with Hughes and are available for use by the Company pursuant to 
long-term agreements with Hughes.

     The conditional access system is controlled by a Conditional Access
Management Center located in Castle Rock, Colorado, with a backup facility in
Los Angeles, California.  The conditional access system has many flexible
features, allowing for subscription services and pay-per-view services on both
an impulse and order-ahead basis.

     The Company's signal processing system and all DIRECTV/USSB Systems,
regardless of manufacturer, fully comply with the main profile and the main
level of the MPEG 2 digital compression standard. MPEG 2 is an international
standard promulgated by the Moving Picture Expert Group. Compliance with MPEG 2
allows DIRECTV/USSB System manufacturers efficiencies in designing and
manufacturing receivers. Even though the DIRECTV/USSB System is MPEG 2
compliant, it incorporates a number of proprietary technologies and may not be
used by other high-power DBS broadcasters unless they obtain a license  for such
technologies from Hughes.

     The Company contracts out customer service and billing functions to
Alliance Data Systems, Inc. ("ADS").  ADS's functions include the handling of
orders from subscribers, establishing and maintaining customer accounts, inbound
and outbound telemarketing, billing and remittance processing.  All of ADS's
interactions with subscribers are conducted under the Company's name.  The
Company seeks to provide the highest levels of customer service and believes
that customer service is important in developing customer loyalty and in
distinguishing its service from its competitors.  The Company's contract with
ADS will terminate in June 1999, with a "wind down" period available for  up to
270 days thereafter.  If the Merger is not completed, DIRECTV will provide
billing and customer management systems to the Company for up to 18 months
commencing July 1, 1999.


                                       8
<PAGE>

SATELLITE

     The Company owns five-sixteenths of DBS-1, including a five transponder
payload on the satellite. DBS-1 was manufactured by Hughes and was launched by
Arianespace in December 1993.  As previously reported, a spacecraft control
processor ("SCP") aboard the DBS-1 satellite failed on July 4, 1998, and control
of DBS-1 was automatically switched to the spare SCP without interruption of
service.  

     In connection with the execution of the Merger Agreement, the Company and
Hughes entered into a Replacement Payload Option Agreement which clarifies
USSB's right to transponder capacity on a replacement satellite in the event the
Merger Agreement is terminated due to a failure of the transponders on DBS-1. 
The Replacement Payload Option Agreement provides that, if the transponders on
DBS-1 should fail, USSB may elect to purchase five transponders for $90 million
on DIRECTV 1-R, a satellite under construction by Hughes.  In addition, DIRECTV
and the Company entered into a Channel Services Provision Agreement which
provides that, if the transponders on DBS-1 should fail, DIRECTV will provide to
USSB, on a full time basis, channel capacity and related services on two other
satellites owned by Hughes at the 101DEG.  orbital location sufficient to
transmit and deliver  four premium movie services to USSB subscribers.  DIRECTV
will continue to provide this channel capacity and services unless the Company
fails to exercise its option to purchase the five transponders under the
Replacement Payload Option Agreement within 30 days of notice of termination of
the Merger Agreement by GM or Hughes. 

     Under the Merger Agreement, on December 17, 1998, Hughes, DIRECTV 
Enterprises, Inc., a wholly-owned subsidiary of Hughes, and the Company filed 
applications with the FCC requesting consent to the transfer of control of 
the FCC License for USSB's five transponders on DBS-1 to Hughes.  On April 1, 
1999, the FCC staff issued an order approving the transfer of control of the 
FCC License for five transponders on DBS-1 and related earth station licenses 
to DIRECTV.  This order will become final May 12, 1999, unless the FCC acts 
to set it aside before that date.

OTHER COMPANY ORBITAL LOCATIONS

     The FCC granted the Company a Construction Permit and Launch Authority 
(the "Permit"), held by USSB II, for satellites with three transponders at 
110DEG. west longitude and eight transponders at 148DEG.  west longitude.  On 
June 24, 1998, the Company voluntarily returned to the FCC its authorization 
for eight transponders at  148DEG.  west longitude.  The return of the 
authorization at 148DEG. west longitude had no effect on the status of the 
Company's Permit for the 110DEG.  orbital location.  
     
     The Permit requires the Company to comply with specified construction 
and launch schedules.  The FCC has the authority to revoke the Permit for the 
110DEG.  orbital location if the Company fails to comply with the FCC 
schedule for construction and launch.  The Permit required that this 
additional DBS system be operational by December 1997 and the Company had 
timely requested an extension to December 1999 in which to complete the 
construction and launch of the remainder of its DBS system.  
     
     Under the Merger Agreement, the Company and Hughes have agreed to 
cooperate and use their reasonable best efforts to maintain the Permit at the 
110DEG. orbital location and to assign the Permit and the other FCC 
authorizations held by the Company to Hughes.  The Company and Hughes have 
jointly filed an application for modification of authorization to move the 
DBS-1 satellite, which presently operates at the 101DEG.  orbital location, 
to the 110DEG.  orbital location to satisfy the FCC's due diligence 
requirements for the Permit. 


                                       9
<PAGE>

     On April 1, 1999, the FCC staff issued an order approving the transfer 
of control of the Permit at the 110DEG. orbital location to DIRECTV, 
conditioned upon DIRECTV initiating service on the three transponders 
authorized at the 110DEG orbital location by December 31, 1999.  This order 
will become final May 12, 1999, unless the FCC acts to set it aside before 
that date.

     The Company originally entered into contracts with Lockheed Martin for the
construction of direct broadcast satellites at the 110DEG.  orbital location
(the "110DEG.  Contract") and at the 148DEG.  orbital location (the "148DEG. 
Contract").  As required by the Merger Agreement, the Company has canceled the
110DEG.  Contract and has allowed the 148DEG.  Contract to expire in accordance
with its terms.  Both actions were effective December 31, 1998.  See "Regulatory
Matters."

COMPETITION

     The Company's existing and potential competitors comprise a broad range of
companies engaged in communications and entertainment, including cable
operators, other direct-to-home satellite service providers, wireless cable
operators, open video providers, electric utilities with existing fiber
networks, television networks and home video products companies, as well as
companies developing new technologies.  The FCC has granted several entities
authority to construct and launch satellites in the Ka-band which could provide
direct-to-home services, potentially allowing customers to participate in
activities from distance learning to interactive home shopping.  One company has
proposed using the Ka-band to uplink local television station signals within
their Designated Market Areas and making such signals available to all DBS
providers for sale by the DBS providers to subscribers.  The Company anticipates
that other DBS satellites will be launched at the 110DEG.  west longitude and
other orbital locations, increasing the number of competitors in the direct
broadcast satellite market.  Many of the Company's competitors have greater
financial and marketing resources than the Company.  The business of providing
subscription and pay television programming is highly competitive and is
changing rapidly due to consolidation in the industry. The Company expects that
quality and variety of programming, quality of picture, service and cost will be
the key bases of competition. 

     The Company believes that the DIRECTV/USSB System has several 
advantages, including superior picture and sound quality compared to 
terrestrial broadcasters and most cable operators, its programming variety, 
its retail distribution network, well-established brand name manufacturers, 
advantageous orbital location and the limited capital expenditures required 
in the future. The DIRECTV/USSB System currently offers the broadest variety 
of programming available from any single source and employs the MPEG 2 
digital compression standard which, the Company believes, results in a higher 
picture quality than any other existing domestic television broadcasting 
system. With the 101DEG. west longitude orbital slot, the Company (and 
DIRECTV) also have the most desirable location for reaching the entire 
continental United States with the least possibility of obstruction.

CABLE OPERATORS

     Cable television is currently available for purchase by as much as 97% of
the approximately 98 million U.S. television households. The cable television
industry is an established provider of television programming, with
approximately 66% of total television households subscribing.  Cable systems
typically offer 30 to 80 channels at an average monthly subscription price of
approximately $33.


                                      10
<PAGE>

     Cable television providers benefit from their entrenched position in the
domestic consumer marketplace.  Cable subscribers have relatively minimal 
up-front costs as compared to DIRECTV/USSB System households, which must 
purchase (or lease) and install the DIRECTV/USSB System.  In addition, the cost 
of both USSB programming and DIRECTV programming may be higher than a subscriber
would pay for cable service.  Several cable companies have commenced programs to
upgrade their systems to provide digital cable programming or add some digital
capacity, which will provide their cable television customers with improved
picture quality and sound and/or more channels.  AT&T Corp. recently merged with
Tele-Communications, Inc. ("TCI"), which will allow AT&T to upgrade TCI's
existing cable systems, thereby increasing TCI's capacity to provide digital
cable services.  The Company expects that this merger will change the nature of
TCI as a competitor because of the additional services, such as local telephone,
available through AT&T.

SATELLITE PROGRAM PROVIDERS

     The FCC authorizes two types of satellite services for transmission of 
television programming: (i) high-power DBS and (ii) low-power (C-band) and 
medium-power (Ku-band) DBS.  In addition, the FCC has authorized the use of 
Ka-Band satellites, although none have been launched.  High-power DBS 
delivers high quality video and audio signals, can be received by an easily 
installed, 18 inch dish with virtually no signal interference and, depending 
on the satellite's orbital location, can be broadcast throughout the 
continental United States from a single satellite.  Low- and medium-power DBS 
were intended by the FCC primarily for commercial use.

     The International Telecommunication Union, an agency of the United Nations,
allocated to the United States 32 transponders at each of eight orbital
locations for the provision of domestic high-power DBS service.  Although the
number of potential competitors in the high-power DBS market is limited by the
number of orbital slots authorized for such service by the FCC and by regulatory
authorities of adjoining countries, additional spectrum may be allocated to
high-power DBS in the future, which would increase the number of orbital
locations beyond the present eight.  In addition, satellites regulated by
foreign governments may, in the future, provide competitive DBS services under
protocols between the United States and such foreign governments.  Under a
protocol between the United States and Mexico and another between the United
States and Argentina, each country could provide service to the other country. 
If Canada were to enter into a similar protocol, Canada also has orbital
locations which would permit DBS service to the United States.

DBS COMPETITORS

     The Company competes against other DBS providers in a rapidly changing and
consolidating environment.

     The Company and DIRECTV were the first domestic providers of high-power 
DBS programming.  DIRECTV broadcasts 185 channels from the 101DEG. west 
longitude orbital location shared with the Company, as compared with 25 
channels currently offered by the Company.  DIRECTV offers a broad range of 
sports programming and emphasizes pay-per-view movies and events and offers 
over 50 channels of "basic" programming.  If the Merger is not completed, the 
Company and DIRECTV will continue to share the goal of promoting the 
DIRECTV/USSB System, but will continue to compete for subscriber revenues 
once the DIRECTV/USSB System is purchased by the consumer.

     EchoStar Communications Corporation ("EchoStar") provides service using 
four high-power DBS satellites, two at the 119DEG. west longitude orbital 
location, one at the 61.5DEG. west longitude orbital location, and one at the 
148DEG. west longitude orbital location.  EchoStar offers programming which 
includes many of the premium and basic channels available on the 

                                      11
<PAGE>

DIRECTV/USSB System and is aggressively marketing its programming services 
and satellite dish as an alternative to the DIRECTV/USSB System. EchoStar 
manufactures the 18-inch satellite dish needed to receive its programming and 
thereby has greater control over the retail price of its satellite dish than 
the Company, but also bears the financial responsibility associated with this 
aspect of its business.  On November 30, 1998, EchoStar announced an 
agreement to acquire the satellites and orbital locations of The News 
Corporation Limited and MCI Worldcom, Inc., which will give EchoStar the 
ability to broadcast from both 110DEG. west longitude and 119DEG. west 
longitude, significantly increasing EchoStar's broadcasting capacity.

     PRIMESTAR, Inc. ("PRIMESTAR") currently operates a 160-channel 
medium-power DBS service using leased satellite capacity at the 85DEG. west 
longitude orbital location.  PRIMESTAR offers programming which includes many 
of the premium and basic channels available on the DIRECTV/USSB System.  
PRIMESTAR promotes its service as superior to cable and markets to the same 
general television viewers as the Company.  On January 22, 1999, Hughes 
announced an agreement with PRIMESTAR to acquire the assets of the 2.3 
million subscriber PRIMESTAR medium-power business.  DIRECTV intends to 
operate the medium-power PRIMESTAR business for a period of approximately two 
years, during which time the PRIMESTAR subscribers will be offered the 
opportunity to transition to high-power DIRECTV service.  In a related 
transaction, Hughes also announced an agreement to acquire the related 
high-power satellite assets owned by Tempo Satellite, Inc., a subsidiary of 
Tele-Communications, Inc., one of the owners of PRIMESTAR, consisting of one 
in-orbit satellite at 119DEG. west longitude, eleven high-power frequencies 
at 119DEG. west longitude, and a second satellite which has been constructed 
but not yet launched.

     Potential competitors may provide television programming at any time by 
leasing transponders from an existing satellite operator.  However, the 
number of transponders available for lease on any one satellite is generally 
limited, making it difficult to provide sufficient channels for a viable 
system.

     The Company also competes with low-power (C-band) systems.  These 
systems, which utilize a 4 to 8 foot dish, in the aggregate serve 
approximately 1.9 million subscribers.

TELEPHONE COMPANIES

     Certain regional telephone operating companies and long distance 
telephone companies could become significant competitors of the Company in 
the future. Several telephone companies have begun to enter the video 
programming market by creating cable subsidiaries, acquiring existing cable 
operators outside of the area they presently serve with telephone service, or 
by continuing their involvement with wireless cable systems.  In addition, 
telephone companies can establish open video services, which they either can 
make available to television programmers or utilize themselves.  Among other 
things, telephone companies have an existing relationship with virtually 
every household in their service area, substantial financial resources and an 
existing infrastructure. However, the Company has an agreement with Bell 
Atlantic Video Services Company for the marketing and sale of USSB 
programming.  The Company also has an agreement with Southwestern Bell Video 
Services, Inc. for the sale and marketing of DIRECTV/USSB Systems and USSB 
programming to multiple dwelling units.

WIRELESS CABLE AND OTHER MICROWAVE SYSTEMS

     There are approximately 200 wireless cable systems in the United States, 
serving approximately 900,000 subscribers.  These systems typically offer 20 
to 40 channels of programming, which may include local programming; however, 
these systems will require substantial capital expenditures to upgrade to 
digital technology.  The FCC has allocated spectrum for the Local Multipoint 
Distribution Service (LMDS), a form of wireless cable with increased 


                                      12

<PAGE>

bandwidth. Companies with rights for LMDS could become providers of 
competitive video services.

VHF/UHF BROADCASTERS

     Most areas of the United States are covered by traditional terrestrial 
VHF/UHF broadcasters that typically offer three to ten channels. These 
stations provide local, network and syndicated programming free of charge.  
The FCC has mandated that terrestrial television stations commence digital 
television service, and has granted additional spectrum on an interim basis 
which may be used for multichannel programming and/or high definition 
television (HDTV).  The Company is unable to predict at this time the effect 
of such a development on the Company's competitive position.

REGULATORY MATTERS

     The Company is subject to the regulatory authority of the FCC. As a 
distributor of television programming, the Company is also affected by 
numerous laws and regulations.  Unlike a common carrier, however, the Company 
is free to set prices and serve customers according to its business judgment 
without rate of return or certain other types of regulation.

     The FCC has issued a license (the "License") to the Company which allows 
the Company to broadcast from the 101DEG. west longitude orbital location. 
DIRECTV is the only other entity licensed for the 101DEG. west longitude 
orbital location.  No other entities can currently obtain transponders at 
101DEG. west longitude.

     The License must be renewed at the end of its ten year term.  FCC 
licenses are generally renewed in the ordinary course, absent misconduct by 
the licensee. Under the License, the Company is subject to FCC review 
primarily for the following: (i) standards regarding individual satellites 
(e.g., meeting minimum financial, legal and technical standards); (ii) 
avoiding interference with other satellites; and (iii) complying with rules 
the FCC has established specifically for high-power DBS satellite licenses.  
USSB II, Inc. ("USSB II"), a wholly owned subsidiary of the Company, holds 
the License and owns the five transponders.  The Company and USSB II have 
entered into a Transponder Use Agreement, whereby the Company is granted the 
right to use the transponders.  In addition, uplink facilities are separately 
licensed by the International Bureau of the FCC.  The Company's National 
Broadcast Center and its Auxiliary Broadcast Center have each received an 
International Bureau license.

     The FCC granted the Company a Construction Permit and Launch Authority 
(the "Permit"), held by USSB II, Inc., for satellites with three transponders 
at 110DEG. west longitude and eight transponders at 148DEG. west longitude.  
On June 24, 1998, the Company voluntarily returned to the FCC its 
authorization for eight transponders at 148DEG. west longitude.  The return 
of the authorization at 148DEG. west longitude had no effect on the status of 
the Company's Permit for the 110DEG. orbital location.

     The Permit requires the Company to comply with specified construction 
and launch schedules.  The FCC has the authority to revoke the Permit for the 
110DEG. orbital location if the Company fails to comply with the FCC schedule 
for construction and launch.  The Permit required that this additional DBS 
system be operational by December 1997 and the Company had timely requested 
an extension to December 1999 in which to complete the construction and 
launch of the remainder of its DBS system.  

     Under the Merger Agreement, on December 17, 1998, Hughes, DIRECTV 
Enterprises, Inc., a wholly-owned subsidiary of Hughes, and the Company filed 
applications with the FCC requesting consent to the transfer of control of 
all of the FCC authorizations held by USSB II, Inc. 

                                      13
<PAGE>

to Hughes.  On April 1, 1999, the FCC staff issued an order approving the 
transfer of control of the FCC License for the 101DEG. orbital location and 
related earth station licenses to DIRECTV.

     Under the Merger Agreement, the Company and Hughes have agreed to 
cooperate and use their reasonable best efforts to maintain the Permit at the 
110DEG. orbital location and to assign the Permit to Hughes.  The Company and 
Hughes have jointly filed an application for modification of authorization 
to move the DBS-1 satellite, which presently operates at the 101DEG. orbital 
location, to the 110DEG. orbital location to satisfy the FCC's due diligence 
requirements for the Permit.  The FCC staff's April 1, 1999 order also 
approved the transfer of control of the FCC Permit at the 110DEG. orbital 
location to DIRECTV, conditioned upon DIRECTV initiating service on the three 
transponders authorized at the 110DEG. orbital location by December 31, 1999.

     Any petition requiring reconsideration by the FCC staff, or an 
application for review by the full commission of the April 1, 1999 order, 
must be filed by May 3, 1999. In addition, the FCC may determine to review 
the order on its own motion until May 11, 1999. Absent any of the foregoing, 
the April 1, 1999 order will become final on May 12, 1999.

     While the Company has generally been successful to date with respect to 
compliance with regulatory matters, there can be no assurance that the 
Company will succeed in obtaining and maintaining all requisite regulatory 
approvals for its operations.

     On February 26, 1998, the FCC released a Notice of Proposed Rulemaking. 
This Rulemaking seeks to streamline and simplify the Commission's rules 
governing DBS service.  In addition to proposing changes in the processing 
and service Rules, the Rulemaking requests comments on ownership issues such 
as foreign ownership and horizontal concentration limitations on common 
ownership of cable and DBS providers in the multi-channel video program 
distribution market.  At present, the Company is unable to determine the 
effects of such proposed rules on its operations or competitive position.

     On November 25, 1998, the FCC issued rules and regulations requiring DBS 
providers to set aside a discreet channel or channels constituting 4% of 
their total channel capacity for the presentation of national educational and 
informational programming by eligible programmers.  On February 8, 1999 the 
FCC issued its Report and Order pursuant to which these rules become 
effective April 9, 1999 and the required programming must commence by 
December 8, 1999.

