STATION CASINOS INC, 10-Q, 1998-08-14

STATION CASINOS INC
10-Q, 1998-08-14
MISCELLANEOUS AMUSEMENT & RECREATION

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[LOGO STATION CASINOS, INC.]

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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[ ] 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 000-21640
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STATION CASINOS, INC.
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(Exact name of registrant as specified in its charter)

Nevada 88-0136443
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

2411 West Sahara Avenue, Las Vegas, Nevada
------------------------------------------
(Address of principal executive offices)

89102
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(Zip Code)

(702) 367-2411
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Registrant's telephone number, including area code

N/A
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(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.

Class Outstanding at July 31, 1998
- ---------------------------- ----------------------------
Common stock, $.01 par value 35,311,792

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STATION CASINOS, INC.
INDEX

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets (unaudited) -
June 30, 1998 and March 31, 1998 3

Condensed Consolidated Statements of Operations (unaudited) -
Three months ended June 30, 1998 and 1997 4

Condensed Consolidated Statements of Cash Flows (unaudited) -
Three months ended June 30, 1998 and 1997 5

Notes to Condensed Consolidated Financial Statements (unaudited) 6

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10

PART II. OTHER INFORMATION

Item 1. Legal Proceedings 20

Item 2. Changes in Securities 24

Item 3. Defaults Upon Senior Securities 24

Item 4. Submission of Matters to a Vote of Security Holders 24

Item 5. Other Information 24

Item 6. Exhibits and Reports on Form 8-K 24

Signature 25

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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

STATION CASINOS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1998 1998
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................. $ 58,815 $ 50,158
Accounts and notes receivable, net........................................ 11,951 12,288
Inventories............................................................... 4,514 4,209
Prepaid gaming taxes...................................................... 8,119 6,763
Prepaid expenses and other................................................ 16,191 14,073
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TOTAL CURRENT ASSETS................................................... 99,590 87,491

Property and equipment, net.................................................. 1,125,137 1,132,719
Land held for development.................................................... 24,286 24,268
Other assets, net............................................................ 55,243 55,738
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TOTAL ASSETS........................................................... $1,304,256 $1,300,216
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LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Current portion of long-term debt......................................... $ 126,214 $ 97,931
Accounts payable.......................................................... 16,303 16,498
Accrued payroll and related............................................... 21,934 21,896
Construction contracts payable............................................ 8,842 10,534
Accrued interest payable.................................................. 13,609 16,776
Accrued expenses and other................................................ 35,984 33,874
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TOTAL CURRENT LIABILITIES.............................................. 222,886 197,509

Long-term debt, less current portion......................................... 777,178 802,295
Deferred income taxes, net................................................... 15,661 13,525
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TOTAL LIABILITIES...................................................... 1,015,725 1,013,329
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COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01; authorized 5,000,000 shares; 2,070,000
convertible preferred shares issued and outstanding..................... 103,500 103,500
Common stock, par value $.01; authorized 90,000,000 shares;
35,311,792 and 35,310,623 shares issued and outstanding................. 353 353
Additional paid-in capital................................................ 167,213 167,180
Deferred compensation - restricted stock.................................. (405) (528)
Retained earnings......................................................... 17,870 16,382
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TOTAL STOCKHOLDERS' EQUITY............................................. 288,531 286,887
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................. $1,304,256 $1,300,216
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</TABLE>

