<PAGE>
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                         SECURITIES AND EXCHANGE COMMISSION

                               Washington, DC  20549

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

                                     FORM 10-Q
(Mark One)

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

                  For the quarterly period ended September 30, 1998

                                          OR

     / /          TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
                        OF THE SECURITIES EXCHANGE ACT OF 1934
                      For the transition period from ___ to ___
                            Commission file number 0-27492

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

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

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

                                   (612) 645-4500
                (Registrant's telephone number, including area code)

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

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

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
               Class                         Outstanding at November 9, 1998
               -----                         -------------------------------
<S>                                          <C>
Class A Common Stock, $.0001 par value:             28,941,950
Common Stock, $.0001 par value:                     60,868,825
</TABLE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

        UNITED STATES SATELLITE BROADCASTING COMPANY, INC. AND SUBSIDIARIES
            REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998


                                       INDEX

<TABLE>
<CAPTION>
PART I.      FINANCIAL INFORMATION                                        Page
                                                                          ----
<S>                                                                        <C>
     Item 1. Financial Statements

             Consolidated Statements of Operations                           3

             Consolidated Balance Sheets                                     4

             Consolidated Statements of Cash Flows                           6

             Notes to Consolidated Interim Financial Statements              7

     Item 2. Management's Discussion and Analysis                           12

PART II.     OTHER INFORMATION

     Item 1. Legal Proceedings                                              20

     Item 2. Use of Proceeds                                                22

     Item 6. Exhibits and Reports on Form 8-K                               22
</TABLE>


                                          2
<PAGE>

                          PART I. FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS

       UNITED STATES SATELLITE BROADCASTING COMPANY, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                    UNAUDITED


<TABLE>
<CAPTION>
                                                         For the Three Months                       For the Nine Months
                                                          Ended September 30                         Ended September 30
                                                   ----------------------------------        -----------------------------------
                                                        1998              1997                    1998                1997
                                                   ---------------   ----------------        ---------------     ---------------
<S>                                                <C>               <C>                     <C>                 <C>
REVENUES                                                $ 136,567          $ 114,383              $ 406,116           $ 327,850
COST OF SALES                                              80,225             73,557                243,623             211,710
                                                   ---------------   ----------------        ---------------     ---------------
GROSS MARGIN                                               56,342             40,826                162,493             116,140

OPERATING EXPENSES:
    Selling and marketing                                  28,789             30,245                 83,432              72,009
    Manufacturer Incentive                                 12,794             17,916                 33,364              41,883
    General and administrative                             13,490             11,607                 41,118              34,547
    Commissions to retailers                                3,254              3,462                 10,332              11,117
    Engineering and operations                              3,395              2,549                  9,846               6,048
    Depreciation and amortization                           4,482              4,303                 11,897              14,023
                                                   ---------------   ----------------        ---------------     ---------------
        Net operating loss                                 (9,862)           (29,256)               (27,496)            (63,487)

OTHER (INCOME) EXPENSE:
    Interest income                                        (1,064)            (1,218)                (3,103)             (3,760)
    Other                                                     (68)               109                  1,356                 153
                                                   ---------------   ----------------        ---------------     ---------------
        Net loss                                         $ (8,730)         $ (28,147)             $ (25,749)          $ (59,880)
                                                   ---------------   ----------------        ---------------     ---------------
                                                   ---------------   ----------------        ---------------     ---------------
        Net loss per share - basic and diluted           $  (0.10)         $   (0.31)             $   (0.29)          $   (0.67)
                                                   ---------------   ----------------        ---------------     ---------------
                                                   ---------------   ----------------        ---------------     ---------------
</TABLE>


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


                                        3
<PAGE>




       UNITED STATES SATELLITE BROADCASTING COMPANY, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

                                     ASSETS
<TABLE>
<CAPTION>
                                                                   Sept. 30,            Dec. 31,
                                                                      1998                1997
                                                               -------------------   ----------------
                                                                  (unaudited)
<S>                                                            <C>                   <C>
CURRENT ASSETS:
   Cash and cash equivalents                                             $ 72,455           $ 68,646
   Trade accounts receivable, net                                          41,105             44,992
   Prepaid expenses and other current assets                                8,521             11,832
                                                               -------------------   ----------------
       Total current assets                                               122,081            125,470
                                                               -------------------   ----------------

PROPERTY AND EQUIPMENT:
   Land                                                                       351                351
   Buildings and improvements                                               5,106              5,075
   Equipment                                                              145,820            138,264
                                                               -------------------   ----------------
                                                                          151,277            143,690
   Less - Accumulated depreciation                                        (91,130)           (79,235)
                                                               -------------------   ----------------
       Total property and equipment, net                                   60,147             64,455
                                                               -------------------   ----------------