RELATIONSHIP WITH HUGHES

     The Company has an important business relationship and course of dealing 
with Hughes, based on their co-ownership of DBS-1, their shared use of the 
DIRECTV/USSB System (including its underlying technology) and their mutual 
objective to build and promote consumer acceptance and growth of the 
DIRECTV/USSB System.  The relationship with Hughes dates back to 1991 and is 
based on contractual arrangements and a history of cooperation. The Company 
and Hughes (or an affiliate of Hughes) are parties to the following 
agreements:

     SATELLITE PAYLOAD PURCHASE AGREEMENT.  In May 1991, the Company entered 
into a Satellite Payload Purchase Agreement (the "SPPA") with Hughes 
Communications Galaxy, Inc. ("HCG"). The SPPA provided for the purchase by 
the Company of a five-sixteenths interest in DBS-1, enabled the Company and 
DIRECTV to share the cost of satellite construction and launch and enabled 
the Company and DIRECTV to become the first high-power DBS satellite 
broadcasters in the United States.  In addition, the SPPA provided that the 
Company would pay its fair share of the development and/or acquisition costs 
for the system technology, which includes conditional access, signal 
processing and other systems.  Through this agreement, DIRECTV and the 


                                      14
<PAGE>

Company utilize a common system and avoid any technical barriers to consumers 
subscribing to both USSB programming and DIRECTV programming.

     TRANSPONDER SERVICE AGREEMENT.  The Company also entered into a 
Transponder Service Agreement with Hughes Communications Satellite Services, 
Inc. ("HCSS"), whereby HCSS provides telemetry, tracking and control of 
DBS-1.  Pursuant to this Agreement, the Company and HCSS technical personnel 
are in regular contact, sharing information regarding the satellite and 
cooperating in managing its operations.

     INTERIM TECHNOLOGY ACCESS AND COORDINATION AGREEMENT.  The Company and 
HCG have entered into an Interim Technology Access and Coordination 
Agreement, which clarifies certain issues regarding the sharing of the 
technology underlying the DIRECTV/USSB System and sets forth the preliminary 
agreement on the sharing of development costs.  In addition, DIRECTV has 
primary responsibility for security of the DIRECTV/USSB System and undertakes 
initiatives to detect signal piracy and implement countermeasures.

     In connection with the execution of the Merger Agreement, the Company 
and Hughes entered into a Replacement Payload Option Agreement which 
clarifies USSB's right to transponder capacity on a replacement satellite in 
the event the Merger Agreement is terminated due to a failure of the 
transponders on DBS-1. The Replacement Payload Option Agreement provides 
that, if the transponders on DBS-1 should fail, USSB may elect to purchase 
five transponders for $90 million on DIRECTV 1-R, a satellite under 
construction by Hughes.  In addition, DIRECTV and the Company entered into a 
Channel Services Provision Agreement which provides that, if the transponders 
on DBS-1 should fail, DIRECTV will provide to USSB, on a full time basis, 
channel capacity and related services on two other satellites owned by Hughes 
at the 101DEG. orbital location sufficient to transmit and deliver four 
premium movie services to USSB subscribers. DIRECTV will continue to provide 
this channel capacity and services unless the Company fails to exercise its 
option to purchase the five transponders under the Replacement Payload Option 
Agreement within 30 days of notice of termination of the merger agreement by 
GM or Hughes.

     Even though the Company and DIRECTV compete for subscriber revenues from 
DIRECTV/USSB System households, there is currently no overlap between USSB 
programming and DIRECTV programming.  In early 1998, the Company cooperated 
with DIRECTV in integrating its basic channels into DIRECTV's programming, so 
that USSB could concentrate on offering premium movie channels.  Accordingly, 
both the Company and DIRECTV have a common interest in promoting awareness of 
the DIRECTV/USSB System, maximizing DIRECTV/USSB System sales and cooperating 
in joint marketing efforts to promote the DIRECTV/USSB System.  See also 
"Marketing."

RISKS IF THE MERGER DOES NOT CLOSE

     The Company is preparing to close the Merger at the earliest practicable 
time.  To prepare for the Merger, the Company has taken certain actions and 
refrained from taking other actions which could have an adverse effect on the 
Company if the Merger does not close.  As required by the Merger Agreement, 
the Company has terminated the contract it had entered into with Convergys 
Information Management Systems for billing and customer management services 
and will be dependent upon DIRECTV for such services after June 1999.  As 
also required by the Merger Agreement, the Company has terminated its 
contract with Lockheed Martin for satellite construction at the 110DEG. 
orbital location.  The Company has paid termination charges in connection 
with these terminations, thereby reducing the Company's available cash 
resources.  The Company has modified or curtailed certain of its marketing 
programs in preparation for the Merger.  The Merger has also created some 
consumer and retail confusion about the on-going need to subscribe to USSB 
services.  The Company could also be competitively disadvantaged if DIRECTV 
completes its acquisition of PRIMESTAR but fails to complete the Merger.

                                      15
<PAGE>

EMPLOYEES

     As of December 31, 1998, the Company employed 178  persons.  None of the 
Company's employees are represented by a union and the Company believes its 
employee relations are satisfactory.

     In addition, pursuant to an Administrative Services Agreement between 
the Company and Hubbard Broadcasting, Inc. ("HBI"), the Company's largest 
shareholder, the Company receives services from certain executives of HBI and 
also from the tax, payroll, accounts payable, risk management, management 
information systems and legal staff of HBI.  The Company incurred an 
aggregate charge of $1,252,000 for such services during the year ended 
December 31, 1998.

EXECUTIVE OFFICERS OF THE REGISTRANT

     The executive officers of the Company are as follows:

<TABLE>
<CAPTION>

NAME                     AGE       POSITION WITH THE COMPANY
----                     ---       -------------------------
<S>                      <C>       <C>
Stanley S. Hubbard       65        Chairman of the Board

Stanley E. Hubbard       37        Chief Executive Officer and President

Robert W. Hubbard        34        Executive Vice President

Gerald D. Deeney         75        Treasurer and Secretary

Bernard J. Weiss         45        Senior Vice President and
                                   Chief Financial Officer

Jan G. Schuth            41        Senior Vice President, Marketing
</TABLE>


     STANLEY S. HUBBARD is the founder of the Company and serves as its 
Chairman of the Board. Mr. Hubbard served as Chief Executive Officer of the 
Company from its inception to November 1995.  Mr. Hubbard is also the 
Chairman of the Board, President and Chief Executive Officer of HBI and 
divides his professional time between the Company and HBI and its affiliates. 
Mr. Hubbard is an executive with several other entities affiliated with HBI, 
including Conus Communications Company Limited Partnership ("Conus"), a 
satellite news gathering firm.  Mr. Hubbard, a graduate of the University of 
Minnesota, joined HBI in 1951.  He and his father, the founder of HBI, were 
co-recipients of the Distinguished Service Award from the National 
Association of Broadcasters in 1995.  Stanley S. Hubbard is the father of 
Stanley E. Hubbard and Robert W. Hubbard.

     STANLEY E. HUBBARD was elected Chief Executive Officer of the Company in 
November 1995. From February 1993 until November 1995, Mr. Hubbard served as 
President and Chief Operating Officer of the Company.  Prior thereto, he 
served as Vice President of the Company.  He has been a director of the 
Company since 1991.  Mr. Hubbard has also been a Vice President of HBI for 
more than five years and has a broad range of television experience.  He 
holds positions in other affiliated companies, including director of HBI.  
Mr. Hubbard is also a director of First Team Sports, Inc.

     ROBERT W. HUBBARD was elected Executive Vice President of the Company in 
February 1993 and elected a director of the Company in September 1992.  Mr. 
Hubbard has a broad range 


                                      16
<PAGE>

of television experience with various HBI affiliates and divides his 
professional time between the Company and HBI and its affiliates.  Mr. 
Hubbard is also a director of HBI and serves as President of its television 
group.

     GERALD D. DEENEY was elected Treasurer of the Company in June 1981 and 
Secretary in January 1996.  Mr. Deeney has been with HBI for more than 
thirty-five years and has been Vice President and Treasurer of HBI for more 
than twenty-five years.  In 1992, Mr. Deeney was elected a director of HBI.

     BERNARD J. WEISS joined the Company in January 1994, has served as Vice 
President of Finance and Administration of the Company since January 1995, 
and was elected Senior Vice President and Chief Financial Officer in May 
1998.  From April 1990 until January 1994, Mr. Weiss served in various 
financial and operating positions at Northwest Airlines, Inc., including 
Director of Budgets and Analysis.  From June 1986 to 1990, Mr. Weiss served 
as Vice President and acting division head of the media and communications 
division of First Banks. Mr. Weiss is a Certified Public Accountant.

     JAN G. SCHUTH joined the Company in July 1997 as Vice President of 
Subscriber Marketing and was promoted to Senior Vice President, Marketing in 
October 1998.  Ms. Schuth has 18 years of marketing experience, with 
expertise in loyalty marketing, advertising and incentives.  Prior to joining 
the Company, Ms. Schuth was employed by Carlson Marketing Group.

                                      17
<PAGE>

                              ITEM 2.  PROPERTIES

     The Company utilizes the following facilities:

<TABLE>
<CAPTION>
           FACILITY                LOCATION          SQUARE       OWNED OR LEASED
           --------                --------          FOOTAGE      ---------------
                                                     -------
 <S>                          <C>                    <C>         <C>
 Executive Offices            St. Paul, Minnesota     17,080     Leased from HBI (a)
 National Broadcast Center    Oakdale, Minnesota      20,500     Owned
 Auxiliary Broadcast Center   St. Paul, Minnesota      1,300     Antennas and equipment
                                                                 are owned by the
                                                                 Company; roof site for
                                                                 antennas is leased
                                                                 from HBI (b)
</TABLE>

(a)  The lease for the Company's executive offices expires on June 30, 2000. 
     The lease may be terminated by either party upon one (1) year's notice.  
     When the Merger is completed this lease becomes terminable upon 60 days' 
     notice.
(b)  The Auxiliary Broadcast Center lease expires on June 30, 1999 and 
     includes three five-year renewal options. When the Merger is completed 
     this lease becomes terminable upon 60 days' notice.

     The Company believes that its executive offices are adequate for its 
office and administrative purposes for the foreseeable future and that its 
National Broadcast Center is sufficient for its signal reception, signal 
processing and uplinking facilities for the foreseeable future.  The 
Company's telemarketing, customer service and billing functions are performed 
for it on a contract basis by third parties and do not require the use of 
Company facilities.


                                      18
<PAGE>

                           ITEM 3.  LEGAL PROCEEDINGS

     The Company is exposed to litigation encountered in the normal course of 
business.  In the opinion of management, the resolution of such litigation 
matters of which the Company is aware will not have a material adverse effect 
on the Company's financial position, results of operations or cash flows.  In 
addition, the Company is a party to the following actions:

     IN THE MATTER OF CERTAIN DIGITAL SATELLITE SYSTEM (DSS) RECEIVERS AND 
     COMPONENTS THEREOF, United States International Trade Commission, 
     Investigation No. 337-TA-392; and PERSONALIZED MEDIA COMMUNICATIONS, 
     L.L.C. V. THOMSON CONSUMER ELECTRONICS, ET AL., United States District 
     Court, Northern District of California, Case No. C-96 20957.

     In November 1996, Personalized Media Communications, L.L.C. ("PMC") 
initiated a legal proceeding before the United States International Trade 
Commission ("ITC") and a separate proceeding in the United States District 
Court for the Northern District of California against DIRECTV/USSB system 
developers, manufacturers and programmers, including, among others, Hughes 
Network Systems, Thomson Consumer Electronics and other DIRECTV/USSB system  
manufacturers, DIRECTV, Inc., and the Company.

     In the ITC action, PMC alleges that Hughes Network Systems, Thomson 
Consumer Electronics and other DIRECTV/USSB system manufacturers have 
infringed, and that DIRECTV, Inc. and the Company have contributed to and/or 
induced the infringement of, a patent owned by PMC and requests the ITC to 
(i) bar the importing, marketing, promoting, distributing, or sale of 
imported infringing DIRECTV/USSB system receivers in the United States which 
are covered by PMC's patent and (ii) prohibit DIRECTV, Inc. and the Company 
from broadcasting television programming to any imported infringing 
DIRECTV/USSB system receiver. A trial of the ITC proceeding before an 
administrative law judge was conducted in July 1997, and an initial 
determination by the administrative law judge was rendered in October 1997 
ruling against PMC's claims on all material issues.

     On December 4, 1997, the ITC determined not to review the Administrative 
Law Judge's determination.  On January 8, 1998, PMC filed a Petition to 
Review this decision of the ITC in the Court of Appeals for the Federal 
Circuit.  The Court of Appeals for the Federal Circuit issued an opinion on 
November 24, 1998 (i) reversing the finding of the ITC that the claims in 
suit were invalid for indefiniteness, (ii) vacating the finding of the ITC 
that claim 7 was infringed and remanding that issue to the ITC for further 
consideration, (iii) affirming the ruling of the ITC that claim 6 was not 
infringed, and (iv) declining to review the holding of the ITC that claim 44 
was likewise not infringed.  In accordance with that opinion, the case has 
been remanded to the ITC for further proceedings.

     In the second action, PMC filed a complaint in the United States 
District Court for the Northern District of California alleging, among other 
things, that USSB and DIRECTV directly infringe at least one claim of each of 
three patents. PMC also alleges that USSB and DIRECTV have contributed to and 
induced the infringement of two of said patents by the other respondents.  
PMC has alleged that the Company's infringement of the said patents is 
willful. PMC has requested an award of damages, that such damages be trebled, 
that the Company and the other respondents be enjoined from further 
infringement of said patents, and award of its attorneys' fees.

     The Company denies that it has engaged in any acts of infringement, 
either directly or indirectly as alleged in PMC's complaint.  Pursuant to a 
stipulated motion to stay the district court action pending the resolution of 
the ITC investigation, the district court entered an order to that effect.


                                      19
<PAGE>

     IPPV ENTERPRISES V. THOMSON CONSUMER ELECTRONICS, INC., HUGHES NETWORK 
     SYSTEMS, SONY CORPORATION OF AMERICA, HITACHI HOME ELECTRONICS 
     (AMERICA), INC., UNIDEN AMERICA CORPORATION, DIRECTV, INC., AND UNITED 
     STATES SATELLITE BROADCASTING COMPANY, INC., United States District 
     Court, District of Delaware, Case No. 97-288.

     In June 1997, IPPV Enterprises, a Georgia partnership ("IPPV"), 
initiated a legal proceeding in the United States District Court for the 
District of Delaware against digital satellite system developers, 
manufacturers, including, among others, Hughes Network Systems, Thomson 
Consumer Electronics and other DIRECTV/USSB system manufacturers, DIRECTV, 
Inc., and the Company.

     IPPV alleges that the defendants, including DIRECTV, Inc. and the 
Company, have infringed five IPPV patents relating to parental control, 
pay-per-view and other features used in the DIRECTV/USSB system.  IPPV has 
requested the court to award IPPV damages, and to treble such damages.  Four 
of the five IPPV patents in the suit have expired and the fifth will expire 
in 2002.

     The Company has denied all material allegations in the complaint.  While 
it is not possible to estimate the probable outcome of this proceeding at 
this time the Company intends to vigorously defend the action.

     WIC PREMIUM TELEVISION LTD. V. GENERAL INSTRUMENT CORPORATION, NEXT 
     LEVEL SYSTEMS, INC., NEXT LEVEL SYSTEMS OF DELAWARE, INC., ET AL., 
     SHOWTIME NETWORKS, INC., ET AL.,  RETAIL SALES AND MARKETING, INC., 
     HOME BOX OFFICE, INC., WARNER COMMUNICATIONS, INC., JOHN DOE, ECHOSTAR 
     COMMUNICATIONS CORPORATION, DISH LTD., ECHOSPHERE CORPORATION, UNITED 
     STATES SATELLITE BROADCASTING COMPANY, INC., CORMAN PARK SATELLITE 
     LTD., WARREN SUPPLY COMPANY, PROGRAMMERS CLEARING HOUSE, INC., RALPH 
     WARREN, RONALD WARREN, RALPH WARREN AND RONALD WARREN CARRYING ON 
     BUSINESS AS "PROGRAMMERS CLEARING HOUSE," AND AS "WARREN ACTIVATIONS," 
     AND AS "WARREN RADIO & TELEVISION," AND AS "ENTERTAINMENT DIRECT," 
     WARREN SUPPLY COMPANY CARRYING ON BUSINESS AS "BUILDERS EXPRESS," 4-12 
     ELECTRONICS CORPORATION, FREEDOM SATELLITE CORPORATION, CHRISTOPHER 
     NELSON PERSONALLY AND CARRYING ON BUSINESS AS "SKYLIGHT HOME SATELLITE 
     THEATER," CHRISTIAN NELSON, SHELDON NELSON AND VIACOM ENTERPRISES 
     CANADA LIMITED, ET AL., in the Federal Court of Canada Trial Division, 
     Court File No. T-1538-98 and in Judicial District of Edmonton, Court 
     File No. 970316746-1998.

     In September 1998, WIC Premium Television Ltd. of Edmonton, Alberta, 
Canada ("WIC") served on USSB, among others, a statement of claim issued by 
the Federal Court of Canada.  WIC alleges that USSB breached Canadian law by 
participating in the broadcast and illegal reception of its services by 
customers located in Canada.  WIC seeks injunctive relief prohibiting such 
action by USSB.

     In October 1998, WIC commenced a similar action against USSB in 
Alberta's Court of Queen's Bench.  WIC alleges that USSB breached Canadian 
law by participating in the broadcast and illegal reception of its services 
by customers located in Canada.  This action seeks injunctive relief and 
damages.

     The Company has not yet defended either complaint and is challenging the 
personal jurisdiction of the Canadian Courts over the Company.  While it is 
not possible to estimate the probable outcome of these proceedings at this 
time, the Company  intends to vigorously defend the actions.


                                      20
<PAGE>

          ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.








                                      21
<PAGE>

                                    PART II

           ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                              STOCKHOLDER MATTERS

     The Company's Class A Common Stock trades on the Nasdaq National Market
under the symbol "USSB."  The following table sets forth the high and low
closing sales prices for such stock as reported on the Nasdaq National Market
for the calendar quarters indicated:

<TABLE>
<CAPTION>
     CALENDAR YEAR                                 HIGH           LOW
     -------------                                 ----           ---
     <S>                                         <C>            <C>
     1997
            First Quarter                        $14.250        $9.375
            Second Quarter                        11.750         8.250
            Third Quarter                          9.250         8.250
            Fourth Quarter                        10.750         7.625

     1998
            First Quarter                        $10.250        $7.563
            Second Quarter                        11.688         8.938
            Third Quarter                         11.688         5.625
            Fourth Quarter                        13.750         5.000
</TABLE>


     On March 23, 1999, the last reported sale price of the Company's Class A
Common Stock was $16.9375 per share.  At that date, the Company had 669 Class A
Common shareholders of record.

     The Company has not paid any cash dividends on its Class A Common Stock and
does not intend to pay cash dividends for the foreseeable future.  Earnings will
be retained for use in the operation and expansion of the Company's business.

REPORT ON SALES OF SECURITIES AND USE OF PROCEEDS THEREFROM.