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

<PAGE>

STATION CASINOS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
1998 1997
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<S> <C> <C>
OPERATING REVENUES:
Casino............................................. $165,367 $133,275
Food and beverage.................................. 34,213 28,855
Room............................................... 9,695 8,039
Other.............................................. 12,535 14,208
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Gross revenues.................................. 221,810 184,377
Less promotional allowances........................ (15,560) (10,861)
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Net revenues.................................... 206,250 173,516
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OPERATING COSTS AND EXPENSES:
Casino............................................. 80,201 64,291
Food and beverage.................................. 21,100 21,281
Room............................................... 3,707 3,101
Other.............................................. 5,917 7,162
Selling, general and administrative................ 44,889 38,656
Corporate expenses................................. 4,549 3,894
Development expenses............................... - 104
Depreciation and amortization...................... 17,508 15,983
Preopening expenses................................ - 10,866
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177,871 165,338
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OPERATING INCOME...................................... 28,379 8,178
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OTHER INCOME (EXPENSE):
Interest expense, net.............................. (22,410) (16,007)
Other.............................................. (441) (5,017)
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(22,851) (21,024)
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INCOME (LOSS) BEFORE INCOME TAXES..................... 5,528 (12,846)
INCOME TAX (PROVISION) BENEFIT........................ (2,229) 4,556
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NET INCOME (LOSS)..................................... 3,299 (8,290)
PREFERRED STOCK DIVIDENDS............................. (1,811) (1,811)
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NET INCOME (LOSS) APPLICABLE TO COMMON STOCK.......... $ 1,488 $ (10,101)
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BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE.... $ 0.04 $ (0.29)
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............ 35,312 35,314
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</TABLE>

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

<PAGE>

STATION CASINOS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................... $ 3,299 $ (8,290)
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Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization.................................. 17,508 15,983
Amortization of debt discount and issuance costs............... 1,458 1,611
Increase in deferred income taxes.............................. 2,230 839
Preopening expenses............................................ - 10,866
Changes in assets and liabilities:
Decrease (increase) in accounts and notes receivable, net.... 337 (920)
Increase in inventories and prepaid expenses and other....... (3,873) (4,477)
(Decrease) increase in accounts payable...................... (193) 1,680
(Decrease) increase in accrued expenses and other ........... (979) 8,506
Other, net..................................................... (421) 5,786
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Total adjustments....................................... 16,067 39,874
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Net cash provided by operating activities.................. 19,366 31,584
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................................. (11,095) (72,569)
Decrease in construction contracts payable........................ (1,692) (45,156)
Preopening expenses............................................... - (8,550)
Other, net........................................................ 1,159 (31)
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Net cash used in investing activities...................... (11,628) (126,306)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under bank facility, net................................. (18,500) (89,000)
Borrowings under Sunset loan agreement, net....................... - 43,500
Proceeds from the issuance of notes payable....................... 25,000 15,732
Principal payments on notes payable............................... (3,664) (6,715)
Proceeds from the issuance of senior subordinated notes, net...... - 144,287
Dividends paid.................................................... (1,811) (1,811)
Other, net........................................................ (106) (4,775)
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Net cash provided by financing activities.................. 919 101,218
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CASH AND CASH EQUIVALENTS:
Increase in cash and cash equivalents............................. 8,657 6,496
Balance, beginning of period...................................... 50,158 42,522
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Balance, end of period............................................ $ 58,815 $ 49,018
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SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest, net of amounts capitalized................ $ 24,143 $ 11,084
Cash paid for income taxes........................................ $ 10 $ -
Property and equipment purchases financed by debt................. $ - $ 3,532
</TABLE>

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

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STATION CASINOS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

Station Casinos, Inc. (the "Company"), a Nevada Corporation, is an
established multi-jurisdictional gaming and entertainment enterprise that
currently owns and operates four major casino properties in Las Vegas,
Nevada, a gaming and entertainment complex in St. Charles, Missouri and a
gaming and entertainment complex in Kansas City, Missouri. The Company also
owns and provides slot route management services in Southern Nevada.

The accompanying condensed consolidated financial statements include the
accounts of Station Casinos, Inc. and its wholly-owned subsidiaries, Palace
Station Hotel & Casino, Inc. ("Palace Station"), Boulder Station, Inc.
("Boulder Station"), Texas Station, Inc. ("Texas Station"), Sunset Station,
Inc. ("Sunset Station"), St. Charles Riverfront Station, Inc. ("Station
Casino St. Charles"), Kansas City Station Corporation ("Station Casino Kansas
City"), and the Southwest Companies. The Company also owns and operates a
small casino, Wild, Wild West, which opened in July 1998 and owns a 50%
interest in Town Center Amusements, Inc., d.b.a. Barley's Casino & Brewing
Company. All significant intercompany accounts and transactions have been
eliminated.