OTHER ASSETS:
   Satellite deposits                                                       7,450              8,380
   Long-term investments, consisting of U.S. Treasury
      securities and other                                                  4,504              3,970
   Other                                                                    3,641              4,035
                                                               -------------------   ----------------
       Total other assets                                                  15,595             16,385
                                                               -------------------   ----------------

                                                                        $ 197,823          $ 206,310
                                                               -------------------   ----------------
                                                               -------------------   ----------------
</TABLE>

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


                                        4
<PAGE>

       UNITED STATES SATELLITE BROADCASTING COMPANY, INC. AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS (CONTINUED)
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

                 LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
                                                                            Sept. 30,            Dec. 31,
                                                                               1998                1997
                                                                         -----------------    ---------------
                                                                           (unaudited)
<S>                                                                      <C>                  <C>
CURRENT LIABILITIES:
   Accounts payable and accrued expenses                                         $ 63,396           $ 60,599
   Deferred revenue                                                                51,394             56,156
   Manufacturer Incentive obligation                                               23,635             17,023
                                                                         -----------------    ---------------
       Total current liabilities                                                  138,425            133,778
                                                                         -----------------    ---------------
LONG TERM LIABILITIES
   Due to HBI                                                                      10,000             10,000
   Manufacturer Incentive obligation                                               73,026             60,433
                                                                         -----------------    ---------------
       Total long term liabilities                                                 83,026             70,433
                                                                         -----------------    ---------------

COMMITMENTS AND CONTINGENCIES (Note 3)

SHAREHOLDERS' EQUITY
   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, 28,941,950 shares issued and outstanding at
       September 30, 1998 and 16,172,601 at
       December  31, 1997                                                               2                  2
   Common Stock -
       Participating, voting, $.0001 par value, 100 million shares
       authorized, 60,868,825 shares issued and outstanding at
       September 30, 1998 and 73,638,174 at
       December 31, 1997                                                                7                  7
   Additional paid-in capital                                                     374,877            374,877
   Accumulated deficit                                                           (398,525)          (372,777)
   Accumulated other comprehensive income (deficit)                                    11                (10)
                                                                         -----------------    ---------------
       Total shareholders' equity (deficit)                                       (23,628)             2,099
                                                                         -----------------    ---------------
                                                                                $ 197,823          $ 206,310
                                                                         -----------------    ---------------
                                                                         -----------------    ---------------
</TABLE>


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


                                        5
<PAGE>

       UNITED STATES SATELLITE BROADCASTING COMPANY, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                    UNAUDITED

<TABLE>
<CAPTION>
                                                                                          For the Nine
                                                                                          Months Ended
                                                                                          September 30
                                                                               ------------------------------------
                                                                                    1998                1997
                                                                               ----------------    ----------------
<S>                                                                            <C>                 <C>
OPERATING ACTIVITIES:
   Net Loss                                                                          $ (25,749)          $ (59,880)
   Adjustments to reconcile net loss to net cash provided by
     operating activities -
      Depreciation and amortization                                                     11,897              14,023
      Write-off of satellite deposits                                                    1,430                 -
      Media credits utilized                                                               -                   (84)
      Change in operating items:
          Receivables and other current assets                                           7,198                 594
          Accounts payable and accrued expenses                                          2,797               5,108
          Deferred revenue                                                              (4,762)              5,272
          Manufacturer Incentive                                                        19,205              38,027
          Other                                                                            380                (106)
                                                                               ----------------    ----------------
               Net cash provided by operating activities                                12,396               2,954
                                                                               ----------------    ----------------
INVESTING ACTIVITIES:
   Purchase of and deposits on equipment                                                (8,087)            (13,020)
   Proceeds from sale of long-term available-for-sale investment                           -                 3,000
   Purchase of investments                                                                (500)                -
                                                                               ----------------    ----------------
              Net cash used in investing activities                                     (8,587)            (10,020)
                                                                               ----------------    ----------------
FINANCING ACTIVITIES:
   Repayments to affiliated companies, net                                                 -                  (527)
                                                                               ----------------    ----------------
               Net cash used in financing activities                                       -                  (527)
                                                                               ----------------    ----------------
               Increase in cash and cash equivalents                                     3,809              (7,593)

CASH AND CASH EQUIVALENTS, beginning of period                                          68,646              86,518
                                                                               ----------------    ----------------
CASH AND CASH EQUIVALENTS, end of period                                             $  72,455           $  78,925
                                                                               ----------------    ----------------
                                                                               ----------------    ----------------

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.