     Subsequent to the Company's initial public offering, effective January 31,
1996 (Registration No. 33-99906), and pursuant to the requirements of the
Securities Act of 1933, as amended and as then in effect, the Company filed an
initial report on Form SR with the Securities and Exchange Commission on May 10,
1996 and amendments thereto on November 12, 1996, May 12, 1997.  Further
information has been reported in the Company's Reports on Forms 10-K and 10-Q
for the periods commencing with the quarter ended September 30, 1997. 

     The following table sets forth the amount of direct or indirect payments to
others from such effective date through December 31, 1998 which have changed
since the most recently filed report on Form 10-Q.

<TABLE>
<CAPTION>
USE OF PROCEEDS                          DIRECT OR INDIRECT PAYMENTS TO OTHERS
---------------                          -------------------------------------
<S>                                      <C>
Working Capital                                      $33,756,866
Purchase and Installation of Machinery
    and Equipment                                     32,706,606
Temporary Investments
    Short Term Treasuries                             43,764,303
</TABLE>


                                      22
<PAGE>

               ITEM 6. SELECTED FINANCIAL AND OPERATING DATA

United States Satellite Broadcasting Company, Inc. and Subsidiaries

SELECTED FINANCIAL AND OPERATING DATA

<TABLE>
<CAPTION>
                                                                   For the Years Ended December 31
(In thousands, except per share data)                    1998        1997        1996        1995       1994
-------------------------------------------------------------------------------------------------------------
<S>                                                  <C>         <C>         <C>          <C>        <C>
STATEMENT OF OPERATIONS DATA
Revenues                                             $550,801    $456,619    $292,624    $107,926     $5,132
Cost of sales                                         327,676     292,917     193,356      70,961      3,362
-------------------------------------------------------------------------------------------------------------
Gross margin                                          223,125     163,702      99,268      36,965      1,770
Operating expenses:
     Selling and marketing                            114,983      99,399     102,715      62,922     17,598
     Manufacturer incentive                            44,778      66,726      18,387           -          -
     Depreciation and amortization                     17,316      18,426      19,687      21,323     19,775
     General and administrative                        57,571      46,935      31,992      17,040     10,539
     Engineering and operations                        13,834       9,801      11,644       4,564      3,022
     Commissions to retailers                          13,232      14,537      13,909       6,813        307
     Early cancellation of contracts due to merger     22,130           -           -           -          -
     Management fees (a)                                    -           -           -       6,667          -
------------------------------------------------------------------------------------------------------------
         Net operating loss                           (60,719)    (92,122)    (99,066)    (82,364)   (49,471)
Other (income) expense:
     Interest expense                                       -           -       2,326       9,081      8,218
     Interest (income)                                 (4,067)     (4,919)     (6,244)     (1,556)    (1,352)
     Cost to terminate Credit Agreement                     -           -       9,504           -          -
     Other                                                (49)        103         307       1,489        526
------------------------------------------------------------------------------------------------------------
         Net loss                                    ($56,603)   ($87,306)  ($104,959)   ($91,378)  ($56,863)
---------------------------------------------------------------------------------------------------------------
Net loss per share - basic and diluted                 ($0.63)     ($0.97)     ($1.17)     ($1.02)    ($0.63)
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding                    89,811      89,811      89,811      89,811     89,811
</TABLE>

<TABLE>
<CAPTION>
                                                                         At December 31
(In  thousands)                                        1998        1997        1996        1995        1994
------------------------------------------------------------------------------------------------------------
<S>                                                 <C>         <C>         <C>         <C>         <C>
BALANCE SHEET DATA
Cash and cash equivalents                           $66,297     $68,646     $86,518     $19,683      $1,817
Working capital (deficit)                           (34,482)     (8,308)     31,065     (17,786)    (27,353)
Long-term investments                                 4,501       3,970       6,941      13,001      15,298
Total assets                                        190,111     206,310     217,354     149,571     130,472
Long-term debt                                            -           -           -     128,456      68,775
Shareholders' equity (deficit)                      (54,470)      2,099      89,477     (48,972)     41,728
</TABLE>

(a) In connection with management services performed by Hubbard Broadcasting,
Inc. ("HBI") for the Company during 1991 through 1994, the Company agreed to pay
HBI an aggregate of $10.0 million, of which $3.3 million was accrued in 1992 and
the remainder accrued in the third quarter of 1995, when it became likely
certain preconditions to payment would be satisfied.


                                      23
<PAGE>

            ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

     The Company believes that forward-looking statements contained in this
Report on Form 10-K (statements which are phrased in terms of anticipation,
expectation, belief or the like or which refer to future events, developments or
conditions) are "forward-looking statements" within the meaning of and are made
pursuant to the safe harbor provisions contained in the Private Securities
Litigation Reform Act of 1995.  Investors are cautioned that all forward-looking
statements involve risks and uncertainty.  There are certain important factors
that could cause results to differ materially from those anticipated by the
statements made in this Report.  Several of these factors are discussed under
the headings "Overview" and "Risk Factors" below.

AGREEMENT AND PLAN OF MERGER 

     The Company has entered into an Agreement and Plan of Merger dated as of
December 11, 1998 (the "Merger Agreement") with General Motors Corporation, a
Delaware corporation ("GM"), and its subsidiary, Hughes Electronics Corporation,
a Delaware corporation ("Hughes"), pursuant to which, if certain conditions are
satisfied, the Company will be merged with and into Hughes (the "Merger").  The
Merger, which is subject to regulatory and shareholder approval, and to the
satisfaction of other conditions contained in the Merger Agreement, is expected
to take place in the first half of 1999.  If the Merger is completed, each share
of USSB stock will be converted, subject to certain limitations, into either (i)
a fraction of a share of Class H Common Stock of GM equal to the exchange ratio
provided in the Merger Agreement or (ii) cash equal to that exchange ratio
multiplied by the 20-day volume-weighted average price of the GM Class H Common
Stock (the "Merger Consideration").  The Merger Consideration is dependent upon
the GM Class H common stock price and will not exceed $18.00 per share.

OVERVIEW

     The Company provides subscription television programming via a high-power
direct broadcast satellite ("DBS") to households throughout the continental
United States. The Company broadcasts a high quality digital television signal
using a digital satellite system ("DIRECTV/USSB system").  The Company's
programming is available to customers who have a DIRECTV/USSB system, which
consists of an 18-inch satellite dish, a receiver/decoder and a remote control.
At December 31, 1998, approximately 4.32 million households were authorized to
receive programming services using the DIRECTV/USSB system, up from 3.24 million
at December 31, 1997.  All of the Company's gross revenues and identifiable
assets relate to the Company's activities in this industry.

     The Company commenced commercial operations in June 1994 and has not
generated net earnings to date.  Excluding special merger-related charges, the
Company achieved positive adjusted cash flow of $1.7 million (defined as
earnings before interest, taxes, depreciation and amortization and the non-cash
component of the Manufacturer Incentive program) in 1998.  Management expects
that losses will continue into 1999. 

     To simplify the DIRECTV/USSB system offering at retail, the Company and
DIRECTV integrated the basic channels carried by USSB into DIRECTV's programming
line-up and the Company added two new commercial-free premium movie channels
during the first quarter of 1998.


                                      24
<PAGE>

SUMMARY OF SUBSCRIBER AND REVENUE DATA

     Management measures the Company's performance by two key measures:
subscriber base and revenues.

     The number of USSB paying subscribers grew to approximately 2,028,000 at
December 31, 1998 from approximately 1,740,000 at December 31, 1997. 
Approximately 202,000 additional households were receiving a free promotional
month of USSB programming as of December 31, 1998.

     In addition to tracking the absolute number of subscribers, management
assesses the Company's penetration of its potential DIRECTV/USSB System market
by comparing the number of USSB paying subscribers to the total number of
households that have received the free promotional month of USSB programming
("convertible households").  Since the first month is free, the consumer's
decision to purchase USSB programming is generally made by the consumer only
after the free promotional month has been received. As a result, the category of
DIRECTV/USSB system households includes households receiving the free
promotional month that have not yet made their subscription decision.  

     The following summary table shows, as of the end of each period, USSB
paying subscribers, USSB promotional activations, USSB convertible households
and the percentage of convertible households served by the Company. The
estimated number of DIRECTV/USSB households is also shown. 

SUBSCRIBER BASE:
(In thousands)

<TABLE>
<CAPTION>
                                              TOTAL USSB
                                                PAYING                      PERCENT OF
                                              SUBSCRIBERS                      USSB
   FOR THE       USSB            USSB             AND           USSB        CONVERTIBLE
   QUARTER      PAYING        PROMOTIONAL     PROMOTIONAL    CONVERTIBLE    HOUSEHOLDS      ESTIMATED
    ENDED    SUBSCRIBERS(a)  ACTIVATIONS(b)   ACTIVATIONS   HOUSEHOLDS(c)    SERVED(d)    HOUSEHOLDS(e)
    -----    -------------   --------------   -----------   -------------   -----------   -------------
<S>          <C>             <C>              <C>           <C>             <C>           <C>
Dec. 31,
 1997            1,740             215           1,955          2,757           63%           3,238
March 31,
  1998           1,799             106           1,905          3,128           58%           3,467
June 30,
  1998           1,842             111           1,953          3,312           56%           3,667
Sept. 30,
  1998           1,929             150           2,079          3,522           55%           3,945
Dec. 31,
  1998           2,028             202           2,230          3,778           54%           4,324
</TABLE>

(a)  USSB paying subscribers as of the end of such period.

(b)  USSB household activations that were receiving a free promotional month of
     USSB programming as of the end of such period. These activations are not
     counted as USSB Convertible Households until they have completed the free
     promotional month.

(c)  Total number of USSB household activations since July 1994 that have
     completed a free promotional month of USSB programming.  The amounts shown
     reflect the elimination of certain DIRECTV/USSB system deactivations.  See
     note (e).

(d)  Total USSB Paying Subscribers as of the end of the period as a percent of
     USSB Convertible Households.


                                      25
<PAGE>

(e)  Total estimated number of  households with active DIRECTV/USSB system units
     which are authorized to receive either USSB or DIRECTV programming as of
     the end of the period.  Estimate based on cumulative DIRECTV/USSB system
     activations, less:  (i) cumulative DIRECTV/USSB system deactivations, (ii)
     activations by dealers, manufacturing facilities, technical facilities and
     commercial locations known to the Company, and (iii) additional receivers
     in a single household, as of the end of such period.  The Company makes
     periodic reconciliations to estimate the number of DIRECTV/USSB system
     households as accurately as possible.

     As of December 31, 1998, the Company achieved a penetration of convertible
households of approximately 54%.  Management believes that the reduction in the
penetration percentage compared to previous quarters was affected by the closure
of the Company's primary vendor of outbound telemarketing services without
notice to the Company in November 1998, and by the announcement of the Merger,
which created some consumer and retail confusion about the on-going need to
subscribe to USSB services, as well as the remaining impact of the March 1998
change to an all-premium movie channel line-up. 

     The Company's per subscriber and total revenues are shown below for the
periods indicated.  From time to time, the Company engages in certain
promotional activities that include special rates for limited periods, which
typically result in lower average per subscriber revenues for such promotional
periods.

REVENUES:

(In thousands, except per subscriber data)

<TABLE>
<CAPTION>
                                                               FOR THE QUARTER ENDED
                                                               ---------------------
                                            DEC. 31      SEPT. 30     JUNE 30      MARCH 31      DEC. 31
                                             1998          1998        1998          1998         1997
                                             ----          ----        ----          ----         ----
<S>                                         <C>          <C>          <C>          <C>          <C>
Average monthly subscription revenue
 per paying subscriber (a)                   $23.58       $23.53       $23.60       $24.22       $24.66

Total revenues (b)                          $144,685     $136,567     $132,710     $136,839     $128,769
</TABLE>

(a)  Excludes pay-per-view event, commercial and TV GUIDE revenues.
(b)  Includes pay-per-view event, commercial and TV GUIDE revenues.

     The Company's annual churn rate for the year ended December 31, 1998 was
38.2%, compared to 24.7% for the year ended December 31, 1997.  Churn rate
represents the number of the Company's paying customers who terminated their
subscriptions or whose subscriptions were terminated by the Company during such
twelve month period, and who did not resubscribe during that period, expressed
as a percentage of the total number of paying subscribers at the end of such
period.  Management believes that churn on an annual basis was significantly
affected by the March 1998 programming changes.  However, by the fourth quarter,
churn had returned to levels experienced prior to the programming changes. 
Certain of the Company's promotional efforts may attract a higher percentage of
short-term subscribers, thus increasing the Company's churn rate from time to
time.

RESULTS OF OPERATIONS

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO 1997.

     REVENUE OVERVIEW. The Company's total revenues increased to $550.8 million
for 1998 compared to $456.6 million for 1997.  The revenue increase was
primarily attributable to a larger subscriber base, offset by generally reduced
subscription prices which were implemented March 10, 1998.


                                      26
<PAGE>

     REVENUES. The Company derives its revenues principally from monthly fees 
from subscribers for television programming. Revenues are primarily a 
function of the number of subscribers, the mix of programming packages 
selected by customers and the rates charged.  The increase in revenues for 
the year ended December 31, 1998 compared to 1997 was primarily attributable 
to the increase in the number of paying subscribers to approximately 
2,028,000 at December 31, 1998, up from approximately 1,740,000 at December 
31, 1997, offset by a reduction in the average revenue per subscriber.  The 
larger subscriber base increased revenues by approximately $116.8 million, 
and the reduction in the average revenue per subscriber decreased revenues by 
approximately $23.3 million.

     Pay-per-view revenues are included in the Company's total revenue. The 
revenues from such events are highly dependent on the type and number of 
pay-per-view events offered, which are expected to vary.

     COST OF SALES. Cost of sales consists of payments to programmers and the 
purchase of rights to broadcast event programming on a pay-per-view basis.  
The cost of programming increased to $327.7 million for the year ended 
December 31, 1998, compared to $292.9 million for the comparable period in 
1997.  The increase in the cost of programming was primarily the result of an 
increased number of subscribers from 1997.  The Company's gross margin 
percentage increased to 40.5% for the year ended December 31, 1998 compared 
to 35.9% for the comparable period in 1997.  The increase reflects the higher 
margins associated with the Company's all-premium movie channel line-up, as 
well as the achievement of certain volume-based discounts in programming 
costs.  Generally, the gross margin percentage will vary based on the mix of 
programming packages taken by subscribers, the pay-per-view events, and the 
extent to which volume-based discounts from the Company's programming 
providers are realized.

     OPERATING EXPENSE OVERVIEW. Total operating expenses increased to $283.8 
million for the year ended December 31, 1998, compared to $255.8 million for 
the comparable period in 1997.  Excluding the special charges for early 
cancellation of contracts required by the Merger Agreement totaling $22.1 
million, the total expenses increased $5.9 million, or 2.3%, from 1997.  This 
increase was primarily attributable to the cost of providing the Company's 
services to a growing subscriber base, offset by reductions in the 
Manufacturer Incentive program expense.

     SELLING AND MARKETING.  Selling and marketing costs include promotional 
and advertising costs, the costs of direct marketing and customer service and 
amounts expended pursuant to joint marketing efforts with other DIRECTV/USSB 
system participants.  Selling and marketing expenses increased to $115.0 
million for the year ended December 31, 1998 compared to $99.4 million for 
the comparable period in 1997.  This increase was primarily attributable to 
increased customer service and on-going marketing expenditures associated 
with the growth of the Company's subscriber base which, together, totaled 
approximately $22.2 million, offset by a reduction in advertising 
expenditures of approximately $8.8 million. Expenses associated with the 
Company's telemarketing and direct mail marketing programs, which are 
directed at purchasers of DIRECTV/USSB Systems who activate with the Company, 
have increased as the number of such system activations has increased and as 
a result of increased costs under the Company's arrangements with its 
third-party customer service provider.

     MANUFACTURER INCENTIVE PROGRAM.  Manufacturer Incentive program expense
relates to financial incentive arrangements with certain manufacturers of
DIRECTV/USSB System equipment.  These arrangements have had the effect of
contributing to certain DIRECTV/USSB System manufacturers lowering the price of
systems.  Such arrangements commit the Company to pay the manufacturers over a
five-year period from the date new DIRECTV/USSB system households are authorized
to receive programming.  The entire expense and liability for such future
commitments are established and recorded upon activation of the related
DIRECTV/USSB system.  Manufacturer Incentive program expenses totaled $44.8
million for the year ended December 31, 

                                       27
<PAGE>

1998, compared to $66.7 million for the comparable period in 1997.  The 
decrease in the Manufacturer Incentive program expense resulted primarily 
from lower rates with one manufacturer and a temporary reduction of costs 
with another manufacturer in accordance with the arrangement with such 
manufacturer.  The Company expects the total expenses under the Manufacturer 
Incentive program to continue to be a significant component of the Company's 
operating expenses and cash flows.

     GENERAL AND ADMINISTRATIVE.  General and administrative costs include 
in-orbit and general insurance costs, billing and remittance processing, 
staff functions such as finance and information services, and various 
administrative services provided by HBI. General and administrative expenses 
increased to $57.6 million for the year ended December 31, 1998, compared to 
$46.9 million for the comparable period in 1997.  The increase was primarily 
attributable to increased billing and remittance processing costs of 
approximately $5.0 million resulting from the growth of the Company's 
subscriber base, and increased costs for certain other services under the 
Company's arrangements with its third-party subscriber management services 
provider of approximately $2.7 million.

     COMMISSIONS TO RETAILERS.  Commissions to retailers consist of amounts 
paid by the Company to eligible DIRECTV/USSB system retailers whose customers 
become paying subscribers, and are intended to encourage retailers to promote 
the sale of DIRECTV/USSB systems and subscriptions to USSB programming. These 
expenses generally run for three years at decreasing rates for each 
subscriber year. Commissions to retailers were $13.2 million for the year 
ended December 31, 1998, compared to $14.5 million in the comparable period 
in 1997.  The decrease in commission expense was primarily due to higher 
customer churn in 1998.

     ENGINEERING AND OPERATIONS.  Engineering and operations expenses include 
the operation of the National Broadcast Center and the Auxiliary Broadcast 
Center, fees charged in connection with the operation of the conditional 
access system (which fees increase as subscriber levels increase) and 
satellite telemetry, tracking and control expenses. Engineering and 
operations expenses were $13.8 million for the year ended December 31, 1998, 
compared to $9.8 million for the comparable period ended 1997, which included 
a positive adjustment of $2.6 million to the previously recorded expense of a 
security card changeout program. In 1999, the Company may incur additional 
expenses in connection with its periodic upgrade to the security feature of 
the conditional access system.  

     DEPRECIATION AND AMORTIZATION.  Depreciation and amortization expenses 
relate mainly to the Company's five-sixteenths ownership of DBS-1 and 
transmission equipment located both at the Company's National Broadcast 
Center and its Auxiliary Broadcast Center. Depreciation and amortization was 
$17.3 million for the year ended December 31, 1998, compared to $18.4 million 
for the comparable period in 1997. 
     
     EARLY CANCELLATION OF CONTRACTS.  As required by the Merger Agreement, 
the Company has canceled contracts with Lockheed Martin and Convergys 
Information Management Group Inc.  In connection with the cancellation of 
these contracts, the Company has recorded a special one-time charge in the 
fourth quarter of 1998 of $20.7 million. This charge represents the total 
amount of the charge associated with such contract cancellations.  The fourth 
quarter charge includes non-cash write-offs of satellite deposits of $7.6 
million and development costs for subscriber management and billing systems 
of $1.3 million.  The remainder of the fourth quarter charge consists of net 
contract termination fees, which were paid in January 1999.  The charge of 
$22.1 million included in the statement of operations for the year ended 
December 31, 1998 also includes a write-off of satellite deposits of $1.43 
million recorded in June 1998.