The accompanying condensed consolidated financial statements included
herein have been prepared by the Company, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate
to make the information presented not misleading. In the opinion of
management, all adjustments (which include normal recurring adjustments)
necessary for a fair presentation of the results for the interim periods have
been made. The results for the three months ended June 30, 1998 are not
necessarily indicative of results to be expected for the full fiscal year.
These financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1998.

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STATION CASINOS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

2. LONG-TERM DEBT

Long-term debt consists of the following (amounts in thousands):

June 30, March 31,
1998 1998
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<S> <C> <C>
Reducing revolving credit facility, secured by substantially all of the assets
of Palace Station, Boulder Station, Texas Station, Sunset Station, Station
Casino St. Charles and Station Casino Kansas City, $307.6 million limit at
June 30, 1998, reducing quarterly by $22.4 million until September 2000 when
the remaining principal balance is due, interest at a margin above the
bank's prime rate or the Eurodollar
Rate (8.21% at June 30, 1998)............................................................ $ 305,500 $ 324,000
9 5/8% senior subordinated notes, payable interest only semi-annually,
principal due June 1, 2003, net of unamortized discount of $5.7 million
at June 30, 1998......................................................................... 187,265 187,051
9 3/4% senior subordinated notes, payable interest only semi-annually,
principal due April 15, 2007, net of unamortized discount of $5.3 million
at June 30, 1998......................................................................... 144,722 144,629
10 1/8% senior subordinated notes, payable interest only semi-annually,
principal due March 15, 2006, net of unamortized discount of $1.1
million at June 30, 1998................................................................. 196,932 196,908
Note payable to bank, unsecured, payable interest only monthly, principal
due the earlier of the Merger date (see Note 4) or June 30, 1999,
interest at a margin above the bank's prime rate or the Eurodollar
Rate (8.19% at June 30, 1998)............................................................ 25,000 -
Notes payable to banks and others, collateralized by slot machines and
related equipment, monthly installments including interest at 7.78%
at June 30, 1998......................................................................... 7,864 8,499
Capital lease obligations, collateralized by furniture and equipment....................... 3,745 4,191
Other long-term debt....................................................................... 32,364 34,948
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Total long-term debt.............................................................. 903,392 900,226
Current portion of long-term debt.......................................................... (126,214) (97,931)
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Total long-term debt, less current portion........................................ $ 777,178 $ 802,295
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</TABLE>

In June 1998, the Company amended its secured amended and restated
reducing revolving loan agreement (the "Bank Facility"). This amendment
modifies the maximum funded debt to EBITDA (adjusted for preopening expenses)
ratio, including annualized EBITDA (adjusted for preopening expenses) for any
new venture, as defined, open less than a year, for the Company on a
consolidated basis to 5.50 to 1.00 for the fiscal quarter ended June 30,
1998, 5.40 to 1.00 for the fiscal quarter ending September 30, 1998, 5.20 to
1.00 for the fiscal quarter ending December 31, 1998, 5.00 to 1.00 for the
fiscal quarter ending March 31, 1999, 4.25 to 1.00 for the fiscal quarter
ending June 30, 1999, 4.00 to 1.00 for the fiscal quarter ending September
30, 1999 and 3.75 to 1.00 thereafter. The funded debt to EBITDA ratio was
5.15 to 1.00 as of June 30, 1998.

In June 1998, the Company executed an unsecured master revolving
promissory note with a bank for $25 million. This note is payable the
earliest of June 30, 1999, the Merger date (see Note 4), or October 30, 1998,
if the Company has not secured the note on the same terms as the Bank
Facility, except that such security is

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STATION CASINOS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

2. LONG-TERM DEBT (CONTINUED)

limited to furniture, fixtures and equipment. The Company and Southwest
Gaming Services, Inc. guarantee the borrowings under the note. This note
is cross-defaulted with the Bank Facility.

3. OTHER MATTERS

PREOPENING EXPENSES

Prior to the opening of a facility, all operating expenses, including
incremental salaries and wages, related thereto are capitalized as preopening
expenses. In June 1997, Sunset Station Hotel & Casino opened. During the
three months ended June 30, 1997, $10.9 million of preopening expense
primarily related to Sunset Station were expensed.