                                        6
<PAGE>

        UNITED STATES SATELLITE BROADCASTING COMPANY, INC. AND SUBSIDIARIES
                NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS


NOTE 1.   ORGANIZATION:

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 system, 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
September 30, 1998 and December 31, 1997, and had approximately 73.0% of the
total voting power at September 30, 1998.

NOTE 2.   BASIS OF PRESENTATION:

The accompanying unaudited consolidated financial statements have been prepared
in accordance with Generally Accepted Accounting Principles for interim
financial statements and, therefore, do not include all information and
disclosures required by Generally Accepted Accounting Principles for complete
financial statements.  In the opinion of management, such statements reflect all
adjustments (which include only normal recurring adjustments) necessary for a
fair presentation of the financial position, results of operations, and cash
flows for the periods presented.  The results of operations for interim periods
presented are not necessarily indicative of the results which may be expected
for the entire fiscal year.  These statements should be read in conjunction with
the December 31, 1997 consolidated financial statements, the notes thereto, and
the Company's Report on Form 10-K.

NOTE 3.   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.



                                          7
<PAGE>

The FCC also 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.  The Permit
required the Company to comply with specified construction and launch schedules.
On June 24, 1998, the Company voluntarily returned to the FCC its authorization
for eight transponders at 148DEG. west longitude.  This action has no effect on
the status of the Company's Permit for the 110DEG. orbital location.  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.  In
connection with the original Permit, the Company entered into satellite
construction contracts with Lockheed Martin Astro Space Corp. ("Lockheed
Martin") for the construction of the two satellites (see below).  The Company
anticipates that it will terminate its 148DEG. Contract (as defined below) as a
result of returning its FCC authorization for eight transponders at 148DEG.
west longitude.

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").

Under the 110DEG. Contract, as amended effective November 1, 1998, the Company
is required to pay $76.2 million for satellite construction, of which $7.5
million has been paid through September 30, 1998. The contract also provides for
payments for ongoing operations services and in-orbit performance incentive
payments during the life of the satellite.  In addition, substantial costs would
be incurred to launch and insure the satellite.

While the 110DEG. Contract is cancelable in whole or in part at the option of
the Company, such cancellation would require forfeiture of all deposits and
progress payments made, plus additional penalties.  If satellite construction
proceeds as scheduled under the 110DEG. Contract, aggregate amounts due under
the 110DEG. Contract as amended are as follows:  $150,000 through December 31,
1998 and $68.6 million in the year ended December 31, 1999.

As a result of returning its FCC authorization at 148DEG. west longitude on
June 24, 1998, the Company recorded a non-cash charge of $1.4 million for the
quarter ended June 30, 1998, reflecting the write-off of deposits which it had
previously made.  The Company anticipates that it will terminate its 148DEG.
Contract as a result of returning its FCC authorization for eight transponders
at 148DEG. west longitude.

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 September 30, 1998, such commitments totaled $8.2 million due
through June 30, 1999, all of which are noncancelable.

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



                                          8
<PAGE>

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, Inc., a subsidiary of Hughes Electronics
Corporation.  As 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.  No agreement has
been reached with DIRECTV as to how USSB's services would be integrated into a
reduced offering of DIRECTV/USSB system signals if DBS-1 were to fail.  The
Company expects to work with DIRECTV on a plan to maximize the consumer
proposition of the DIRECTV/USSB system in such event.  On August 11, 1998,
DIRECTV announced that it has ordered a new satellite from Hughes Space and
Communications Company, which it plans to launch in mid-1999 at the 101DEG.
orbital location.  DIRECTV also announced that the new satellite would replace
DIRECTV's capacity on DBS-1.  Although the Company has rights to capacity on
such satellite, no agreement has been reached with DIRECTV regarding this
matter.

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.  See Part II, Item 1 of this Report on Form
10-Q for a description of this matter.

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.  See Part II, Item 1 of this Report on Form 10-Q
for a description of this matter.

In September 1998, WIC Premium Television, Ltd., an Edmonton, Alberta, Canada
corporation, 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.  Management intends to vigorously defend both actions.  See Part II,
Item 1 of this Report on Form 10-Q for a description of this matter.