                                       28
<PAGE>

     NET LOSS.  The Company recorded a net loss for the year ended December 
31, 1998 of $56.6 million or $.63 per share, compared to a net loss of $87.3 
million or $.97 per share, for 1997.
     
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 AND 1996.

     REVENUE OVERVIEW.  The Company's total revenues increased to $456.6 
million for 1997, compared to $292.6 million for 1996.  The revenue increase 
from year to year was primarily attributable to a larger subscriber base.

     REVENUES.  The increase in revenues for the year ended December 31, 1997 
compared to 1996 was primarily attributable to the increase in the number of 
paying subscribers to approximately 1,740,000 at December 31, 1997, up from 
approximately 1,220,000 at December 31, 1996, offset by a reduction in 
average revenue per subscriber.  The increase in the subscriber base 
increased revenue by approximately $163.0 million, and the reduction in 
average revenue per subscriber decreased revenue by approximately $6.0 
million.

     COST OF SALES.  The cost of programming increased to $292.9 million for 
the year ended December 31, 1997, compared to $193.4 million for 1996.  The 
increase in cost of programming for these periods was primarily the result of 
an increased number of subscribers. The Company's gross margin percentage 
increased to 35.9% for the year ended December 31, 1997 compared to 33.9% for 
the comparable period in 1996.  Programming costs as a percent of programming 
revenues will vary based on the mix of programming packages taken by 
subscribers, the number and type of pay-per-view events, and the extent to 
which volume-based discounts from the Company's programming providers are 
realized.

     OPERATING EXPENSE OVERVIEW. Total operating expenses increased to $255.8 
million for 1997, compared to $198.3 million for 1996.  The increase was 
primarily attributable to the cost of providing the Company's services to a 
growing subscriber base, including increased marketing, customer service, 
security and encryption fees.  The Manufacturer Incentive program also 
contributed to the increase.

     SELLING AND MARKETING.  Selling and marketing expenses were $99.4 
million for the year ended December 31, 1997, compared to $102.7 million for 
1996.  The decrease was primarily attributable to reduced advertising and 
marketing expenditures of approximately $14.2 million, offset partially by 
increased customer service expenditures of approximately $9.0 million 
associated with the growth of the Company's subscriber base.

     MANUFACTURER INCENTIVE PROGRAM. Manufacturer Incentive program expenses 
totaled $66.7 million for the year ended December 31, 1997, compared to $18.4 
million for 1996.  The Company began incurring expenses under the 
Manufacturer Incentive program in August 1996.

     GENERAL AND ADMINISTRATIVE. General and administrative expenses 
increased to $46.9 million for 1997, compared to $32.0 million for 1996.  The 
increase was primarily attributable to increased billing and remittance 
processing costs of approximately $4.0 million and increased bad debt expense 
of approximately $6.1 million, both resulting from the approximately 60% 
growth of the Company's subscriber base.  

     COMMISSIONS TO RETAILERS. Commissions to retailers increased to $14.5 
million for 1997, compared to $13.9 million for 1996.  The increase reflected 
greater numbers of USSB subscribers, offset by the effect of lower 
per-subscriber commission rates over the lifetime of a subscriber.

     ENGINEERING AND OPERATIONS. Engineering and operations expenses were $9.8
million for 1997, compared to $11.6 million for 1996. Such expenses were higher
during 1996 because the 

                                       29
<PAGE>

Company incurred significant costs in connection with an upgrade to the 
conditional access system of approximately $4.2 million.

     DEPRECIATION AND AMORTIZATION. Depreciation and amortization was $18.4 
million for 1997, compared to $19.7 million for 1996.

     NET OPERATING LOSS. The Company recorded a net operating loss for 1997 
of $92.1 million, compared to a net operating loss of $99.1 million for 1996. 

     INTEREST EXPENSE. The Company incurred no interest expense for 1997, 
compared to $2.3 million for 1996. The change in interest expense reflects 
changes in the amount and duration of the Company's borrowings during these 
periods.

     INTEREST INCOME. Interest income for 1997 was $4.9 million, compared to 
$6.2 million for 1996.  Interest income in 1996 included the investment of 
the proceeds of the public offering of the Company's Class A Common Stock, 
which closed on February 6, 1996.

     NET LOSS. The Company recorded a net loss for 1997 of $87.3 million, or 
$.97 per share compared to $105.0 million, or $1.17 per share for 1996.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

     LIQUIDITY AND CAPITAL RESOURCES.  Cash and cash equivalents decreased to 
$66.3 million at December 31, 1998 from $68.6 million and $86.5 million at 
December 31, 1997 and 1996, respectively.  The decrease in cash at December 
31, 1998 from prior years primarily reflects the net operating results of the 
Company.
     
     The Company's cash flow from operations is primarily impacted by the net 
loss, depreciation and amortization, and the non-cash component of the 
Manufacturer Incentive program.  In addition, cash and cash equivalents may 
fluctuate based upon subscriber growth and the timing of annual subscription 
renewals.  Management believes that the Company's current cash position and 
cash generated from operations is adequate to meet anticipated operating 
expenses.

     As a result of the pending Merger, the Company has terminated its 
contracts requiring material capital expenditures, and had no material 
commitments for capital expenditures as of December 31, 1998.  The Company 
does not expect to incur significant future capital expenditures.  In 
connection with the Merger Agreement, the Company and Hughes have entered 
into a Replacement Payload Option Agreement which clarifies USSB's right to 
transponder capacity on a replacement satellite if the Merger Agreement is 
terminated due to the failure of the transponders on DBS-1.  The Replacement 
Payload Option Agreement provides that USSB may elect to purchase five 
transponders at a fixed price of $90.0 million on DIRECTV 1-R, a satellite 
under construction by Hughes.  In the event the Merger is not consummated 
because of the failure of DBS-1, the Company would require external financing 
for such satellite capacity.   The Company believes that such financing would 
be available.

     WORKING CAPITAL. Working capital at December 31, 1998 was a negative 
$34.5 million compared to a negative $8.3 million at December 31, 1997.  This 
change resulted primarily from the Company's net loss in 1998, the increase 
in the current portion of the Manufacturer Incentive program obligation, and 
the payable resulting from the early cancellation of contracts required by 
the Merger Agreement.  Management expects that working capital will remain 
negative through 1999 as the current portion of the Manufacturer Incentive 
program obligation increases.  The Company's working capital at December 31, 
1996 was $31.1 million, which reflected the proceeds of the public offering 
of the Company's Class A Common Stock in February 1996. 

                                       30
<PAGE>

     LITIGATION. Personalized Media Communications, L.L.C. ("PMC") has 
commenced two legal proceedings against Hughes Network Systems, Thomson 
Consumer Electronics and other DIRECTV/USSB System manufacturers, DIRECTV, 
Inc., and the Company. 

     IPPV Enterprises, a Georgia partnership, has commenced a legal 
proceeding against Thomson Consumer Electronics, Hughes Network Systems, 
other DIRECTV/USSB System manufacturers, DIRECTV, Inc., and the Company. 
     
     WIC Premium Television, Ltd., an Edmonton, Alberta, Canada corporation, 
("WIC") initiated two separate legal proceedings in the Federal Court of 
Canada Trial Division and in the Judicial District of Edmonton against 
numerous retailers, programming providers, and programming distributors, 
including the Company. 
     
     The ultimate outcome of these matters and the resulting effect on the 
liquidity and financial position of the Company cannot be determined with 
certainty.  Item 3, ""Legal Proceedings" contains additional information on 
these matters.
     
     CAPITAL EXPENDITURES. Capital expenditures for the year ended December 
31, 1998 totaled $12.7 million, consisting primarily of satellite deposits 
and purchased computer hardware and software.  

     NET OPERATING LOSS CARRYFORWARD. At December 31, 1998, the Company's net 
operating loss carryforward was $344.3 million for federal tax purposes.  
Such carryforwards expire in the years 2000 through 2014.  

YEAR 2000

     The Company has analyzed Year 2000 compliance issues related to its 
computer systems and technologies associated with delivering programming.  
Based on its current assessment, management believes that Year 2000 
compliance will not pose significant operational issues. The Company is 
executing an implementation plan whereby all systems critical to managing the 
business will be made Year 2000 compliant.  The implementation plan includes 
assessing and evaluating compliance and criticality of the various computer 
systems, executing resolution strategies, and testing and certification of 
the resolution efforts. Most of the Company's internal computer systems and 
applications and programming technologies were developed during the past 
several years and are substantially Year 2000 compliant.  In addition, the 
Company is working with its other key vendors and suppliers, including its 
programming providers and current customer service and billing vendor, to 
assure that the vendors' systems will be Year 2000 compliant.  The Company 
has been informed in writing by its current customer service and billing 
vendor that such vendor expects to be substantially Year 2000 compliant by 
July 1999, and the Company believes that all its key vendors will be Year 
2000 Compliant, and expects to receive written assurance from such vendors.

     If the pending Merger closes, Hughes, as the surviving corporation, will 
acquire all of the assets and vendor contracts of the Company.
     
     If the Merger does not close, the Company and DIRECTV have agreed that 
DIRECTV will provide USSB with billing and subscriber management services 
commencing July 1, 1999.  The Company has been informed in writing by DIRECTV 
that DIRECTV expects its billing and customer management system to be 
substantially Year 2000 compliant by June 1999. 

     In the event the Merger is not completed, and DIRECTV is not Year 2000 
compliant, the Company would continue to use its current customer service and 
billing vendor to provide customer service and billing services at an 
increased cost.  The Company believes the worst case 

                                       31
<PAGE>

scenario would occur if both its current billing and customer service 
provider and DIRECTV failed to become Year 2000 compliant.  Under these 
circumstances, the Company's operations and its ability to provide customer 
service and billing would be materially adversely affected.

     The Company has begun to incur expenses related to the analysis and 
implementation of Year 2000 resolution.  The cost of all Year 2000 renovation 
has been expensed in accordance with the Company's financial policies.  The 
Company's current and expected costs relating to Year 2000 issues are not 
material to its results of operations.

SEASONALITY

     Sales of DIRECTV/USSB System units are subject to seasonal sales 
patterns experienced by the consumer electronics industry.  As the Company's 
subscriber base has increased, it does not appear that seasonality has had a 
material effect on the Company's revenues to date, although seasonality may 
affect the rate of subscriber growth and levels of prepaid subscriptions in 
any given quarter.

RISK FACTORS

     The Company is preparing to close the Merger at the earliest practicable 
time and has commenced steps to integrate its business into DIRECTV's.  So 
long as the Company continues to operate on a stand-alone basis, or if the 
Merger is not completed, there are certain important factors that could cause 
actual results to differ materially from those anticipated by the statements 
made in this Report on Form 10-K.  Such factors include the uncertain level 
of ultimate demand for the DIRECTV/USSB System and USSB's programming, the 
effects of changes in USSB's and DIRECTV's programming offerings, USSB's 
continuing ability to offer competitive programming, and the competitive 
disadvantage of not closing the announced Merger.

     In addition, competitive issues, including changes by other DBS 
competitors to their product offerings and pricing strategies, and the effect 
of digital cable programming and digital broadcast television service, which 
may be used for multichannel programming or high definition television (HDTV) 
and the entry of new competitors into video programming, such as electric 
utilities and regional operating telephone companies, could adversely affect 
the Company.  The Company anticipates that other DBS satellites will be 
launched at the 110DEG. west longitude and other orbital locations, thereby 
increasing the competition in the satellite broadcasting market.
     
     All of the Company's programming is carried on a single satellite, 
DBS-1, which the Company co-owns with DIRECTV.  In connection with the 
execution of the Merger Agreement, DIRECTV and the Company entered into a 
Channel Services Provision Agreement which provides that, subject to the 
terms of that Agreement, DIRECTV will provide to USSB, on a full time basis, 
channel capacity and related services on two other satellites owned by Hughes 
at the 101DEG.  orbital location sufficient to transmit and deliver a limited 
number of premium movie services to USSB subscribers.  Not all of the 
channels currently carried by the Company could be carried under this 
arrangement.
     
     The Company is also subject to the effects of, and costs associated 
with, litigation involving the technology and the intellectual property 
associated with the DIRECTV/USSB System.  DIRECTV has initiated the use of 
the mark "DIRECTV System" to identify the DIRECTV/USSB system in lieu of the 
formerly-used "DSS" mark.  If the Merger is not completed, such use could 
adversely affect the Company.
     
     The Company is also dependent on third-party programmers, and on 
vendors, including those providing customer service and billing services.  If 
the Merger is not completed, DIRECTV 

                                       32
<PAGE>

has agreed in the Merger Agreement to provide billing and customer management 
systems to the Company commencing on the later of July 1, 1999 or upon 
termination of the Merger Agreement.  The Company has terminated its contract 
for subscriber management services with Convergys Information Management 
Group Inc. as required by the Merger Agreement, and the Company will be 
dependent upon DIRECTV to provide such services if the Merger is not 
completed.  The Company is also dependent upon the continued effectiveness of 
the security and signal encryption features of the DIRECTV/USSB System. 
     
     Such factors as increases in costs, including programming costs, in 
excess of those anticipated by the Company; sufficient availability of 
DIRECTV/USSB systems at retail; potential adverse governmental regulations 
and actions; and overall economic conditions may also adversely affect the 
Company.  The Telecommunications Act of 1996 significantly deregulated the 
telecommunications industry.  The effect of such deregulation on the 
Company's business, results of operations and financial condition cannot be 
predicted.  See Part I, Item I, "Business - Competition" of this Report on 
Form 10-K for a further discussion of certain of these risks.

                                       33
<PAGE>

         ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

United States Satellite Broadcasting Company, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                             As of December 31,

------------------------------------------------------------------------------------------------------------------
(In thousands, except share and per share data)                                                1998           1997
------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>            <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents                                                                 $  66,297      $  68,646
Trade accounts receivable, less allowance of $5,986 and $6,074
     at December 31, 1998 and 1997, respectively                                             47,843         44,992
Prepaid expenses and other                                                                    8,856         11,832
------------------------------------------------------------------------------------------------------------------
         Total current assets                                                               122,996        125,470
------------------------------------------------------------------------------------------------------------------

PROPERTY AND EQUIPMENT
Land                                                                                            351            351
Buildings and improvements                                                                    5,106          5,075
Equipment                                                                                   150,249        138,264
------------------------------------------------------------------------------------------------------------------
                                                                                            155,706        143,690
Less - Accumulated depreciation                                                             (96,548)       (79,235)
------------------------------------------------------------------------------------------------------------------
         Total property and equipment, net                                                   59,158         64,455
------------------------------------------------------------------------------------------------------------------

OTHER ASSETS
Satellite deposits                                                                                -          8,380
Long-term investments                                                                         4,501          3,970
Other                                                                                         3,456          4,035
------------------------------------------------------------------------------------------------------------------
         Total other assets                                                                   7,957         16,385
------------------------------------------------------------------------------------------------------------------
                                                                                          $ 190,111      $ 206,310
------------------------------------------------------------------------------------------------------------------

Liabilities and Shareholders' Equity (Deficit)
CURRENT LIABILITIES
Accounts payable and accrued expenses                                                     $  65,743      $  60,599
Deferred revenue                                                                             52,956         56,156
Manufacturer Incentive obligation                                                            25,579         17,023
Contract cancellation payable                                                                13,200              -
------------------------------------------------------------------------------------------------------------------
         Total current liabilities                                                          157,478        133,778
------------------------------------------------------------------------------------------------------------------

MANUFACTURER INCENTIVE OBLIGATION                                                            77,103         60,433
DUE TO HBI                                                                                   10,000         10,000
COMMITMENTS AND CONTINGENCIES (NOTE 4)
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred Stock, $.01 par value, 50 million shares authorized; none issued
    or outstanding                                                                                -              -
Class A Common Stock -
     Participating, voting, $.0001 par value, 500 million shares authorized,
         29,390,450 and 16,172,601 shares issued and outstanding at December 31, 1998
         and 1997, respectively                                                                   2              2
Common Stock -
     Participating, voting, $.0001 par value, 100 million shares authorized,
         60,422,825 and 73,638,174 shares issued and outstanding at December 31, 1998
         and 1997, respectively                                                                   7              7
Additional paid-in capital                                                                  374,896        374,877
Accumulated deficit                                                                        (429,380)      (372,777)
Accumulated other comprehensive income (deficit)                                                  5            (10)
------------------------------------------------------------------------------------------------------------------
Total shareholders' equity (deficit)                                                        (54,470)         2,099
------------------------------------------------------------------------------------------------------------------
                                                                                          $ 190,111      $ 206,310
------------------------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.


                                        34
<PAGE>

United States Satellite Broadcasting Company, Inc. and Subsidiaries
CONSOLIDATED  STATEMENTS OF  OPERATIONS

<TABLE>
<CAPTION>
                                                                          For the Years Ended December 31,

(In thousands, except per share data)                                    1998           1997           1996
-----------------------------------------------------------------------------------------------------------
<S>                                                                 <C>            <C>            <C>
REVENUES                                                            $ 550,801      $ 456,619      $ 292,624
COST OF SALES                                                         327,676        292,917        193,356
-----------------------------------------------------------------------------------------------------------
GROSS MARGIN                                                          223,125        163,702         99,268

OPERATING EXPENSES
Selling and marketing                                                 114,983         99,399        102,715
Manufacturer Incentive                                                 44,778         66,726         18,387
General and administrative                                             57,571         46,935         31,992
Commissions to retailers                                               13,232         14,537         13,909
Engineering and operations                                             13,834          9,801         11,644
Depreciation and amortization                                          17,316         18,426         19,687
Early cancellation of contracts due to merger (Note 2)                 22,130              -              -
-----------------------------------------------------------------------------------------------------------
     Net operating loss                                               (60,719)       (92,122)       (99,066)

-----------------------------------------------------------------------------------------------------------

OTHER (INCOME) EXPENSE
Interest expense                                                            -              -          2,326
Interest (income)                                                      (4,067)        (4,919)        (6,244)
Cost to terminate Credit Agreement                                          -              -          9,504
Other                                                                     (49)           103            307
-----------------------------------------------------------------------------------------------------------
     Net loss                                                       ($ 56,603)     ($ 87,306)     ($104,959)
-----------------------------------------------------------------------------------------------------------
     Net loss per share - basic and diluted                         ($   0.63)     ($   0.97)     ($   1.17)
-----------------------------------------------------------------------------------------------------------
     Weighted average shares outstanding - basic and diluted           89,811         89,811         89,811
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.