EXPIRED OPTION PAYMENTS

In June 1997, approximately $5.0 million of certain expired option
payments to lease or acquire land for future development, which had
previously been capitalized, were expensed. Such amounts are included in
other income/expense in the accompanying condensed consolidated statements of
operations for the three months ended June 30, 1997.

4. MERGER AGREEMENT

On January 16, 1998, the Company entered into an Agreement and Plan of
Merger, as amended (the "Merger Agreement") with Crescent Real Estate
Equities Company, a Texas real estate investment trust ("Crescent"). The
Merger Agreement provides for the merger (the "Merger") of the Company and
Crescent at the time of effectiveness of the Merger in accordance with the
Merger Agreement (the "Effective Time"). The Merger Agreement is currently
the subject of litigation between Crescent and the Company. The Company
expects to write off up to $3 million of costs incurred related to the
Merger. The Company also expects to incur ongoing litigation costs associated
with the current lawsuits involving the Merger Agreement (see Note 5).

5. SUBSEQUENT EVENTS

On July 20, 1998, Palace Station suffered damage to its casino and hotel
tower as a result of separate incidents involving thunderstorms and lightning
in the Las Vegas Valley. Injuries were minor in both incidents. Currently,
all but eight rooms in the 21-story hotel tower are fully functional and
approximately 50 percent of the casino was reopened on July 22, 1998. On the
basis of conversations with insurance representatives, the Company believes
the losses associated with the property damage and business interruption are
covered under the Company's insurance policies. The Company is conducting its
own analysis of the insurance policies and is currently working with its
insurance representatives, construction consultants, and engineers to
determine the extent of damages and to determine a realistic timetable for
repairs and full reopening. The Company currently estimates that the facility
will be fully functional within 90 days.

<PAGE>

STATION CASINOS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

5. SUBSEQUENT EVENTS (CONTINUED)

breach of the Merger Agreement. On July 28, 1998, the Company requested that
Crescent purchase $20 million of the Company's $100 Redeemable Preferred
Stock issuable under the Merger Agreement (the "Redeemable Preferred Stock").
Under the terms of the Merger Agreement, Crescent is required to fund up to
$115 million of Redeemable Preferred Stock, even in the event of termination
of the Merger Agreement, so long as the Company is not in material breach of
its representations and warranties. On July 30, 1998, the Company filed suit
against Crescent in Clark County District Court, State of Nevada, seeking
declaratory relief. The suit asserts, among other things, that postponement
of the meeting did not breach the Merger Agreement, that the Company had
received Crescent's consent to postponement of the meeting and was otherwise
in full compliance with its obligations under the Merger Agreement.

On August 7, 1998, Crescent filed suit against the Company in the United
States District Court, Northern District of Texas, seeking damages and
declaratory relief. The suit alleges that the Company breached the Merger
Agreement by canceling and failing to reschedule the August 4, 1998
stockholders meeting. The suit seeks a declaratory judgment that the
Company's actions with respect to the meeting, together with certain alleged
misrepresentations in the Merger Agreement relating to the tax qualification
of compensation allegedly issued pursuant to the Company's stock plans,
relieve Crescent of its obligation under the Merger Agreement to purchase an
aggregate $115 million of the Redeemable Preferred Stock. For the same
reasons, Crescent alleged that it was excused from further performance under
the Merger Agreement. Crescent did not specify the amount of damages it
sought. Simultaneously with the filing of its suit, Crescent sent notice of
termination of the Merger Agreement to the Company. The Company believes that
Crescent, and not the Company, breached the Merger Agreement.

On August 11, 1998, the Company requested that Crescent purchase the
additional $95 million of Redeemable Preferred Stock. Also on August 11,
1998, the Company amended its complaint in Nevada state court to include
claims regarding Crescent's breaches of the Merger Agreement. The Company's
lawsuit against Crescent seeks damages for Crescent's breaches and specific
performance requiring Crescent to fulfill its obligation under the Merger
Agreement to purchase $115 million of Redeemable Preferred Stock.