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, Inc., announced that it
had entered into financial incentive arrangements with certain manufacturers of
DIRECTV/USSB systems 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.
In the quarter and nine months ended September 30, 1998, the Company charged to
expense $12.8 million and


                                          9
<PAGE>

$33.4 million, respectively, representing the full amount of those future
obligations for the Manufacturer Incentive program for the sale of DIRECTV/USSB
systems  to new households.  Cash paid in the quarter and nine months ended
September 30, 1998 totaled $5.2 million and $14.2 million, respectively, and
future payment obligations (all of which have been previously charged to
expense) totaled $96.7 million at September 30, 1998.

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 sales increase, the expense and cash flow
related to these arrangements will increase accordingly.

THIRD PARTY VENDOR

On October 16, 1998, the Company entered into a contract with Convergys
Information Management Group Inc. to provide billing and subscriber management
services to the Company for a term of seven years.  The Company's agreement with
its current provider of such services expires in June 1999.


NOTE 4.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings and loss per Share" (SFAS No. 128) effective December 31, 1997.  As a
result, all prior periods presented have been restated to conform to the
provisions of SFAS No. 128, which requires the presentation of basic and diluted
earnings and loss per share.  Basic loss per share is computed by dividing net
loss by the weighted average number of common shares outstanding during each
year.  Diluted loss per share is computed under the treasury stock method and is
calculated to include the dilutive effect of outstanding stock options.  A
reconciliation of these amounts is as follows (in thousands, except per share
data):

<TABLE>
<CAPTION>
                                        For The Quarter     For the Nine Months
                                        ---------------     -------------------
                                       Ended September 30   Ended September 30,
                                       ------------------   -------------------
                                        1998       1997       1998      1997
                                        ----       ----       ----      ----
 <S>                                  <C>        <C>        <C>       <C>
 Net loss                             $(8,730)   $(28,147)  $(25,749) $(59,880)
 Weighted average number of common     89,811      89,811     89,811    89,811
       shares outstanding - basic
 Dilutive effect of option plans           --          --         --        --
                                      -------    --------   --------  --------
 Common and common equivalent shares   89,811      89,811     89,811    89,811
       outstanding - diluted          -------    --------   --------  --------
                                    
 Net loss per share - basic and
       diluted                          $(.10)      $(.31)     $(.29)    $(.67)
                                      -------    --------   --------  --------
                                      -------    --------   --------  --------
</TABLE>

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 as either 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.


                                          10
<PAGE>

The Company has not entered into any derivative financial instruments as of
September 30, 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.

NOTE 5.   CHANGE IN FISCAL YEAR:

On September 4, 1997, the Board of Directors of the Company voted to change the
Company's fiscal year end from June 30 to December 31, beginning with a six
month transition period which ended on December 31, 1997.  The accompanying 1997
financial statements have been recast to conform to the new calendar year
presentation.


                                          11
<PAGE>

        ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                             AND RESULTS OF OPERATIONS


Forward-looking statements in this Report on Form 10-Q (statements which are
phrased in terms of anticipation, expectation, belief or the like or which refer
to future events, developments or conditions) are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that all forward-looking statements involve risks and
uncertainty and that the Company faces a number of risks as it continues to
develop its commercial operations.  There are certain important factors that
could cause results to differ materially from those anticipated by the
statements made herein. Several of these factors are discussed under the
headings "Overview" and "Risk Factors" in this Item 2.

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 September
30, 1998, approximately 3.95 million households were authorized to receive
programming services using the DIRECTV/USSB system ("DIRECTV/USSB system
households"), up from 3.67 million at June 30, 1998.  All of the Company's gross
revenues and operating 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.  The Company achieved positive adjusted cash 
flow of approximately $2.3 million and $3.7 million (defined as earnings 
before interest, taxes, depreciation, amortization and the non-cash component 
of the Manufacturer Incentive program) for the quarter and nine months ended 
September 30, 1998.  However, due to the seasonality of the Company's 
marketing expenditures, management does not expect to achieve positive 
adjusted cash flow for the full year 1998.  Management also expects that net 
losses will continue into 1999 as the Company continues to incur substantial 
marketing expenses (including Manufacturer Incentive program expenses) in 
order to build its subscriber base. Management anticipates that the Company 
will achieve positive adjusted cash flow for the full year 1999 and will 
generate net income during the year 2000.  However, see the discussion under 
"Risk Factors" in this Item 2.

As part of its ongoing strategy to focus on premium movie entertainment and 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.  The ultimate impact of these developments depends on
many factors, including consumer reaction to the Company's all-premium movie
channel line-up.  Management believes that the effects of these programming
changes are now largely reflected in the Company's ongoing results.