                                              35
<PAGE>

United States Satellite Broadcasting Company, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                   Class A
                                                                   -------
                                                                 Common Stock                       Common Stock
                                                                 ------------                       ------------
(In thousands, except per share data)                       Shares           Amount            Shares          Amount
<S>                                                         <C>            <C>                 <C>           <C>

-----------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (DEFICIT) AT DECEMBER 31, 1995          16,876        $       2           72,935        $       7

Conversion of shares pursuant to
      Recapitalization                                      (16,876)              (2)          16,876                2
Conversion of notes and cancellation of
      warrants                                                    -                -            7,412                1
Conversion of shares available for
      overallotment                                           1,245                -           (1,245)               -
Transfer of common stock from HBI                                 -                -          (15,712)              (2)
Sale of Class A common stock for
      $27 per share, net                                      8,300                1                -                -
Conversion of shares pursuant to
      certain shareholder rights                              5,570                1           (5,570)              (1)
Media credits utilized                                            -                -                -                -
Unrealized loss on investments                                    -                -                -                -
Net loss                                                          -                -                -                -
-----------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (DEFICIT) AT DECEMBER 31, 1996          15,115                2           74,696                7
Conversion of shares pursuant to
      certain shareholder rights                              1,058                -           (1,058)               -
Media credits utilized                                            -                -                -                -
Media credits cancelled                                           -                -                -                -
Unrealized gain on investments                                    -                -                -                -
Net loss                                                          -                -                -                -
-----------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (DEFICIT) AT DECEMBER 31, 1997          16,173                2           73,638                7
Conversion of shares pursuant to
      certain shareholder rights                             13,215                -          (13,215)               -
Issuance of Class A Common stock                                  2                -                -                -
Unrealized gain on investments                                    -                -                -                -
Net loss                                                          -                -                -                -
-----------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (DEFICIT) AT DECEMBER 31, 1998          29,390        $       2           60,423        $       7
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------


<CAPTION>
                                                                            Additional                      Accumulated
                                                                             Paid-In       Accumulated         Other
(In thousands, except per share data)                      Warrants          Capital         Deficit       Comprehensive
                                                                                                          Income (Deficit)
--------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>              <C>              <C>           <C>
SHAREHOLDERS' EQUITY (DEFICIT) AT DECEMBER 31, 1995       $   7,350        $ 127,423        ($180,512)       $     154

Conversion of shares pursuant to
      Recapitalization                                            -                -                -                -
Conversion of notes and cancellation of
      warrants                                               (7,350)          44,491                -                -
Conversion of shares available for
      overallotment                                               -                -                -                -
Transfer of common stock from HBI                                 -                -                -                -
Sale of Class A common stock for
      $27 per share, net                                          -          206,200                -                -
Conversion of shares pursuant to
      certain shareholder rights                                  -                -                -                -
Media credits utilized                                            -                -                -                -
Unrealized loss on investments                                    -                -                -             (176)
Net loss                                                          -                -         (104,959)               -
--------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (DEFICIT) AT DECEMBER 31, 1996               -          378,114         (285,471)             (22)
Conversion of shares pursuant to
      certain shareholder rights                                  -                -                -                -
Media credits utilized                                            -                -                -                -
Media credits cancelled                                           -           (3,237)               -                -
Unrealized gain on investments                                    -                -                -               12
Net loss                                                          -                -          (87,306)               -
--------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (DEFICIT) AT DECEMBER 31, 1997               -          374,877         (372,777)             (10)
Conversion of shares pursuant to
      certain shareholder rights                                  -                -                -                -
Issuance of Class A Common stock                                  -               19                -                -
Unrealized gain on investments                                    -                -                -               15
Net loss                                                          -                -          (56,603)               -
--------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (DEFICIT) AT DECEMBER 31, 1998               -        $ 374,896        ($429,380)       $       5
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------


<CAPTION>
                                                           Unused
                                                            Media
(In thousands, except per share data)                      Credits            Total

------------------------------------------------------------------------------------
<S>                                                       <C>              <C>
SHAREHOLDERS' EQUITY (DEFICIT) AT DECEMBER 31, 1995         ($3,396)       ($ 48,972)

Conversion of shares pursuant to
      Recapitalization                                            -                -
Conversion of notes and cancellation of 
      warrants                                                    -           37,142
Conversion of shares available for
      overallotment                                               -                -
Transfer of common stock from HBI                                 -               (2)
Sale of Class A common stock for
      $27 per share, net                                          -          206,201
Conversion of shares pursuant to
      certain shareholder rights                                  -                -
Media credits utilized                                          243              243
Unrealized loss on investments                                    -             (176)
Net loss                                                          -         (104,959)
------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (DEFICIT) AT DECEMBER 31, 1996          (3,153)          89,477
Conversion of shares pursuant to
      certain shareholder rights                                  -                -
Media credits utilized                                          (84)             (84)
Media credits cancelled                                       3,237                -
Unrealized gain on investments                                    -               12
Net loss                                                          -          (87,306)
------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (DEFICIT) AT DECEMBER 31, 1997               -            2,099
Conversion of shares pursuant to
      certain shareholder rights                                  -                -
Issuance of Class A Common stock                                  -               19
Unrealized gain on investments                                    -               15
Net loss                                                          -          (56,603)
------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (DEFICIT) AT DECEMBER 31, 1998               -        ($ 54,470)
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.


                                         36
<PAGE>

United States Satellite Broadcasting Company, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                 For the Years Ended December 31
(In thousands)                                                                1998             1997             1996
--------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>              <C>              <C>
OPERATING ACTIVITIES
Net Loss                                                                 ($ 56,603)       ($ 87,306)       ($104,959)
Adjustments to reconcile net loss to net cash provided by (used in)
  operating activities -
     Depreciation and amortization                                          17,316           18,426           19,687
     Deferred loan origination fees charged to expense in
          connection with termination of Credit Agreement                       --               --            5,465
     Early cancellation of contracts due to merger                           9,030               --               --
     Media credits utilized                                                     --              (84)             243
     Change in operating items:
          Trade accounts receivable                                         (2,850)          (2,590)         (25,532)
          Prepaid expenses and other current assets                          2,975           (6,969)            (278)
          Accounts payable and accrued expenses                              5,144            8,679           19,851
          Contract cancellation payable                                     13,200               --               --
          Deferred revenue                                                  (3,200)           9,036           23,943
          Manufacturer Incentive                                            25,225           59,146           14,632
          Other                                                                563           (3,829)            (852)
--------------------------------------------------------------------------------------------------------------------
               Net cash provided by (used in) operating activities          10,800           (5,491)         (47,800)
--------------------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES
Purchase of and deposits on equipment                                      (12,668)         (14,854)          (5,487)
Purchase of investments                                                       (500)              --               --
Proceeds from sale of investments                                               --            3,000            5,996
--------------------------------------------------------------------------------------------------------------------
               Net cash provided by (used in) investing activities         (13,168)         (11,854)             509
--------------------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES
Advances from (repayments to) affiliated companies                              --             (527)            (637)
Proceeds from debt borrowings                                                   --               --              485
Repayment of debt                                                               --               --          (91,922)
Proceeds from sale of common stock                                              19               --          206,200
--------------------------------------------------------------------------------------------------------------------
               Net cash provided by (used in) financing activities              19             (527)         114,126
--------------------------------------------------------------------------------------------------------------------
               Increase (decrease) in cash and cash equivalents             (2,349)         (17,872)          66,835

CASH AND CASH EQUIVALENTS, beginning of period                              68,646           86,518           19,683
--------------------------------------------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS, end of period                                 $  66,297        $  68,646        $  86,518
--------------------------------------------------------------------------------------------------------------------

NONCASH TRANSACTIONS
Conversion of notes and cancellation of warrants                         $      --        $      --        $  44,491
--------------------------------------------------------------------------------------------------------------------
Expiration of unused media credits                                       $      --        $   3,237        $      --
--------------------------------------------------------------------------------------------------------------------

SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid during the period for -
     Interest                                                            $      --        $      --        $      --
     Income taxes                                                        $      --        $      --        $      --
--------------------------------------------------------------------------------------------------------------------
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.


                                    37
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

     United States Satellite Broadcasting Company, Inc. and Subsidiaries 
("USSB" or the "Company") provide subscription television programming via a 
high-power direct broadcast satellite ("DBS") to households throughout the 
continental United States.  The Company broadcasts a high quality digital 
television signal using a digital satellite system ("DIRECTV/USSB System").  
The Company's programming is available to customers who have a DIRECTV/USSB 
unit, which consists of an 18-inch satellite dish, a receiver/decoder and a 
remote control. All of the Company's gross revenues and identifiable assets 
relate to the Company's activities in this industry.

     Hubbard Broadcasting, Inc. ("HBI") beneficially owned 51.8% of the 
Company as of December 31, 1998 and 1997, and had approximately 73.4% of the 
total voting power at December 31, 1998.

     Until July 1, 1994, the Company was a development stage company. The 
Company has incurred losses since its inception and had an accumulated 
deficit of approximately $429.4 million as of December 31, 1998.  Management 
anticipates that losses will continue into 1999.  

     The Company has entered into an Agreement and Plan of Merger dated as of 
December 11, 1998 (the "Merger Agreement") with General Motors Corporation, a 
Delaware corporation ("GM"), and its subsidiary Hughes Electronics 
Corporation, a Delaware corporation ("Hughes"), pursuant to which, if certain 
conditions are satisfied, the Company will be merged with and into Hughes 
(the "Merger") (See Note 2). 

PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of the 
Company and its wholly owned Subsidiaries, including USSB II, Inc. ("USSB 
II"). USSB II owns the Company's satellite transponders and holds the 
Company's FCC licenses and permits (see Note 4). All significant intercompany 
accounts and transactions have been eliminated in consolidation. 

USE OF ESTIMATES

     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 and 
disclosure of contingent assets and liabilities at the date of the financial 
statements and the reported amounts of revenues and expenses during the 
reporting period.  Ultimate results could differ from those estimates.

CASH AND CASH EQUIVALENTS

     Cash and cash equivalents, which consist primarily of short-term United 
States Treasury-backed securities with original maturities of less than 90 
days, are stated at cost, which approximates fair value.

INVESTMENTS

     Long-term investments at December 31, 1998, consist primarily of a U.S. 
Treasury security maturing in 1999, which the Company classifies as 
available-for-sale.  The Treasury security bears interest at 5.5% and its 
aggregate amortized cost approximated its market value of 

                                       38
<PAGE>

$4,001,000 at December 31, 1998. Unrealized gains and losses are reported as 
other comprehensive income.

MANUFACTURER INCENTIVE PROGRAM

     The Company's costs under its financial incentive arrangements with 
manufacturers of DIRECTV/USSB System equipment are charged to expense as 
incurred.  See Note 4 for additional disclosure regarding these arrangements.

RETAILER COMMISSIONS

     The Company generally pays commissions to eligible retailers for their 
customers who are current USSB subscribers.  Commissions paid are charged to 
expense over the related subscription period.  Accrued retailer commissions 
totaled $5,262,000 at December 31, 1998 and $5,996,000 at December 31, 1997.

PROPERTY AND EQUIPMENT

     Property and equipment is stated at cost.  Depreciation is provided 
using accelerated and straight-line methods based on estimated useful lives 
as follows: 

<TABLE>
<S>                                           <C>
            Satellite Transponders            10 years
            Other Equipment                   5-10 years
            Buildings & Improvements          31 years
</TABLE>
                    
FINANCIAL INSTRUMENTS

     Unless otherwise indicated, the recorded value of the Company's 
financial instruments approximates their fair value. 

REVENUE RECOGNITION

     Programming revenues are recorded when the respective services are 
rendered.  Subscriptions received in advance of the delivery of the related 
programming are recorded as deferred revenue. 

ADVERTISING AND PROMOTIONS

     Costs for advertising and promotional materials and activities 
(including the cost, if any, of programming provided to current or 
prospective customers free of charge) are charged to expense as incurred. 

RESEARCH AND DEVELOPMENT

     Costs related to the Company's research and development efforts are 
charged to expense as incurred. 

INCOME TAXES

     Deferred income tax assets and liabilities are computed annually for 
differences between the financial statement and tax bases of assets and 
liabilities.  These differences will result in taxable or 

                                       39
<PAGE>

deductible amounts in the future based on enacted tax laws and are applicable 
to the periods in which the differences are expected to affect taxable 
income. 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     The Company adopted FASB Statement No. 130, "Reporting Comprehensive 
Income" (SFAS No. 130), effective January 1, 1998.  SFAS No. 130 establishes 
standards for reporting and display of comprehensive earnings and its 
components in financial statements.  Comprehensive income is defined as 
changes in equity of a business enterprise during a period except those 
resulting from investment by owners and distributions to owners.  The 
adoption of SFAS No. 130 had no impact on the Company's statements of 
operations or shareholders' equity as of December 31, 1998.
     
     In June 1998, the Financial Accounting Standards Board issued Statement 
of Financial Accounting Standards No. 133 "Accounting for Derivative 
Instruments and Hedging Activities" (SFAS No. 133).  SFAS No. 133 establishes 
accounting and reporting standards requiring that every derivative financial 
instrument (including certain derivative instruments embedded in other 
contracts) be recorded in the balance sheet either as an asset or liability 
measured at  its fair value.  SFAS No. 133 requires that changes in the 
derivative's fair value be recognized currently in earnings unless specific 
hedge accounting criteria are met.  Special accounting for qualifying hedges 
allows a derivative's gains and losses to offset related results on the 
hedged item in the income statement, and requires that a company must 
formally document, designate, and assess the effectiveness of transactions 
that receive hedge accounting.  The Company will be required to adopt SFAS 
No. 133 no later than January 1, 2000.  The Company has not entered into any 
derivative financial instruments as of December 31, 1998.  As a result, 
adoption of SFAS No. 133 would currently have no impact on the Company.  In 
the future, if the Company were to enter into derivative financial 
instruments which are covered by SFAS No. 133, volatility in earnings and 
other comprehensive income could be increased. 

2.   AGREEMENT AND PLAN OF MERGER 

The Company has entered into an Agreement and Plan of Merger dated as of 
December 11, 1998 (the "Merger Agreement") with General Motors Corporation, a 
Delaware corporation ("GM"), and its subsidiary Hughes Electronics 
Corporation, a Delaware corporation ("Hughes"), pursuant to which, if certain 
conditions are satisfied, the Company will be merged with and into Hughes 
(the "Merger").  The Merger, which is subject to regulatory and shareholder 
approval, and to the satisfaction of other conditions contained in the Merger 
Agreement, is expected to take place in the first half  of 1999.  If the 
Merger is completed, each share of USSB stock will be converted, subject to 
certain limitations, into either (i) a fraction of a share of Class H Common 
Stock of GM equal to the exchange ratio provided in the Merger Agreement or 
(ii) cash equal to that exchange ratio multiplied by the 20-day 
volume-weighted average price of the GM Class H Common Stock (the "Merger 
Consideration"). The Merger Consideration is dependent upon the GM Class H 
Common Stock price and will not exceed $18.00 per share.

     As required by the Merger Agreement, the Company has canceled contracts 
with Lockheed Martin and Convergys Information Management Group Inc.  In 
connection with the cancellation of these contracts, the Company recorded a 
special one-time charge in the fourth quarter of 1998 of $20.7 million.  This 
charge represents the total amount of the charge associated with such 
contract cancellations.  The fourth quarter charge includes non-cash 
write-offs of satellite deposits of $7.6 million and development costs for 
subscriber management and billing systems of $1.3 million.  The remainder of 
the fourth quarter charge consists of net contract termination fees, which 
were paid in January 1999.  The charge of $22.1 million included in the 
statement of operations for the year ended December 31, 1998 also includes a 
write-off of satellite deposits of $1.43 million recorded in June 1998.

                                       40
<PAGE>

3.   SHAREHOLDERS' EQUITY

RECAPITALIZATION AND INITIAL PUBLIC OFFERING
     
     In the third quarter of 1995, the Company decided to proceed with an 
initial public offering of its Class A Common Stock. In connection with the 
offering, on January 31, 1996, the Company effected a recapitalization of the 
Company's capital structure.

     Prior to the recapitalization, the Company's capitalization consisted of 
two classes of common stock (referred to herein as "old common stock" and 
"old class A common stock"). Terms of the recapitalization included (i) a 
change in the authorized capital of the Company to consist of 100,000,000 
shares of Common Stock, 500,000,000 shares of Class A Common Stock and 
50,000,000 shares of undesignated Preferred Stock; (ii) the conversion of the 
Company's old common stock and old class A common stock into shares of Common 
Stock; (iii) the conversion of certain convertible subordinated promissory 
notes into shares of Common Stock and the cancellation of warrants issued to 
the holders of those notes; (iv) a 75-for-one split of the new capital stock; 
and (v) the contribution by HBI of 8,300,000 shares of Common Stock in 
connection with the public offering and 7,411,950 shares of Common Stock in 
connection with conversion of the convertible subordinated promissory notes, 
pursuant to HBI's agreements with certain current shareholders, in order to 
prevent those shareholders from experiencing dilution in their ownership of 
the Company. The Company's consolidated financial statements are presented as 
if the above changes in authorized capital and the 75-for-one split of new 
capital stock had been effective for all periods presented.

     The offering (which closed on February 6, 1996) consisted of the sale by 
the Company of 8,300,000 shares of Class A Common Stock at $27.00 per share, 
generating proceeds of approximately $206.2 million, net of underwriting 
commissions and other expenses incurred in connection with the offering.

     Pursuant to the over-allotment provisions in the underwriting agreement, 
certain shareholders who had purchased shares of the Company's capital stock 
in previous private placements sold 1,245,000 shares of newly converted Class 
A Common Stock in connection with the offering. The Company did not receive 
any of the proceeds of such sales.

CONVERSION RIGHTS
     
     On May 1, 1996, approximately 3.1 million shares of the Company's Common 
Stock, with 10 votes per share, automatically converted into Class A Common 
Stock, with one vote per share, at a conversion ratio of 1:1.  On July 30, 
1996, the remainder of the Company's Common Stock, with 10 votes per share, 
became eligible, at the option of the holders thereof, to convert into Class 
A Common Stock, with one vote per share, at a conversion ratio of 1:1.

     In accordance with certain shareholder agreements, prior to the 
Company's initial public offering, the ownership percentages of certain 
shareholders, other than HBI, were protected from dilution, based on total 
outstanding shares of 89,810,775, until the ownership of HBI was reduced to 
51%.  In connection with the Company's initial public offering, 15,711,950 
shares of old common stock were contributed by HBI to the Company for no 
consideration in 1996.  In addition, certain shareholders holding 22,645,350 
shares of Common Stock have certain "piggy-back" rights to participate in 
certain public offerings of the Company's stock and certain "co-sale" rights 
to include all or a portion of their shares in certain sales by HBI of its 
stock of the Company.

                                       41
<PAGE>

UNUSED MEDIA CREDITS

     In connection with a sale of old class A common stock in 1994, the 
Company received a $5.0 million media credit.  The unused balance of the 
media credit at December 31, 1997 ($3.2 million) was canceled by the Company. 
 Such cancellation was recorded as a reduction of additional paid-in capital 
to reflect the actual net proceeds realized from the original stock sale.

CONVERTIBLE SUBORDINATED PROMISSORY NOTES

     During 1994, the Company issued and sold unsecured convertible 
subordinated promissory notes (the "Notes") for $34.5 million.  The Notes 
were subject to mandatory conversion into shares of old class A common stock 
equal to the face amount of the Notes divided by $5.66 if the gross proceeds 
of an initial public offering of the Company were to exceed $50 million at an 
offering price of at least $7.00 per share.  Such conversion occurred as part 
of the recapitalization at which time the Notes (including cumulative 
accretion) had a recorded balance of $37.1 million.  Issued with the 
convertible subordinated promissory notes were warrants valued at $7.5 
million, which were canceled as a part of the recapitalization. 