On August 12, 1998, Crescent announced that it intended to assert a
claim for damages for the $54 million break-up fee under the Merger Agreement
or its equivalent and for expenses.

While the Company believes that Crescent has breached the Merger
Agreement and that Crescent's allegations are without merit, as with any
litigation, no assurance as to the outcome of such litigation can be made.

<PAGE>

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
1. OVERVIEW

The following table highlights the results of operations for the Company and
its subsidiaries (amounts in thousands):

<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
1998 1997
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<S> <C> <C>
NEVADA OPERATIONS (a):
Net revenues $131,637 $ 99,470
Operating income $ 28,689 $ 11,671
EBITDAR, As Adjusted (b) $ 41,258 $ 31,388
EBITDA, As Adjusted (b) $ 37,861 $ 29,969

MISSOURI OPERATIONS (a):
Net revenues $ 69,112 $ 66,633
Operating income $ 3,906 $ 108
EBITDAR, As Adjusted (b) $ 12,114 $ 8,203
EBITDA, As Adjusted (b) $ 11,736 $ 7,824

STATION CASINOS, INC. AND OTHER:
Net revenues $ 5,501 $ 7,413
Operating loss $ (4,216) $ (3,601)
EBITDAR, As Adjusted (b) $ (3,685) $ (2,758)
EBITDA, As Adjusted (b) $ (3,710) $ (2,766)

TOTAL STATION CASINOS, INC.:
Net revenues $206,250 $173,516
Operating income $ 28,379 $ 8,178
EBITDAR, As Adjusted (b) $ 49,687 $ 36,833
EBITDA, As Adjusted (b) $ 45,887 $ 35,027
</TABLE>

(a) The Nevada Operations include the accounts of: Palace Station,
Boulder Station, Texas Station and Sunset Station. The Missouri
Operations include the accounts of: Station Casino St. Charles and
Station Casino Kansas City.

(b) "EBITDA, As Adjusted" consists of operating income plus depreciation,
amortization, and preopening expenses. "EBITDAR, As Adjusted"
represents EBITDA, As Adjusted plus rent expense. The Company
believes that in addition to cash flows and net income, EBITDA, As
Adjusted and EBITDAR, As Adjusted are useful financial performance
measurements for assessing the operating performance of the Company.
Together with net income and cash flows, EBITDA, As Adjusted and
EBITDAR, As Adjusted provide investors with an additional basis to
evaluate the ability of the Company to incur and service debt and
incur capital expenditures. To evaluate EBITDA, As Adjusted and
EBITDAR, As Adjusted and the trends they depict, the components of
each should be considered. The impact of interest, taxes,
depreciation and amortization, and preopening expenses, and rent
expense, each of which can significantly affect the Company's results
of operations and liquidity and should be considered in evaluating the
Company's operating performance, cannot be determined from EBITDA, As
Adjusted or from EBITDAR, As Adjusted. Further, EBITDA, As Adjusted
and EBITDAR, As Adjusted do not represent net income or cash flows
from operating, financing and investing activities as defined by
generally accepted accounting principles ("GAAP") and do not
necessarily indicate that cash flows will be sufficient to fund cash
needs. They should not be considered as an alternative to net income,
as an indicator of the Company's operating performance or to cash
flows as a measure of liquidity. In addition, it should be noted that
not all gaming companies that report EBITDA or EBITDAR information or
adjustments to such measures may calculate EDITDA, EBITDAR or such
adjustments in the same manner as the Company, and therefore, the
Company's measures of EBITDA, As Adjusted and EBITDAR, As Adjusted may
not be comparable to similarly titled measures used by other gaming
companies.