SUMMARY OF SUBSCRIBER AND REVENUE DATA

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

The number of USSB paying subscribers grew to approximately 1,929,000 at
September 30, 1998 from approximately 1,842,000 at June 30, 1998.  Approximately
150,000 additional households were receiving a free promotional month of USSB
programming as of September 30, 1998.


                                          12
<PAGE>

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's 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 summary immediately below 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 system households is also shown.

SUBSCRIBER BASE:
(In thousands)
<TABLE>
<CAPTION>


                                                           TOTAL USSB
                                                             PAYING                             PERCENT OF
                                                           SUBSCRIBERS                             USSB
    FOR THE           USSB                 USSB                AND               USSB           CONVERTIBLE          ESTIMATED
    QUARTER          PAYING            PROMOTIONAL         PROMOTIONAL        CONVERTIBLE       HOUSEHOLDS      DIRECTV/USSB SYSTEM
     ENDED       SUBSCRIBERS (a)     ACTIVATIONS (b)       ACTIVATIONS      HOUSEHOLDS (c)      SERVED (d)        HOUSEHOLDS (e)
     ------      ---------------     ---------------       -----------      --------------      ----------      ----------------
 <S>             <C>                 <C>                   <C>              <C>                 <C>             <C>
 Sept. 30,
   1997               1,584                113                1,697              2,462              64%                2,887
 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

</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.

(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 September 30, 1998, the Company achieved a penetration of convertible
households of approximately 55 percent.  Management believes that the reduction
in the penetration percentage compared to previous quarters reflects the impact
of the change to an all-premium movie channel line-up.  For the current quarter,
the Company's subscriber base increased by 87,000 subscribers.


                                          13
<PAGE>

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, which include special rates for limited periods, which could result
in lower average per subscriber revenues for such periods.  During the quarter
ended September 30, 1998, per subscriber revenues continued to reflect  the
reduction in subscription rates implemented by the Company on March 10, 1998 for
certain programming packages.  The Company expects that average per subscriber
revenue will continue to decline slightly during the remainder of 1998.

REVENUES:
(In thousands, except per subscriber data)
<TABLE>
<CAPTION>

                                            FOR THE QUARTER ENDED
                               SEPT. 30   JUNE 30  MARCH 31   DEC. 31  SEPT. 30
                                 1998      1998      1998      1997      1997
                                 ----      ----      ----      ----      ----
 <S>                           <C>       <C>       <C>       <C>       <C>
 Average monthly subscription
  revenue per paying
  subscriber (a)                $23.53    $23.60    $24.22    $24.66    $24.71

 Programming revenues (b)      $136,567  $132,710  $136,839  $128,769  $114,383
</TABLE>
-------------
(a)  Excludes pay-per-view event, commercial and TV GUIDE-TM- revenues.
(b)  Includes pay-per-view event, commercial and TV GUIDE revenues.

RESULTS OF OPERATIONS

REVENUE OVERVIEW.  The Company's total revenues increased to $136.6 million and
$406.1 million for the quarter and nine months ended September 30, 1998,
compared to $114.4 million and $327.9 million for the comparable prior year
periods.  The revenue increase was primarily attributable to a larger subscriber
base, offset by generally reduced subscription prices which were implemented
March 10, 1998.

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
subscribers and the rates charged.  The increase in revenues for both periods
was primarily attributable to the increase in the number of paying subscribers
to approximately 1,929,000 at September 30, 1998, from approximately 1,584,000
at September 30, 1997, offset by the reduction in certain  subscription rates,
as described above.

Pay-per-view revenues, which vary with the number and type of events provided on
a pay-per-view basis in any fiscal period, 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, and are expected to vary accordingly.

COST OF SALES AND GROSS MARGIN.  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 $80.2 million for the
quarter and $243.6 million for the nine months ended September 30, 1998,
compared to $73.6 million and $211.7 million for the comparable prior year
periods.  The increase in the cost of programming was primarily the result of an
increased number of subscribers from the comparable prior year periods.  The
Company's gross margin percentage increased to 41.3% for the quarter and 40.0%
for the nine months ended September 30, 1998, compared to 35.7% and 35.4% for
the comparable prior year periods.  The increase reflects the higher margins
associated with the premium channels, 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