STOCK-BASED COMPENSATION

     In December 1995, the Company's shareholders approved a stock option 
plan (the "1995 Plan") and, in November 1996, the Company's shareholders 
approved a Non-Employee Director Stock Option Plan (the "1996 Non-Employee 
Director Plan") (together, the "Option Plans").  The Option Plans authorize 
the granting of options to purchase up to an aggregate of 2,150,000 shares of 
Class A Common Stock.  The 1995 Plan provides for employees, officers and 
consultants of the Company to be granted options to purchase Class A Common 
Stock of two types: (i) those that qualify as incentive stock options 
("Incentive Options") within the meaning of Section 422 of the Internal 
Revenue Code of 1986, as amended, and (ii) those that do not qualify as 
Incentive Options ("Nonstatutory Options"). All options granted under the 
1996 Non-Employee Director Plan are Nonstatutory Options.  The Option Plans 
are administered by the Compensation Committee. Under the 1995 Plan, the 
Compensation Committee determines the persons who are to receive options, the 
terms and the number of shares subject to each option and whether the option 
is to be an Incentive Option or a Nonstatutory Option. The options vest 
equally over a four or five year period, and are exercisable over ten years 
from the date of grant.  The 1996 Non-Employee Director Plan provides for the 
automatic, non-discretionary, grant of options. Information regarding the 
Option Plans is as follows:

<TABLE>
<CAPTION>

                                                                  Years Ended December 31,
                        ---------------------------------------------------------------------------------------------------------
                                           1998                             1997                                1996
                        ----------------------------------- ---------------------------------   ---------------------------------
                        Shares                    Weighted  Shares                   Weighted    Shares                  Weighted
                        Under                     Average   Under                    Average     Under                   Average
                        Option                    Exercise  Option                   Exercise    Option                  Exercise
                        Plan     Exercise Price   Price     Plan     Exercise Price  Price       Plan    Exercise Price   Price
----------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>      <C>              <C>       <C>      <C>              <C>      <C>       <C>                <C>
 Outstanding                        
  at beginning of year  690,000  $7.75 - $36.00    $19.58   439,700  $11.50 - $36.00  $26.55      --              --        --
 Granted                 60,000  $6.19 - $10.00     $8.20   260,300   $7.75 - $12.00   $8.04   475,300   $11.50 - $36.00    $26.62
 Exercised               (2,500)         $13.75    $13.75        -               -       -        --              --        --
 Forfeited              (42,600) $7.75 - $27.00    $17.12   (10,000) $11.50 - $27.00  $24.45   (35,600)  $27.00 - $28.50    $27.45
                        -------- --------------    ------   -------  ---------------  ------   -------   ---------------    ------
 Outstanding            704,900  $6.19 - $36.00    $18.82   690,000   $7.75 - $36.00  $19.58   439,700   $11.50 - $36.00    $26.55
  at end of year
 Exercisable            217,547  $7.75 - $36.00    $21.87   103,946   $7.75 - $36.00  $23.64    11,000            $11.50    $11.50
  at end of year
 Weighted average         $5.92                               $5.24                             $17.72
  fair value of options
  granted
</TABLE>

     As of December 31, 1998, the outstanding stock options granted in 1996 
have a remaining contractual life of approximately seven years and the 
outstanding stock options granted in 1997 have a remaining contractual life 
of approximately eight years.

                                       42
<PAGE>

     The Company accounts for the Option Plans under APB Opinion No. 25, 
under which no compensation cost has been recognized.  Had compensation cost 
for the Option Plans been determined consistent with Statement of Financial 
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 
No. 123), the Company's pro forma net loss and pro forma loss per share would 
have been as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                 Years Ended December 31
                                                                           1998             1997              1996
                                                                           ----             ----              ----
<S>                                               <C>                    <C>              <C>              <C>
Net loss                                          As Reported            $(56,603)        $(87,306)        $(104,959)
                                                  Pro Forma              $(58,418)        $(88,670)        $(112,750)
Net loss per share - basic and diluted            As Reported               $(.63)           $(.97)           $(1.17)
                                                  Pro Forma                 $(.65)           $(.99)           $(1.26)
</TABLE>

     The fair value of each option grant is estimated on the date of the 
grant using the Black-Scholes option pricing model with the following 
weighted average assumptions:  risk-free interest rates of 5.1% in 1998 and 
6.3% in 1997; expected life of 10 years for 1998 and 1997; expected 
volatility of 57.3% in 1998 and 39.5% in 1997.

4.   COMMITMENTS AND CONTINGENCIES

REGULATORY MATTERS
     
     USSB II, Inc. (a wholly owned subsidiary of the Company) holds a license 
from the Federal Communications Commission (the "FCC") to broadcast from five 
transponders at 101DEG.  west longitude (the "License").  The Company must 
continue to maintain the License to operate its business.  The License 
expires in June 2004 and is renewable at ten-year intervals.  Although the 
Company expects to obtain such renewals in the ordinary course, there can be 
no assurance that such renewals will be granted. 

     The construction and launch of broadcasting satellites and the operation 
of satellite broadcasting systems are subject to substantial regulation by 
the FCC. Under the License, the Company is subject to FCC review primarily 
for the following: (i) standards regarding individual satellites (e.g., 
meeting minimum financial, legal and technical standards); (ii) avoiding 
interference with other satellites; and (iii) complying with rules the FCC 
has established specifically for high-power DBS satellite licenses. In 
addition, uplink facilities are separately licensed by the FCC.  The 
Company's National Broadcast Center and the Auxiliary Broadcast Center have 
each received its FCC license. FCC rules are subject to change in response to 
industry developments, new technology and political considerations. 

     The FCC granted the Company a Construction Permit and Launch Authority 
(the "Permit"), held by USSB II, for satellites with three transponders at 
110DEG. west longitude and eight transponders at 148DEG. west longitude.  On 
June 24, 1998, the Company voluntarily returned to the FCC its authorization 
for eight transponders at  148DEG.  west longitude.  The return of the 
authorization at 148DEG. west longitude had no effect on the status of the 
Company's Permit for the 110DEG.  orbital location.  

     The Permit requires the Company to comply with specified construction 
and launch schedules.  The FCC has the authority to revoke the Permit for the 
110DEG.  orbital location if the Company fails to comply with the FCC 
schedule for construction and launch.  Under the Merger Agreement, the 
Company and Hughes have agreed to cooperate and use their reasonable best 
efforts to maintain the Permit at the 110DEG. orbital location.  In 
connection therewith, the Company and Hughes have jointly filed an 
application for modification of authorization to move 

                                       43
<PAGE>

the DBS-1 satellite, which presently operates at the 101DEG.  orbital 
location, to the 110DEG. orbital location to satisfy the FCC's due diligence 
requirements.  On April 1, 1999, the FCC staff issued an order approving the 
transfer of control of the FCC authorization for construction at the 110DEG. 
orbital location to DIRECTV, conditioned upon DIRECTV initiating service on 
the three transponders authorized at the 110DEG. orbital location by December 
31, 1999.
     
     Under the Merger Agreement, on December 17, 1998, Hughes, DIRECTV 
Enterprises, Inc., a wholly-owned subsidiary of Hughes, and the Company also 
filed applications with the FCC requesting consent to the transfer of control 
of all of the FCC authorizations held by USSB II, Inc. to Hughes.  The FCC 
staff's April 1, 1999 order also approved the transfer of control of the FCC 
license for five transponders at the 101DEG. orbital location and related 
earth station licenses to DIRECTV.

     Any petition requesting reconsideration by the FCC staff, or application 
for review of the April 1, 1999 order by the full Commission, must be filed 
by May 3, 1999.  In addition, the FCC may determine to review the order on 
its own motion until May 11, 1999.  Absent any of the foregoing, the April 1, 
1999 order will become final on May 12, 1999.

     While the Company has generally been successful to date with respect to 
compliance with regulatory matters, there can be no assurance that the 
Company will succeed in obtaining and maintaining all requisite regulatory 
approvals for its operations. 
     
LOCKHEED MARTIN ASTRO SPACE AGREEMENT

     The Company originally entered into contracts with Lockheed Martin for 
the construction of direct broadcast satellites at the 110DEG.  orbital 
location (the "110DEG. Contract") and at the 148DEG.  orbital location (the 
"148DEG. Contract").  As required by the Merger Agreement, the Company has 
canceled the 110DEG.  Contract and has allowed the 148DEG.  Contract to 
expire in accordance with its terms.  Both actions were effective December 
31, 1998.  The Company has recorded charges related to these cancellations, 
which represent the total amount of the charges associated with such 
cancellations (See Note 2).

ADVERTISING AND PROMOTIONS

     The Company has entered into commitments to purchase or participate in 
joint purchases of broadcast, print and other media for advertising and 
promotional purposes.  At December 31, 1998, such commitments totaled $4.0 
million due through June 30, 1999, with the non-cancelable portion of such 
commitments totaling $3.0 million.

INSURANCE

     The Company maintains business interruption and in-orbit insurance 
coverages at levels management considers necessary to address the normal 
risks of operating via communications satellite, including damage, 
destruction or failure of the satellite or its transponders.  Additionally, 
the Company maintains general liability and directors' and officers' 
insurance coverages. 

SATELLITE

     All of the Company's programming is carried on a single satellite, 
DBS-1, which the Company co-owns with DIRECTV, a subsidiary of Hughes 
Electronics Corporation.  As previously reported, a spacecraft control 
processor ("SCP") aboard the DBS-1 satellite failed on July 4, 1998, and 
control of DBS-1 was automatically switched to the spare SCP without 
interruption of service.  In connection with the execution of the Merger 
Agreement, DIRECTV and 


                                       44
<PAGE>

the Company entered into a Channel Services Provision Agreement which 
provides that, subject to the terms of that Agreement, DIRECTV will provide 
to USSB, on a full time basis, channel capacity and related services on two 
other satellites owned by Hughes at the 101DEG.  orbital location sufficient 
to transmit and deliver a limited number of premium movie services to USSB 
subscribers.  At the same time, the Company and Hughes also entered into a 
Replacement Payload Option Agreement which clarifies USSB's right to 
transponder capacity on a replacement satellite , in the event the Merger 
Agreement is terminated due to the failure of the transponders on DBS-1.  The 
Replacement Payload Option Agreement provides that USSB may elect to purchase 
five transponders at a fixed price on DIRECTV 1-R, a satellite under 
construction by Hughes.

LITIGATION 

     In November 1996, Personalized Media Communications, L.L.C. ("PMC") 
initiated legal proceedings against the Company and others before the United 
States International Trade Commission ("ITC"), and in the United States 
District Court for the Northern District of California.  The Company does not 
believe that PMC is entitled to damages or any remedies from the Company, and 
management intends to vigorously defend both actions.

     In June 1997, IPPV Enterprises, a Georgia partnership ("IPPV") initiated 
a legal proceeding against the Company and others in the United States 
District Court for the District of Delaware.  The Company does not believe 
that IPPV is entitled to damages or any remedies from the Company, and 
management intends to vigorously defend the action.

     In September 1998, WIC Premium Television, Ltd., an Edmonton, Alberta, 
Canada corporation, ("WIC") initiated two separate legal proceedings in the 
Federal Court of Canada Trial Division and in the Judicial District of 
Edmonton against numerous retailers, programming providers, and programming 
distributors, including the Company.  This action is in the preliminary 
stages of discovery and management has not reached a judgment regarding 
whether WIC may be entitled to damages or any remedies from the Company.

     Item 3 of this Report on Form 10-K contains additional information on 
these matters.
     
     The Company is also exposed to other litigation encountered in the 
normal course of business.  In the opinion of management, the resolution of 
these other litigation matters of which the Company is aware will not have a 
material adverse effect on the Company's financial position, results of 
operations or cash flows.

MANUFACTURER INCENTIVE PROGRAM

     On August 26, 1996, the Company, together with DIRECTV, entered into 
financial incentive arrangements with certain manufacturers of DIRECTV/USSB 
System equipment to assist these manufacturers in lowering the price of 
DIRECTV/USSB Systems.  Such arrangements, which run for up to four years 
depending on manufacturer, commit the Company to pay the manufacturers over a 
five-year period from the date new DIRECTV/USSB System households are 
authorized to receive programming.  The expense and liability for such future 
commitments are established and recorded upon activation of the related 
DIRECTV/USSB System. For the years ended December 31, 1998 and 1997, the 
Company charged to expense $44.8 and $66.7 million, respectively, 
representing the full amount of those future obligations for the Manufacturer 
Incentive program incurred for the sale of DIRECTV/USSB Systems to new 
households.  Cash paid in 1998 related to the Manufacturers Incentive program 
was $21.8 million..  Future obligations totaled $102.7 million at December 
31, 1998, payable in the following years: 


                                      45
<PAGE>

<TABLE>
<CAPTION>

                                            In Thousands
<S>                                         <C>
                1999                        $25,579
                2000                         25,417
                2001                         25,196
                2002                         18,250
                2003                          8,240
</TABLE>
     
     While the amounts to be incurred in the future by the Company under 
these arrangements cannot be precisely estimated, the Company expects that as 
the level of retail DIRECTV/USSB system unit sales increase, the cash flow 
related to these arrangements will increase accordingly.

     The fair value of the future obligation at December 31, 1998 is 
approximately $86.0 million and has been calculated by discounting the future 
cash flows at the Company's estimated incremental borrowing rate.

5.   RELATED-PARTY TRANSACTIONS

Certain officers and directors of the Company are also employed by, and spend 
a significant portion of their time on, the businesses of HBI and its 
affiliates other than the Company.  Each person who is a director has 
indicated to the Company that, should a conflict of interest arise, he will 
promptly disclose such conflict to the Company's Board of Directors and 
refrain from voting on such matter as a director. 

DUE TO HBI

     Debt due to HBI consists principally of amounts accrued for management 
services valued at $10.0 million provided to the Company by HBI during the 
years 1992 through 1994 under an agreement which expired June 30, 1994.  The 
balance does not bear interest.  The Company was contingently obligated to 
pay these amounts and they will not become due until, in the board of 
director's opinion, adequate resources exist.  As a result of certain 
significant financial performance thresholds, USSB management discontinued 
accruing the $3.3 million annual charge after 1992 and did not intend to 
accrue any additional charges until and unless it was determined payment 
could be considered probable. When the Company decided to proceed with its 
initial public stock offering, the board of directors determined that it 
became likely that certain preconditions would ultimately be satisfied, and 
therefore made payment of this obligation probable. Accordingly, during the 
quarter ended September 30, 1995, the Company accrued as an operating expense 
the remaining $6.7 million of its management fee obligation. In connection 
with the execution of the Merger Agreement, Hughes has agreed to pay the 
accrued management fee of $10 million to HBI on the first anniversary of the 
closing date of the Merger, but not later than April 1, 2000.

     HBI provides certain general and administrative services to the Company 
under an agreement that is renewed annually. The Company incurred a charge of 
$1,252,000 for such services for the year ended December 31, 1998, $1,124,000 
for 1997, and $978,000 for 1996.  The Company also purchases programming, 
engineering services and other services from other entities affiliated with 
HBI. Amounts included in the accompanying consolidated statements of 
operations which were purchased from these affiliated entities were $4.6 
million in 1998, $5.4 million in 1997, and $3.8 million in 1996.  The Company 
believes that the services provided between the Company and HBI and its 
subsidiaries and affiliates, and by entities with which certain directors are 
affiliated, are on terms comparable to those available from third parties and 
that such terms are reasonable. 


                                       46
<PAGE>

OTHER

     The Company's employees participate in a 401(k) plan sponsored by HBI. 
Under the terms of the plan, the Company may make annual base contributions 
and can match participant contributions for each year.  HBI made 
contributions to the plan on behalf of the Company's employees (which amounts 
were reimbursed by the Company) of $237,000 for the year ended December 31, 
1998, $157,000 during 1997 and $116,000 during 1996.

6.   INCOME TAXES

     The Company's deferred tax assets and liabilities, all of which are 
long-term, are summarized as follows (in thousands): 

<TABLE>
<CAPTION>
                         Deferred Tax Asset (Liability)
         -----------------------------------------------------------------------------
                                                           As of December 31
         -----------------------------------------------------------------------------
                                                         1998              1997
         -----------------------------------------------------------------------------
<S>                                                   <C>              <C>
         Deferred tax assets:
              Manufacturer Incentive                     41,073        $  30,983
              Preoperating capitalized costs                314            2,201
              Capitalized interest                            -              181
              Management services                         4,000            4,337
              Other                                       3,800            3,995
              Net operating loss carryforward           137,738          121,825
                                                        -------          -------
                 Total deferred tax assets              186,925          163,522
         Deferred tax liabilities:
              Depreciation                              (15,951)         (15,149)
                                                        --------         --------
                 Total deferred tax liability           (15,951)         (15,149)
         -----------------------------------------------------------------------------
         Valuation allowance                            170,974         (148,373)
         -----------------------------------------------------------------------------
                 Net deferred tax balance             $     -          $     -
         -----------------------------------------------------------------------------
</TABLE>

     The Company has net operating losses for federal tax reporting purposes 
totaling $344.3 million available for carryover to subsequent years as of 
December 31, 1998, expiring in years 2000 through 2014.  The valuation 
allowance applied against the Company's net deferred tax assets increased by 
$22.6 million for the year ended December 31, 1998, $37.5 million for 1997, 
and $39.3 million for 1996.

     The Company and HBI file separate federal tax returns and a combined 
state tax return in Minnesota and New Mexico.  HBI has benefited from this 
unitary relationship as it has utilized USSB losses to reduce its combined 
income subject to apportionment in Minnesota and New Mexico through December 
31, 1996. The benefit that HBI realized was approximately $0.1 million for 
the year ended December 31, 1998, $0.2 million for 1997, and $1.4 million for 
1996.  This unitary relationship has reduced the Company's Minnesota net 
operating loss carryforward.  Benefits realized by HBI in years preceding 
1994 were not significant.  Under a tax sharing agreement dated November 30, 
1995, HBI has agreed to  reimburse the Company for such benefits in the year 
they would otherwise have been realized by the Company. In connection with 
the execution of the Merger Agreement, HBI has agreed to pay Hughes, as the 
successor to the Company, an amount sufficient to satisfy this obligation on 
the first anniversary of the closing date of the Merger, but not later than 
April 1, 2000.


                                       47
<PAGE>

7.   QUARTERLY CONDENSED FINANCIAL INFORMATION (UNAUDITED)

     Summarized unaudited quarterly data for 1998 and 1997 is as follows (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                      First Quarter  Second Quarter   Third Quarter  Fourth Quarter   Full Year
-----------------------------------------------------------------------------------------------------------------------
<S>                                   <C>            <C>              <C>            <C>              <C>
1998
Revenues                                   $136,839        $132,710        $136,567        $144,685    $550,801
Cost of Sales                                84,656          78,742          80,225          84,053     327,676
                                             ------          ------          ------          ------     -------
Gross Margin                                 52,183          53,968          56,342          60,632     223,125
Operating Expenses                           62,316          62,899          66,204          92,425     283,844
                                             ------          ------          ------          ------     -------
Net Operating Loss                          (10,133)         (8,931)         (9,862)        (31,793)    (60,719)
Other (income) expense, net                  (1,004)         (1,041)         (1,132)           (939)     (4,116)
                                            -------         -------         -------           -----     -------
Net Loss                                     (9,129)         (7,890)         (8,730)        (30,854)    (56,603)
                                             ------          ------          ------          ------     -------
                                             ------          ------          ------          ------     -------
Weighted Average Shares Outstanding          89,811          89,811          89,811          89,811      89,811
                                             ------          ------          ------          ------     -------
                                             ------          ------          ------          ------     -------
Net loss per share - basic and diluted       $(0.10)         $(0.09)         $(0.10)         $(0.34)     $(0.63)
                                             ------          ------          ------          ------     -------
                                             ------          ------          ------          ------     -------

1997
Revenues                                    $99,231        $114,236        $114,383        $128,769    $456,619
Cost of Sales                                64,930          73,223          73,557          81,207     292,917
                                             ------          ------          ------          ------     -------
Gross Margin                                 34,301          41,013          40,826          47,562     163,702
Operating Expenses                           57,925          51,620          70,082          76,197     255,824
                                             ------          ------          ------          ------     -------
Net Operating Loss                          (23,624)        (10,607)        (29,256)        (28,635)    (92,122)
Other (income) expense, net                  (1,174)         (1,324)         (1,109)         (1,209)     (4,816)
                                            -------         -------         -------         -------     -------
Net Loss                                    (22,450)         (9,283)        (28,147)        (27,426)    (87,306)
                                             ------          ------          ------          ------     -------
                                             ------          ------          ------          ------     -------
Weighted Average Shares Outstanding          89,812          89,811          89,811          89,821      89,811
                                             ------          ------          ------          ------     -------
                                             ------          ------          ------          ------     -------
Net loss per share - basic and diluted       $(0.25)         $(0.10)         $(0.31)         $(0.31)     $(0.97)
                                             ------          ------          ------          ------     -------
                                             ------          ------          ------          ------     -------
</TABLE>


                                      48

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To United States Satellite Broadcasting Company, Inc.