                                          14
<PAGE>

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 were $66.2 million and
$189.9 million for the quarter and nine months ended September 30, 1998,
compared to $70.1 and $179.6 million for the comparable prior year periods.  The
decrease for the quarter was primarily due to a reduction in the Manufacturer
Incentive program expense, which is discussed below.  The increase for the nine
month period was primarily attributable to the cost of providing the Company's
services to a growing subscriber base, including increased marketing, customer
service and general and administrative expenses, offset in part by a reduction
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. The Company's overall selling and marketing efforts also
include the Manufacturer Incentive program, which is discussed below. Excluding
Manufacturer Incentive program expenses, selling and marketing expenses were
$28.9 million and $83.4 million for the quarter and nine months ended September
30, 1998, compared to $30.2 million and $72.0 million for the comparable prior
year periods.  The decrease for the quarter is primarily due to a reduction in
advertising expenditures, some of which will be incurred in the fourth quarter,
partially offset by an increase in customer service costs.  Expenses associated
with the Company's customer service, telemarketing and direct mail marketing
programs, which are directed at purchasers of DIRECTV/USSB systems who activate
with the Company, have increased for the nine months ended September 30, 1998
from the comparable period in 1997 as the number of such DIRECTV/USSB 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
systems equipment  These arrangements have had the effect of contributing to
certain DIRECTV/USSB system manufacturers lowering the price of DIRECTV/USSB
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 expense and liability for such future commitments
are established and recorded upon activation of the related DIRECTV/USSB system.
Manufacturer Incentive program expenses totaled $12.8 million and $33.4 million
for the quarter and nine months ended September 30, 1998, compared to $17.9
million and $41.9 million in the comparable prior year periods.  The decrease in
Manufacturer Incentive program expense for both periods 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 expense 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 administrative services provided
by HBI.  General and administrative expenses increased to $13.5 million and
$41.1 million for the quarter and nine months ended September 30, 1998, compared
to $11.6 million and $34.5 million for the comparable prior year periods.  The
increases were primarily attributable to increased billing and remittance
processing costs, resulting from the growth of the Company's subscriber base and
increased costs for certain billing services under the Company's arrangements
with its third-party billing services provider.  Although total general and
administrative costs have increased between the periods, elements of general and
administrative expense have declined as a percent of revenues as certain of the
expenses are fixed.  The Company expects to incur increased operating expenses
and significant capital expenditures  as it implements a new billing and
subscriber management system during 1999.


                                          15
<PAGE>

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.  As
a result, commissions to retailers were $3.3 million and $10.3 million for the
quarter and nine months ended September 30, 1998, compared to $3.5 million and
$11.1 million for the comparable prior year periods.

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
(determined by subscriber levels) and satellite telemetry, tracking and control
expenses.  Engineering and operations expenses were $3.4 million and $9.8
million for the quarter and nine months ended September 30, 1998, compared to
$2.5 million and $6.0 million for the comparable prior year periods.  The nine
month period in 1997  included a positive adjustment of $2.6 million to the
previously recorded expense of a security card changeout program, which was
completed at a cost less than originally  estimated.

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 were $4.5 million and
$11.9 million for the quarter and nine months ended September 30, 1998, compared
to $4.3 million and $14.0 million for the comparable prior year periods.
Depreciation expense for DBS-1 will decline over time.

NET LOSS.  The Company recorded a net loss of $8.7 million for the quarter and
$25.7 million for the nine months ended September 30, 1998, compared to $28.1
million and $59.9 million for the comparable prior year periods.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY AND CAPITAL RESOURCES.  Cash and cash equivalents increased to $72.4
million at September 30, 1998 from $68.6 million at December 31, 1997.  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.  The
Company utilizes this cash flow to further develop its business, including
marketing initiatives and capital expenditures.

The increase in cash at September 30, 1998 from December 31, 1997 primarily
reflects the operating results of the Company, including the increase in the
non-cash portion of the Manufacturer Incentive program, and the timing of cash
receipts and payments.  Management believes that the Company's current cash
position and cash generated from operations is adequate to meet anticipated
operating expenses through 1999.

The Company may require external financing for future major capital
expenditures, such as capacity on a new satellite, or a replacement satellite.
The Company believes that such financing is available from a number of sources
and is evaluating options which would provide additional flexibility in
satisfying the Company's future financing needs, if any.

The Company continues to seek to develop a business plan to include the proper
set of strategic and financial partners for a separate business at the 110DEG.
west longitude location.  The Company expects that it will need to determine
whether to proceed with any such opportunity prior to the end of 1998 in order
to satisfy the requirements of the FCC.


                                          16
<PAGE>

WORKING CAPITAL.  Working capital at September 30, 1998 was a negative $16.3 
million, compared to working capital of a negative $8.3 million at December 
31, 1997.  This change resulted primarily from the Company's net loss for the 
nine month period ended September 30, 1998 and increases in the current 
portion of the Manufacturer Incentive program obligation. Management expects 
that working capital will remain negative through 1999 as the Manufacturer 
Incentive program obligation increases with the growth of DIRECTV/USSB system 
households.

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.
The ultimate outcome of these matters and the resulting effect on the liquidity
and financial position of the Company cannot be determined with certainty.

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.  The ultimate outcome of
this matter and the resulting effect on the liquidity and financial position of
the Company cannot be determined with certainty.

WIC Premium Television, Ltd., an Edmonton, Alberta, Canada corporation, has
commenced two legal proceeding against several retailers, programming providers
and programming distributors, including the Company.  The ultimate outcome of
this matter and the resulting effect on the liquidity and financial position of
the Company cannot be determined with certainty.

Part II, Item 1 of this Report on Form 10-Q contains additional information on
these matters.

CAPITAL EXPENDITURES.  Capital expenditures for the quarter and nine months 
ended September 30, 1998 totaled $4.3 million and $8.1 million, respectively, 
consisting primarily of satellite deposits and purchased computer hardware 
and software. The Company is required to make progress payments under its 
contract with Lockheed Martin for satellite construction at the 110DEG. west 
longitude orbital location.  If a new satellite or a replacement satellite 
for DBS-1 is required, the Company will also incur additional capital 
expenditures.  Note 3 to the condensed consolidated financial statements 
contains additional information on this matter.  The Company expects to incur 
significant capital expenditures as it implements a new billing and 
subscriber management system during 1999.

NET OPERATING LOSS CARRY FORWARD.  At September 30, 1998, the Company's net
operating loss carry forward was $316.6 million for federal tax purposes and
$398.6 million for financial reporting purposes.  The difference in loss
carryforwards primarily represents differing amounts of depreciation and
Manufacturer Incentive program expense reported by the Company for tax and
financial reporting purposes.  Such carryforwards expire in the years 2000
through 2013.

YEAR 2000

The Company has analyzed the Year 2000 compliance issues related to its computer
systems and the technologies associated with delivering programming.  
Management believes that with modifications or upgrades to existing internal 
systems, 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.


                                          17
<PAGE>

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. The Company expects to complete its 
assessment and evaluation of its internal systems and programming 
technologies by December 31, 1998, and expects to complete all critical 
resolution strategies by June 1999.

In addition, the Company is working with its key vendors and suppliers, 
including its programming providers, DIRECTV, customer service and billing 
vendors, to assure that the vendors' systems will be Year 2000 compliant.  
The Company has been informed by its current customer service, billing and 
subscriber management services vendor that such vendor expects to be 
substantially Year 2000 compliant by March 1999. In addition, the Company is 
working with its new billing and subscriber management services vendor so 
that the new system being developed by the vendor will be Year 2000 
Compliant. Although the Company has not yet identified the most likely worst 
case scenario, the Company's operations and its ability to provide customer 
service and billing would be adversely affected to the extent its internal 
systems or those of its key vendors have not properly addressed Year 2000 
issues.  The Company is developing contingency plans in the event that 
certain business partners are delayed in achieving Year 2000 compliance.

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 have been 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 the levels of prepaid subscriptions in any given
quarter.

RISK FACTORS

There are certain important factors that could cause results to differ
materially from those anticipated by the statements made in this Report on Form
10-Q.  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, and USSB's continuing ability to offer
competitive programming.

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, increasing the number of competitors 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, Inc., 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.  If the spare SCP were to fail, the Company could 
not provide programming services using DBS-1.  No agreement has been reached 
with DIRECTV as to how USSB's services would be integrated into a reduced 
offering of DIRECTV/USSB system signals from other satellites at the


                                          18
<PAGE>

101DEG. orbital location if DBS-1 were to fail.  The Company has had 
discussions with DIRECTV and expects to work with DIRECTV on a plan to 
maximize the consumer proposition of the DIRECTV/USSB system in such event.  
There can be no assurance that such plan would carry every network or every 
channel of the multichannel networks currently carried by the Company. On 
August 11, 1998, DIRECTV announced that it has ordered a new satellite from 
Hughes Space and Communications Company, which it plans to launch in mid-1999 
at the 101DEG. orbital location.  DIRECTV also announced that the new 
satellite would replace DIRECTV's capacity on DBS-1.  Although the Company 
has rights to capacity on such satellite, no agreement has been reached with 
DIRECTV regarding this matter.