     We have audited the consolidated balance sheets of United States Satellite
Broadcasting Company, Inc. (a Minnesota corporation) and Subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, shareholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present 
fairly, in all material respects, the financial position of United States 
Satellite Broadcasting Company, Inc. and Subsidiaries as of December 31, 1998 
and 1997, and the results of their operations and their cash flows for each 
of the three years in the period ended December 31, 1998 in conformity with 
generally accepted accounting principles.

/s/ Arthur Andersen LLP
Minneapolis, Minnesota,
January 22, 1999


                                      49

<PAGE>

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                             FINANCIAL DISCLOSURE

     None.


                                      50

<PAGE>

                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table provides certain information with respect to the
members of the Board of Directors.  Three directors, the Class A Directors, are
elected solely by the holders of Class A Common Stock.  The remaining directors
are elected by the holders of the Class A Common Stock and the holders of Common
Stock, voting as a single class.  On May 28, 1998, Robert E. Torray was
appointed to the Board of Directors to fill a vacant board position.

<TABLE>
<CAPTION>
CLASS A DIRECTORS             Age
-----------------             ---
<S>                           <C>
Peter F. Frenzer              64

William D. Savoy              34

Louis G. Zachary, Jr.         40

<CAPTION>
OTHER DIRECTORS               Age
---------------               ---
<S>                           <C>

Stanley S. Hubbard            65

Stanley E. Hubbard            37

Robert W. Hubbard             34

Herbert S. Schlosser          72

David S. Allen                69

Frank N. Magid                67

Peter G. Skinner              54

John W. Marvin                51

Ward L. Quaal                 79

Robert E. Torray              61
</TABLE>

     Information with respect to Messrs. Stanley S. Hubbard, Stanley E. Hubbard
and Robert W. Hubbard and the other executive officers of the Company is
contained in Part I, Item 1 of this Report on Form 10-K under the heading
"Business - Executive Officers of the Registrant," and is incorporated herein by
reference.

     HERBERT S. SCHLOSSER was elected a director of the Company in March 
1994. Since 1986, Mr. Schlosser has served as Senior Advisor with Schroder & 
Co. Inc.  Mr. Schlosser was Executive Vice President of RCA Corporation from 
1978 until 1985 and prior to that was President of the National Broadcasting 
Company.  Mr. Schlosser is also a director of Data Broadcasting Corporation, 
a financial data communications company, and Central European Media 
Enterprises 


                                      51
<PAGE>

Ltd., a company which holds interests in private commercial television 
stations in central and eastern Europe.

     DAVID S. ALLEN has been a director of the Company since 1994.  Mr. Allen is
currently Chairman and Chief Executive Officer of The Boatworks, a boat sales
and service company.  From 1980 through March 1993, Mr. Allen served as
Chairman, President and Chief Executive Officer of Petry, Inc., which provides
services to HBI relating to the sale of HBI's commercial time.  Petry, Inc. is
one of the largest sales organizations of national television advertising in the
U.S.

     FRANK N. MAGID was elected a director of the Company in 1994.  Mr. Magid
has been the Chairman and Chief Executive Officer of Frank N. Magid Associates,
a television industry research and consulting firm since 1957.

     PETER G. SKINNER was elected a director of the Company in March 1994.
Since 1985, Mr. Skinner has been General Counsel, Secretary, and Executive Vice
President (since 1998) for Dow Jones & Company, Inc. ("Dow Jones").

     JOHN W. MARVIN was elected a director of the Company in March 1994.  Since
1974, Mr. Marvin has held various positions with Marvin Lumber and Cedar
Company, including Plant Manager, Board Member and Chief Operating Officer.

     WARD L. QUAAL was elected a director of the Company in September 1982.  Mr.
Quaal has been President of Ward L. Quaal Company, management consultants to the
broadcasting industry, since October 1974.  Previously, he was President of
Tribune Broadcasting Company.  Mr. Quaal is a recipient of the Distinguished
Service Award from the National Association of Broadcasters, and was named to
the Broadcasting Hall of Fame by BROADCASTING & CABLE magazine.

     PETER F. FRENZER was elected to the Board of Directors in July 1996.  Mr.
Frenzer recently retired from Nationwide Insurance Enterprise after 21 years of
service.  From 1991 to 1996, he was President of Nationwide Life Insurance
Company and, from 1981 to 1995, he was Chief Investment Officer of Nationwide
Insurance Enterprise.

     WILLIAM D. SAVOY was elected a director of the Company in March 1994.
Since 1990, Mr. Savoy has served as President of Vulcan Northwest Inc., managing
the personal finances of Paul Allen, and Vice President of Vulcan Ventures, Inc.
("Vulcan"), a venture capital fund wholly owned by Paul Allen.  From 1987 until
November 1990, Mr. Savoy was employed by Layered, Inc. and became its President
in 1988.  Mr. Savoy serves on the Advisory Board of DreamWorks SKG and also
serves as a director of CNET, Inc., Harbinger Corporation, Metricom, Inc.,
Telescan Inc., Ticketmaster Online-CitySearch, and USA Networks, Inc.

     LOUIS G. ZACHARY, JR. was elected to the Board of Directors of the Company
in July 1996.  Mr. Zachary is a Managing Director in the investment banking
department of Credit Suisse First Boston Corporation, which he joined in 1981.

     ROBERT E. TORRAY was appointed to the Board of Directors of the Company in
May 1998.  Mr. Torray is chief executive officer of the Robert E. Torray & Co.,
Inc., an investment management company he founded in 1972.  He is also president
of The Torray Corporation, manager of The Torray Fund, and chairman of
Birmingham Capital Management Company, which he founded in 1983.

     Messrs. Stanley S. Hubbard, Robert W. Hubbard, and Deeney are also employed
by, and spend a significant portion of their time on, the businesses of Hubbard
Broadcasting, Inc. ("HBI") and its affiliates other than the Company.  Mr.
Stanley E. Hubbard devotes his professional time primarily to the business of
the Company, but does hold positions with HBI and its affiliates 


                                      52

<PAGE>

which will require a certain amount of his time.  The Company does not 
anticipate any material change in the relative amount of time such persons 
will spend on the Company's matters.  Each of such persons who is a director 
has indicated to the Company that, should a conflict of interest arise, he 
will promptly disclose such conflict to the Company's Board of Directors and 
refrain from voting on such matter as a director.

COMMITTEE AND BOARD MEETINGS

     The Company's Board of Directors has an Audit Committee which (i) reviews
the Company's  quarterly and annual financial statements, its filings on Forms
10-K and 10-Q and earnings releases regarding financial results, (ii) makes
recommendations regarding the Company's independent public accountants and scope
of their services, (iii) reviews the adequacy of accounting policies, compliance
assurance procedures and internal controls, (iv) reviews auditors' independence
and (v) reports to the Board on the adequacy of disclosures and adherence to
accounting principles.  Messrs. Marvin, Skinner and Savoy comprised the Audit
Committee during 1998.  The Audit Committee met seven times during the year
ended December 31, 1998.

     The Company's Board of Directors has a Compensation Committee which (i)
reviews compensation philosophy and major compensation plans for executives,
(ii) administers the Company's stock option plans and (iii) approves the
compensation of the Company's executive officers.  Messrs. Frenzer, Quaal and
Schlosser comprised the Compensation Committee during the Transition Period.
The Compensation Committee met two times during the year  ended December 31,
1998.

     The Company's Board of Directors has a Nominating Committee, which makes
recommendations to the Board of Directors as to nominees for election to the
Board.  Messrs. Stanley S. Hubbard, Allen and Magid comprised the Nominating
Committee during 1998.  The Nominating Committee did not meet  during the year
ended December 31, 1998.

     The Board of Directors also has an Executive Committee, consisting of
Messrs. Stanley S. Hubbard, Stanley E. Hubbard, Robert W. Hubbard and Schlosser.
Between meetings of the Board of Directors, the Executive Committee exercises
all the powers of the Board of Directors in the management and direction of the
business and affairs of the Company, except as provided otherwise by law,
resolutions of the Board of Directors, the Company's By-laws, or its Articles of
Incorporation.

     During 1998, the Board held four meetings.  Each director attended 75% or
more of the meetings of the Board held while each was a director during 1998 and
of the meetings of Committees of which he was a member during 1998.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     No member of the Compensation Committee was, during the year ended December
31, 1998 or previously, an officer or employee of the Company.

     Mr. Quaal is the President of Ward L. Quaal Company, which performs
government relations work for both the Company and HBI.  The Company has paid
approximately $72,000 during the year ended December 31, 1998, and $61,000 and
$142,000 in 1997 and 1996, respectively, to such company.


                                      53

<PAGE>

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

     Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the Securities and Exchange Commission ("SEC") initial reports of
ownership and changes in ownership of Common Stock and other equity securities
of the Company.  Officers, directors and greater than ten percent shareholders
are required by SEC regulation to furnish the Company with all Section 16(a)
forms they file.

     To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to
officers, directors and greater than ten percent shareholders were satisfied.


                        ITEM 11.  EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

     The Summary Compensation Table shows compensation information for the
Company's Chief Executive Officer and the four most highly compensated executive
officers of the Company for services rendered in all capacities during the years
ended December 31, 1998, 1997 and 1996.

<TABLE>
<CAPTION>
                                                                  ANNUAL COMPENSATION
                                                                                                ALL OTHER
NAME AND PRINCIPAL                                           SALARY             BONUS         COMPENSATION
POSITION                                 PERIOD                ($)              ($)                ($ )
                                         ------                ---              ---                ----
<S>                                      <C>                 <C>              <C>             <C>
Stanley E. Hubbard                        1998               350,000          125,000                --
CEO, President                            1997               350,000               --                --
                                          1996               231,539               --                --

Robert W. Hubbard                         1998               250,000          125,000                --
Executive V.P.                            1997               250,000               --                --
                                          1996               180,770               --                --

Mary Pat Ryan (1)                         1998               161,726           66,000             6,400 (2)
Sr. V.P., Marketing                       1997               225,000          100,000             6,400 (2)
                                          1996               229,327          100,000             6,000 (2)

Bernard J. Weiss                          1998               160,286           75,000             6,400 (2)
Sr. V.P. and CFO                          1997               140,000           50,000             6,000 (2)
                                          1996               137,308               --                --

Jan G. Schuth                             1998               150,232           75,000             3,000 (2)
Sr. V.P., Marketing                       1997                55,945           10,000                --
                                          1996                    --               --                --
</TABLE>

(1)  Ms. Ryan resigned from the Company August 25, 1998.
(2)  Consists of a matching contribution made by the Company to such executive
     officer's 401(k) plan.


                                      54

<PAGE>

DIRECTOR COMPENSATION

     The Company pays non-employee directors an annual retainer of $15,000 and
$500 for each Board of Directors or committee meeting which they attend (with
committee chairpersons receiving $750 per committee meeting). Directors of the
Company also participate in a non-employee director option plan which provides
for the automatic grant of options to purchase 1,000 Class A Common Shares to
each non-employee director upon election (and each re-election) to the Board.
The compensation earned by certain directors, including options, is paid (or
granted, in the case of options) directly to the employers of such directors.

EMPLOYMENT AGREEMENTS

     The Company does not have employment agreements with any of its executive
officers.

OPTION/SAR GRANTS IN YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
                                           PERCENT OF                                           POTENTIALLY REALIZABLE VALUE
                          NUMBER OF      TOTAL OPTIONS/                                           AT ASSUMED ANNUAL RATES   
                         SECURITIES           SARS                                                     OF STOCK PRICE       
                         UNDERLYING        GRANTED TO      EXERCISE OR                                APPRECIATION FOR      
                        OPTIONS/SARS      EMPLOYEES IN      BASE PRICE        EXPIRATION                 OPTION TERM        
       NAME              GRANTED (#)       FISCAL YEAR      ($/SHARE)            DATE            5% ($)          10% ($)    
-------------------   ----------------   --------------   -------------   ------------------    ----------------------------
<S>                   <C>                <C>              <C>             <C>                   <C>             <C>         
Jan G. Schuth             10,000              16.0           $6.188        October 8, 2008      $38,916         $98,621
</TABLE>


                                      55

<PAGE>

             ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                            OWNERS AND MANAGEMENT

     The following table sets forth certain information known to the Company
with respect to beneficial ownership of Class A Common Stock and Common Stock by
(i) each shareholder known by the Company to be the beneficial owner of more
than 5 percent of either class, (ii) each nominee for director, (iii) each
executive officer and (iv) all executive officers and directors of the Company
as a group.  Such information is presented as of March 23, 1999.

               SHARES OF CLASS A COMMON STOCK AND COMMON STOCK
                            BENEFICIALLY OWNED(1)

<TABLE>
<CAPTION>
                                                                      PERCENT OF        PERCENT OF     PERCENT OF
NAME AND ADDRESS                                                      CLASS A           COMMON         TOTAL
OF BENEFICIAL OWNER(2)                 NUMBER                         COMMON STOCK      STOCK          VOTING POWER
----------------------                 ------                         ------------      -----          ------------
<S>                                    <C>                            <C>               <C>            <C>
Hubbard Broadcasting, Inc. ("HBI")     11,790 (Class A)                                   78.3            74.5
3415 University Avenue                 46,522,825
St. Paul, Minnesota 55114              (Common Stock)(3)

Stanley S. Hubbard                     7,740 (Class A)                     *              78.3            74.5
                                       46,522,825 (Common Stock)(4)

Stanley E. Hubbard                     7,740 (Class A)                     *              77.6            73.8
                                       46,051,225 (Common Stock)(5)

Robert W. Hubbard                      7,740 (Class A)                     *              77.6            73.8
                                       46,051,225 (Common Stock)(5)

Nationwide Mutual Insurance Company    2,565,500 (Class A)                8.4              ___             *
One Nationwide Plaza
Columbus, Ohio 43216

Robert E. Torray                       8,510,000 (Class A)(6)            28.0              ___             1.4
6610 Rockledge Drive, #450
Bethesda, MD  20817

Peter G. Skinner                       3,000 (Class A)                     *               7.4             7.1
Dow Jones & Company                    4,411,800 (Common Stock)(7)
200 Liberty Street
New York, New York 10281

Dow Jones & Company                    2,000 (Class A)                     *               7.4             7.1
200 Liberty Street                     4,411,800
New York, New York 10281               (Common Stock)

Pittway Corporation                    143,000 (Class A)                   *               4.7             4.5
200 South Wacker Drive                 2,781,375 (Common Stock)
Chicago, Illinois 60606
</TABLE>
------------------------
 *   Indicates an amount which is less than one percent.

(1)  Each share of Common Stock is convertible into one share of Class A 
     Common Stock at the option of the holder.

(2)  Unless otherwise noted, the address is 3415 University Avenue, St. Paul, 
     Minnesota 55114.

(3)  Includes (i) 2,025 shares of Class A Common Stock held by each of 
     Stanley S. Hubbard, Stanley E. Hubbard and Robert W. Hubbard and (ii) 
     471,600 shares of Common Stock held in trust for certain employees of HBI, 
     for which Stanley S. Hubbard acts as trustee.

(4)  Includes (i) 46,051,225 shares of Common Stock held by HBI, (ii) 471,600 
     shares of Common Stock held in trust for certain employees of HBI, for 
     which Stanley S. Hubbard acts as trustee, and (iii) 5,715 shares of Class A
     Common Stock held by HBI.

(5)  Includes 46,051,225 shares of Common Stock and 5,715 shares of Class A 
     Common Stock held by HBI.

(6)  Includes 3,000,000 shares of Class A Common Stock owned by Robert Torray 
     & Co., Inc. and 3,370,000 shares of Class A Common Stock owned by Robert 
     Torray Corp.

(7)  Includes 2,000 shares of Class A Common Stock and 4,411,800 of shares of 
     Common Stock held by Dow Jones & Company, of which Mr. Skinner is General
     Counsel, Secretary and Senior Vice President.


                                      56

<PAGE>
<TABLE>
<CAPTION>
                                                                      PERCENT OF        PERCENT OF     PERCENT OF
NAME AND ADDRESS                                                      CLASS A           COMMON         TOTAL
OF BENEFICIAL OWNER(2)                 NUMBER                         COMMON STOCK      STOCK          VOTING POWER
----------------------                 ------                         ------------      -----          ------------
<S>                                    <C>                            <C>               <C>            <C>
Vulcan Ventures, Inc.                  3,529,425                          ___              5.9            5.7
110 110th Avenue Northeast             (Common Stock)
Bellevue, Washington 98004

William D. Savoy                       2,000 (Class A)(8)                  *               5.9            5.7
Vulcan Ventures, Inc.                  3,529,425 (Common Stock)(9)
110 110th Avenue Northwest
Bellevue, Washington 98004

Par Capital                            2,485,000 (Class A)                8.2              ___             *
One Financial Center
Suite 1600
Boston, MA  02111

John W. Marvin                         20,100 (Class A)(10)                *               2.2            2.1
Marvin Lumber and Cedar Company        1,323,525 (Common Stock)(11)
Highway 11
Warroad, Minnesota  56763

Frank N. Magid                         662,225 (Class A)(10)              2.2              ___             *

David S. Allen                         2,000 (Class A)(8)                  *                *              *
                                       286,650 (Common Stock)

Gerald D. Deeney                       3,000 (Class A)                     *                *              *
                                       118,550 (Common Stock)

Ward L. Quaal                          2,000 (Class A)(8)                  *                *              *
                                       94,350 (Common Stock)

Herbert S. Schlosser                   2,000 (Class A)(8)                  *                *              *
                                       83,775 (Common Stock)

Bernard J. Weiss                       35,500 (Class A)(12)                *               ___             *

Jan G. Schuth                          22,500 (Class A)(13)                *               ___             *

Peter F. Frenzer                       4,000 (Class A)(10)                 *               ___             *

Louis G. Zachary, Jr.                  2,000 (Class A)(8)                  *               ___             *

All directors and executive officers   9,282,115 (Class A)               30.4             94.9           91.8
as a group (16 persons)(14)            56,370,900 (Common Stock)
</TABLE>



------------------------
(8)  Consists of options to purchase shares of Class A Common Stock, all of 
     which are currently exercisable.

(9)  Consists of shares held by Vulcan Ventures, Inc., of which Mr. Savoy is 
     Vice President.

(10) Includes options to purchase 2,000 shares of Class A Common Stock, all 
     of which are currently exercisable.

(11) Consists of shares of Common Stock held by Marvin Lumber and Cedar 
     Company, of which Mr. Marvin is Chief Operating Officer.