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.  During the third quarter, in connection with 
the settlement of certain litigation, DIRECTV agreed to discontinue the use 
of the "DSS" trademark.  DIRECTV has initiated the use of the mark "DIRECTV 
System" to identify the USSB/DIRECTV system in lieu of the "DSS" mark. The 
relevant contracts with DIRECTV do not permit DIRECTV to unilaterally change 
the name of the system in a way that would disadvantage the Company.  The 
Company has indicated a willingness to negotiate terms which the Company 
believes would protect its legitimate interests regarding a name change with 
DIRECTV, and the Company is presently in negotiation with DIRECTV on this 
issue.

The Company and DIRECTV share many relationships, and a lack of continued
cooperation between the two companies may have an adverse impact. In the event
the Company is unable to reach agreement with DIRECTV regarding satellite
capacity or the system trademark in a way that adequately protects USSB's
interests, such an impact could occur.

The Company is also dependent on third-party programmers, and on vendors,
including those providing customer service and billing, on the ability of the
Company and its third party vendors to effectively implement a new subscriber
management and billing system, and on 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; depreciation expenses resulting from the 
possible purchase of capacity on a new satellite or a replacement satellite 
and from the acquisition of new subscriber management system capital assets; 
sufficient availability of DIRECTV/USSB systems at retail; potentially 
adverse governmental regulation and actions; and overall economic conditions 
may also adversely affect the Company.  These factors, as well as the factors 
enumerated in the above paragraphs, could affect the Company's ability to 
achieve its stated expectation of reaching adjusted cash flow break-even in 
1999 and net income in 2000.  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 1, "Business - 
Competition" of the Company's Report on Form 10-K for the Transition Period 
ended December 31, 1997 for a further discussion of certain of these risks.


                                          19
<PAGE>


                             PART II. OTHER INFORMATION

                             ITEM 1.  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 digital satellite 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
Company was granted leave to intervene in this appeal. Oral argument occurred on
September 10, 1998, and the case is under submission.

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 action pending the resolution of the ITC investigation
described above, the district court entered an order to that effect.


                                          20
<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,
management believes, based on advice of counsel, that it has valid defenses to
IPPV's claims.  The Company does not believe that IPPV is entitled to damages,
and management intends to vigorously defend the action.


     WIC PREMIUM TELEVISION LTD. V. GENERAL INSTRUMENT CORPORATION, NEXT
     LEVEL SYSTEMS OF DELAWARE, INC., SHOWTIME NETWORKS, INC., HOME BOX
     OFFICE, INC., WARNER COMMUNICATIONS, INC., JOHN DOE, ECHOSTAR
     COMMUNICATIONS CORPORATION, DISH LTD., 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 CENTRE ONE HUNDRED
     HOLDINGS (AMALGAMATED) LTD., 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.  While it is not possible to
estimate the probable outcome of these proceedings at this time, management
believes, based on advice of counsel, that it has valid defenses to WIC's claims
and intends to vigorously defend the action.

                                          21
<PAGE>

                              ITEM 2.  USE OF PROCEEDS

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 ("SEC") on May 10,
1996 and amendments thereto on November 12, 1996 and May 12, 1997.  Further
information was reported in the Company's periodic reports filed with the SEC,
commencing with its Report on Form 10-Q for 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 September 30, 1998 which have changed
since the most recently filed Report.
<TABLE>
<CAPTION>
                                                              Direct or Indirect
                         Use of Proceeds                      Payments to Others
                         ---------------                      ------------------
 <S>                                                          <C>
 Working Capital                                                 $31,820,834

 Purchase and Installation of Machinery and Equipment             28,277,431
 Temporary Investments
      Short Term Treasuries                                       50,130,310
</TABLE>

                     ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     a.   Exhibits

          27.1 Financial Data Schedule


                                          22
<PAGE>

                                     SIGNATURES


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




Dated: November 13, 1998          UNITED STATES SATELLITE
                                   BROADCASTING COMPANY, INC.



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


                                   By:  /s/ Bernard J. Weiss
                                       ---------------------------------------
                                        Bernard J. Weiss
                                        Chief Financial Officer
                                        (Principal Financial and Accounting
                                        Officer)


                                          23
<PAGE>

         UNITED STATES SATELLITE BROADCASTING COMPANY, INC. AND SUBSIDIARIES

                  Index of Exhibits to Quarterly Report on Form 10-Q
                       For the Quarter Ended September 30, 1998

<TABLE>
<CAPTION>
     Exhibit No.         Exhibit Description
     -----------         --------------------
     <S>                 <C>
          27.1           Financial Data Schedule
</TABLE>


                                          24