(12) Includes options to purchase 35,000 shares of Class A Common Stock, 
     15,750 of which are currently exercisable.

(13) Includes options to purchase 22,500 shares of Class A Common Stock, 
     2,625 of which are currently exercisable.

(14) Footnote (3) and Footnotes (6) - (13) are incorporated herein by 
     reference.


                                      57

<PAGE>

               ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


     Pursuant to an Administrative Services Agreement between HBI and the 
Company, HBI charges the Company a portion of the expenses of the HBI 
departments that provide services to the Company, namely legal, management 
information systems, tax, risk management, payroll and accounts payable. 
Pursuant to this Agreement, the Company paid $1,252,000 to HBI for the year 
ended December 31, 1998, $1,123,900 in 1997, and $978,000 in 1996. The 
administrative services fee for calendar year 1999 is  $1,750,000.  In 
connection with  the Merger Agreement, HBI, the Company and Hughes agreed 
that this agreement may be terminated upon 60 days' written notice by Hughes 
to HBI after the closing of the Merger.  A $10 million administrative 
services fee currently due to HBI from the Company will be paid by Hughes to 
HBI on the earlier of the first anniversary of the closing of the Merger or 
April 1, 2000.

     The Company and HBI have filed combined state tax returns as required in 
Minnesota and New Mexico.  Utilizing the Company's net operating loss 
carryforwards, HBI realized benefits as to the state returns of approximately 
$0.1 million for the year ended December 31, 1998, $0.2 million in 1997 and 
$1.4 million in 1996.  HBI and the Company have entered into a Tax Sharing 
Agreement relating to such filings.  In connection with the Merger Agreement, 
HBI, the Company and Hughes agreed that this agreement will terminate upon 
completion of the Merger and that HBI will pay  $2.3 million to Hughes on the 
earlier of the first anniversary of the closing date of the Merger or April 
1, 2000 in satisfaction of HBI's obligations to the Company under this 
agreement.

     The Company leases 17,080 square feet of office and administrative space 
in St. Paul, Minnesota from HBI under a lease expiring on June 30, 2000.  
Under such lease, the Company paid HBI $229,726 for the year ended December 
31, 1998, $151,375 in 1997 and $81,630 in 1996.  The rent under this lease 
for calendar year 1999 is approximately $255,346.  In connection with the 
Merger Agreement, HBI, the Company and Hughes agreed that this lease may be 
terminated upon 60 days' written notice by Hughes to HBI after the closing of 
the Merger.

     The Company owns its National Broadcast Center in Oakdale, Minnesota, 
which consists of 20,500 square feet. The land for the facility was purchased 
in May 1993, from Minnesota Mining and Manufacturing Company ("3M"), and the 
Company and HBI agreed to provide advertising time on USSB programming and/or 
HBI's television stations in value equal to the purchase price of $340,000.  
HBI has agreed to provide all of such advertising time at no cost to the 
Company.  In 1997, 3M exercised its right under the agreement to be paid an 
adjusted purchase price in cash, and the Company paid such amount in 
satisfaction of its remaining obligations under the agreement.  In connection 
with the Merger Agreement, HBI will acquire an option to purchase all of 
Hughes' right in the National Broadcast Center eighteen months after the 
close of the Merger.  The purchase price for the option will be the fair 
market value of the assets being acquired.

     The Company has entered into various agreements with Conus 
Communications Company Limited Partnership ("Conus") for the provision of 
engineering and other services.  HBI and Stanley S. Hubbard, the Chairman of 
the Board of the Company, are each general partners of Conus.  For such 
services, the Company paid Conus $274,000 for the year ended December 31, 
1998, $203,000 in 1997 and $165,000 in 1996.  Payments to Conus under these 
agreements for calendar year 1999 will depend upon the date the Merger 
closes.  Under the terms of the Merger Agreement, this agreement has been 
amended to provide that it is terminable upon 60 days' written notice by 
Hughes to Conus after the closing of the Merger.

     The ALL NEWS CHANNEL is produced by Conus and carried by the Company. 
Pursuant to its programming agreement with the ALL NEWS CHANNEL, the Company 
paid Conus $4,365,313 for the year ended December 31, 1998, $5,211,700 in 
1997 and $3,598,800 in 

                                       58
<PAGE>

1996.  This agreement will be terminated at the closing of the Merger, and 
payments to Conus for calendar year 1999 will depend upon the date the Merger 
closes.

     The Company has entered into programming development agreements with 
certain of its shareholders, Vulcan Ventures, Inc. ("Vulcan") and Dow Jones & 
Company ("Dow Jones"). William D. Savoy, a director of the Company, is Vice 
President of Vulcan, and Peter G. Skinner, a director of the Company, is 
General Counsel, Secretary and President of Television Operations of Dow 
Jones.  In connection with the Merger Agreement, both agreements have been 
terminated, conditioned upon the closing of the Merger.

     Certain directors and former directors of the Company perform or have 
performed consulting services for the Company.  Frank N. Magid Associates, 
Inc., of which Mr. Magid is President, performs research for both the Company 
and HBI. The Company has paid approximately $768,000 for the year ended 
December 31, 1998, $808,000 in 1997 and $734,000 in 1996 to such company.  
The Company anticipates that the amounts paid to such company in 1999 will 
continue at approximately the same level as 1998.  This arrangement may be 
terminated by DIRECTV upon the closing of the Merger.

     Mr. Quaal is the President of Ward L. Quaal Company, which performs 
government relations work for both the Company and HBI.  The Company has paid 
approximately $72,000 for the year ended December 31, 1998, $61,000 in 1997 
and $142,000 in 1996 to such company.  The Company anticipates that the 
amounts paid to such company in 1999 will continue at approximately the same 
level as 1998. This arrangement may be terminated by DIRECTV upon the closing 
of the Merger.

     The Company engaged Credit Suisse First Boston Corporation by letter 
dated May 28, 1998, to provide investment banking services to the Company in 
connection with a potential sale of the Company.  Under the engagement, 
Credit Suisse First Boston Corporation will receive a transaction fee of 0.5% 
of the purchase price in connection with the closing of the Merger.  Louis G. 
Zachary, a director of the Company, is a managing director of Credit Suisse 
First Boston Corporation.

     The Company believes that all of the foregoing transactions have been on 
terms no less favorable to the Company than could have been obtained from 
unaffiliated third parties.

     In addition, in connection with the Merger Agreement, the Company 
entered into the following agreements, which have been approved by all 
disinterested directors of the Company:

     The Company has sold to HBI all of the Company's interest in Spring 
Programming Partners, LLC ("Spring"), a company that develops and supplies 
programming, for a purchase price of $100,000.  HBI assumed all liabilities 
and obligations related to Spring, including the Company's obligation to make 
an additional capital contribution to Spring of $500,000.  

     In connection with the Merger Agreement, HBI will acquire an option to 
purchase all of the Company's right to the names "United States Satellite 
Broadcasting Company," "United States Satellite Broadcasting Company, Inc.," 
"USSB," and "U.S. Satellite Broadcasting," and the USSB logo.  The purchase 
price for the option is $50,000 and is not exercisable until three years 
after closing of the Merger.

                                       59
<PAGE>

                                     PART IV

               ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES
                            AND REPORTS ON FORM 8-K
                                          
(a)  3.   EXHIBITS
          
          The following exhibits are filed as part of this Report on Form 10-K
          or, where indicated, were previously filed and are hereby incorporated
          by reference.

<TABLE>
<CAPTION>
 Exhibit No.    Exhibit Description
 -----------    -------------------
<S>             <C>
        1.1     Form of Underwriting Agreement (1)

        1.2     Form of Subscription Agreement (1)

        3.1     Restated Articles of Incorporation (1)

        3.2     Bylaws (1)

        3.3     Form of Second Restatement of the Articles of Incorporation (1)

        3.4     Form of Amended and Restated Bylaws (1)

        4.1     Form of Stock Certificate (1)

       10.1     United States Satellite Broadcasting Company, Inc. 1995 Stock
                Option Plan (1)*

       10.2     Sales Agency Agreement, dated December 22, 1993, between Thomson
                Consumer Electronics, Inc. and United States Satellite
                Broadcasting Company, Inc. (1)**

       10.3     United States Satellite Broadcasting Company, Inc. 1996
                Non-Employee Director Stock Option Plan (5)*

       10.4     Consulting Services Agreement, dated November 1, 1995 between
                Conus Communications Company Limited Partnership and United
                States Satellite Broadcasting Company, Inc. (2)

       10.5     Amendment dated June 8, 1998 between ADS Alliance Data Systems
                Inc. and United States Satellite Broadcasting Company, Inc. to 
                Processing Agreement dated March 5, 1993 between JCPenney
                Business Services Inc. and United States Satellite Broadcasting
                Company, Inc. (8) ***

       10.6     [Intentionally reserved.]

       10.7     [Intentionally reserved.]

       10.8     [Intentionally reserved.]

       10.9     [Intentionally reserved.]

                                       60
<PAGE>


      10.10     Amendment No. 1, effective July 1, 1997, to the Indenture of
                Lease dated May 1994,  between Hubbard Broadcasting, Inc. and
                United States Satellite Broadcasting Company, Inc. (5)

      10.11     Service Agreement, dated January 1, 1994 between Conus
                Communications Company Limited Partnership and United States
                Satellite Broadcasting Company, Inc. (1)

      10.12     Indenture of Lease, dated May 1994, between Hubbard
                Broadcasting, Inc. and United States Satellite Broadcasting
                Company, Inc. (1)

      10.13     Satellite Payload Purchase Agreement, dated May 31, 1991,
                between Hughes Communications Galaxy, Inc. and United States
                Satellite Broadcasting Company, Inc., as amended (1)**

      10.14     Interim Technology Access and Coordination Agreement, dated June
                17, 1993, between Hughes Communications Galaxy, Inc. and United
                States Satellite Broadcasting Company, Inc. (1)**

      10.15     Transponder Service Agreement, dated May 31, 1991, between
                Hughes Communications Satellite Services, Inc. and United States
                Satellite Broadcasting Company, Inc. (1)**

      10.16     Processing Agreement, dated March 5, 1993, between JCPenney
                Business Services, Inc. and United States Satellite Broadcasting
                Company, Inc. (1)**

      10.17     Auxiliary Broadcast Center Lease (1)

      10.18     Form of Subscription Agreement, Letter of Investment Intent and
                Investor's Rights Agreement (1)

      10.19     Administrative Services Agreement, effective July 1, 1994,
                between United States Satellite Broadcasting Company, Inc. and
                Hubbard Broadcasting, Inc. (1)

      10.20     Tax Sharing Agreement between United States Satellite
                Broadcasting Company, Inc. and Hubbard Broadcasting, Inc. (1)

      10.21     6-Channel Direct Broadcast Satellite Contract, originally
                dated June 15, 1984, between Lockheed Martin Corporation
                (formerly RCA Corporation) and United States Satellite
                Broadcasting Company, Inc., as amended (1)**

      10.22     Amendment No. 10, dated December 18, 1995, to Direct Broadcast
                Satellite Contract between Lockheed Martin Corporation and
                United States Satellite Broadcasting Company, Inc. (1)**

      10.23     Administrative Services Agreement, effective July 1, 1996,
                between United States Satellite Broadcasting Company, Inc. and
                Hubbard Broadcasting, Inc. (2)

      10.24     Amendment No. 11, effective September 30, 1996, to Direct
                Broadcast Satellite Contract between Lockheed Martin Corporation
                and United States Satellite Broadcasting Company, Inc. (3)

      10.25     Amendment No. 12, effective November 27, 1996 to Direct
                Broadcast Satellite 


                                       61
<PAGE>

                Contract between Lockheed Martin Corporation and United States 
                Satellite Broadcasting Company, Inc. (4)

      10.26     Amendment No. 13, effective December 31, 1996, to Direct 
                Broadcast Satellite Contract between Lockheed Martin 
                Corporation and United States Satellite Broadcasting Company, 
                Inc. (4)

      10.27     Contract No. 104274-B, effective December 31, 1996, Direct
                Broadcast Satellite Contract between Lockheed Martin Corporation
                and United States Satellite Broadcasting Company, Inc. (4) ***

      10.28     Amendment No. 1, effective April 11, 1997, to Direct Broadcast
                Satellite Contract between United States Satellite Broadcasting
                Company, Inc. and Lockheed Martin Corporation (5) ***

      10.29     Amendment No. 2, effective April 30, 1997, to Direct Broadcast
                Satellite Contract between United States Satellite Broadcasting
                Company, Inc. and Lockheed Martin Corporation (5) ***

      10.30     Amendment No. 3, effective June 1, 1997, to Direct Broadcast
                Satellite Contract between United States Satellite Broadcasting
                Company, Inc. and Lockheed Martin Corporation (5) ***

      10.31     Amendment No. 14, effective December 31, 1997, to Direct
                Broadcast Satellite Contract between Lockheed Martin Corporation
                and United States Satellite Broadcasting Company, Inc. (6)

      10.32     Amendment No. 4, effective  December 31, 1997, to Direct
                Broadcast Satellite Contract between United States Satellite
                Broadcasting Company, Inc. and Lockheed Martin Corporation (6)
                ****

      10.33     Amendment No 5, effective May 1, 1998, to Direct Broadcast
                Satellite Contract No. 104274-B between United States Satellite
                Broadcasting Company, Inc. and Lockheed Martin Corporation (7)

      10.34     Amendment No. 1 to the Administrative Services Agreement by and
                between United States Satellite Broadcasting Company, Inc. and
                Hubbard Broadcasting, Inc., effective July 1, 1998. (8)

      10.35     Amendment No. 2 to the Administrative Services Agreement by and
                between United States Satellite Broadcasting Company, Inc. and
                Hubbard Broadcasting, Inc., effective January 1, 1999. (10)

      10.36     Agreement and Plan of Merger among the Company, General Motors 
                Corporation and Hughes Electronics Corporation, dated December
                11, 1998.(9)

      21.1      Subsidiaries of the Company (10)

      23.1      Consent of Arthur Andersen LLP (10)

      27.1      Financial Data Schedule (10)
</TABLE>

*    Denotes management contract or compensatory plan or arrangement in which
     certain directors and named executive officers participate.

                                       62
<PAGE>


     **   Portions of these documents were redacted and filed separately with
          the Securities and Exchange Commission pursuant to a request by the
          Company for confidential treatment pursuant to Rule 406 under the
          Securities Act of 1933, as amended, in connection with the filing of
          the Registration Statement described in note (1) below.
     
     ***  Portions of this document were redacted and filed separately with the
          Securities and Exchange Commission pursuant to a request by the
          Company for confidential treatment pursuant to Rule 24b-2 under the
          Securities Exchange Act of 1934, as amended, in connection with the
          prior filing of the Company's Reports on Form 10-Q and 10-K described
          in notes (4), (5) and (8) below.
     
     **** Portions of this document were redacted and filed separately with the
          Securities and Exchange Commission pursuant to a request by the
          Company for confidential treatment pursuant to Rule 24b-2 under the
          Securities Exchange Act of 1934, as amended, in connection with the
          filing of this Report on Form 10-K.

     (1)  Pursuant to Rule 12b-32, this exhibit is incorporated by reference
          under the same exhibit number to the exhibits filed with the Company's
          Registration Statement on Form S-1, File No. 33-99906.
     
     (2)  Pursuant to Rule 12b-32, this exhibit is incorporated by reference
          under the same exhibit number to the exhibits filed with the Company's
          Report on Form 10-K for the fiscal year ended June 30, 1996.
     
     (3)  Pursuant to Rule 12b-32, this exhibit is incorporated by reference
          under the same exhibit number to the exhibits filed with the Company's
          Report on Form 10-Q for the quarter ended September 30, 1996.
     
     (4)  Pursuant to Rule 12b-32, this exhibit is incorporated by reference
          under the same exhibit number to the exhibits filed with the Company's
          Report on Form 10-Q for the quarter ended December 31, 1996.
     
     (5)  Pursuant to Rule 12b-32, this exhibit is incorporated by reference
          under the same exhibit number to the exhibits filed with the Company's
          Report on Form 10-K for the year ended June 30, 1997.
     
     (6)  Pursuant to Rule 12b-32, this exhibit is incorporated by reference
          under the same exhibit number to the exhibits filed with the Company's
          Report on Form 10-K for the Transition Period ended December 31, 1997.
     
     (7)  Pursuant to Rule 12b-32, this exhibit is incorporated by reference
          under the same exhibit number to the exhibits filed with the Company's
          Report on Form 10-Q for the quarter ended March 31, 1998.
     
     (8)  Pursuant to Rule 12b-32, this exhibit is incorporated by reference
          under the same exhibit number to the exhibits filed with the Company's
          Report on Form 10-Q for the quarter ended June 30, 1998.
     
     (9)  Pursuant to Rule 12b-32, this exhibit is incorporated by reference to
          Exhibit 10.1 to Company's Report on Form 8-K filed December 18, 1998.
     
     (10) Filed herewith.

                                       63
<PAGE>

     
(b)  REPORTS ON FORM 8-K.

     The Company filed a Report on Form 8-K on December 18,
     1998 describing, under Item 5, an Agreement and Plan of
     Merger among the Company, General Motors Corporation and
     Hughes Electronics Corporation, dated December 11, 1998.



                                       64
<PAGE>

                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.


Dated: April 6, 1999                   UNITED STATES SATELLITE
                                       BROADCASTING COMPANY, INC.


                                       By: /s/ Stanley E. Hubbard
                                           -------------------------------------
                                           Stanley E. Hubbard
                                           Chief Executive Officer and President
                                           (Principal Executive Officer)


                                       65

<PAGE>

     Pursuant to the requirements of the Securities Exchange Act of 1934, this 
report has been signed below by the following persons on behalf of the 
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

        Signature                                      Title                              Date
        ---------                                      -----                              ----
<S>                                    <C>                                        <C>
/s/ Stanley S. Hubbard                 Chairman of the Board                        April 6, 1999    
-------------------------
Stanley S. Hubbard

                                       Chief Executive Officer, President,          April 6, 1999    
/s/ Stanley E. Hubbard                 and Director
-------------------------              (Principal Executive Officer)
Stanley E. Hubbard

/s/ Robert W. Hubbard                  Executive Vice President and Director        April 6, 1999    
-------------------------
Robert W. Hubbard

                                       Senior Vice President and Chief
/s/ Bernard J. Weiss                   Financial Officer (Principal Financial       April 6, 1999    
-------------------------              and Accounting Officer)
Bernard J. Weiss

/s/ Herbert S. Schlosser               Director                                     April 6, 1999    
-------------------------
Herbert S. Schlosser

/s/ David S. Allen                     Director                                     March 24, 1999
-------------------------
David S. Allen

/s/ Frank N. Magid                     Director                                     March 24, 1999
-------------------------
Frank N. Magid

/s/ Peter G. Skinner                   Director                                     April 6, 1999    
-------------------------
Peter G. Skinner

/s/ William D. Savoy                   Director                                     April 6, 1999    
-------------------------
William D. Savoy

/s/ John W. Marvin                     Director                                     April 6, 1999    
-------------------------
John W. Marvin

/s/ Ward L. Quaal                      Director                                     April 6, 1999    
-------------------------
Ward L. Quaal

/s/ Louis G. Zachary, Jr.              Director                                     March 26, 1999
-------------------------
Louis G. Zachary, Jr.

/s/ Peter F. Frenzer                   Director                                     March 24, 1999
-------------------------
Peter F. Frenzer

/s/ Robert E. Torray                   Director                                     March 24, 1999
-------------------------
Robert E. Torray

</TABLE>


                                       66