10
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

2. RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997.

Consolidated net revenues increased 18.9% to $206.3 million for the
three months ended June 30, 1998, from $173.5 million in the prior year. The
Company's Nevada Operations contributed $131.6 million of net revenues for
the three months ended June 30, 1998, an increase of 32.3% over the prior
year. This increase in net revenues is due primarily to the opening of Sunset
Station in June 1997, as well as the continued improvement at Texas Station.
The Company's Missouri Operations contributed $69.1 million of net revenues
for the three months ended June 30, 1998, an increase of 3.7% over the prior
year. This increase in net revenues is due to continued improvement at
Station Casino Kansas City, offset by a decline of 7.9% in net revenues at
Station Casino St. Charles due to increased competition in the St. Louis
market since the opening of a new hotel/casino in Maryland Heights in March
1997. At Station Casino Kansas City, the Company continues to gain market
share and the competitive environment should ease with the closing of a
competitor in June 1998. In addition, Station Casino St. Charles has been
negatively impacted as a result of disruption caused by major construction on
the interstate adjacent to the property. This construction is expected to be
completed by October 1998.

Consolidated operating income increased $20.2 million to $28.4 million
for the three months ended June 30, 1998, from $8.2 million in the prior
year. Operating income at the Company's Nevada Operations increased $17.0
million to $28.7 million for the three months ended June 30, 1998, from $11.7
million in the prior year. Included in the prior year amount was $10.9
million of preopening expenses primarily related to the opening of Sunset
Station. Operating income at the Company's Missouri Operations increased $3.8
million to $3.9 million for the three months ended June 30, 1998, from $0.1
million in the prior year. The increase in consolidated operating income,
offset by an increase in net interest expense of $6.4 million, resulted in
net income applicable to common stock of $1.5 million, or net income per
common share of $0.04 for the three months ended June 30, 1998, compared to a
net loss applicable to common stock of $10.1 million, or a loss per common
share of $0.29 in the prior year.

CASINO. Casino revenues increased 24.1% to $165.4 million for the three
months ended June 30, 1998, from $133.3 million in the prior year. This
increase is due to the opening of Sunset Station in June 1997, improvements
at Texas Station and Station Casino Kansas City, offset by a decrease at
Station Casino St. Charles due to the added competition noted above.

Casino expenses increased 24.7% to $80.2 million for the three months
ended June 30, 1998, from $64.3 million in the prior year. The casino net
profit margin declined slightly to 51.5% for the three months ended June 30,
1998, from 51.8% in the prior year. The Company's Nevada Operations
experienced a slight decline in net casino margin, primarily due to the new
operations at Sunset Station, while Station Casino Kansas City improved
significantly. In addition, the Missouri Operations have a lower margin than
the Company's combined margin, due primarily to higher gaming tax rates in
Missouri as compared to Nevada.

FOOD AND BEVERAGE. Food and beverage revenues increased 18.6% to $34.2
million for the three months ended June 30, 1998, from $28.9 million in the
prior year. This increase is due primarily to the opening of Sunset Station
in June 1997.

Food and beverage net profit margins improved to 38.3% for the three
months ended June 30, 1998, from 26.3% in the prior year. This increase in
margin is due to improvement in the Company's Nevada Operations, as well as
Station Casino Kansas City, as a result of continued focus on cost control.

ROOM. Room revenues increased 20.6% to $9.7 million for the three months
ended June 30, 1998, from $8.0 million in the prior year. This increase is
due primarily to the opening of Sunset Station in

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

June 1997. Room occupancy Company-wide decreased to 95% from 96%, while the
average daily room rate increased to $51 during the three months ended June 30,
1998 from $50 in the prior year.

OTHER. Other revenue decreased 11.8% to $12.5 million for the three
months ended June 30, 1998, from $14.2 million in the prior year. This
decrease is due primarily to slot route revenues which decreased due to the
sale of the assets of the Louisiana route in the prior year, the loss of
lease revenue for a riverboat lease which terminated in June 1997, offset by
an increase in other revenues with the opening of Sunset Station in June 1997.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses ("SG&A") increased 16.1% to $44.9 million for the
three months ended June 30, 1998, from $38.7 million in the prior year. This
increase is due primarily to the opening of Sunset Station in June 1997. SG&A
as a percentage of net revenues decreased to 21.8% for the three months ended
June 30, 1998, from 22.3% in the prior year.

CORPORATE EXPENSES. Corporate expenses increased 16.8% to $4.5 million
for the three months ended June 30, 1998, from $3.9 million in the prior
year. However, these expenses remained at 2.2% of net revenues for the three
months ended June 30, 1998 and 1997.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
9.5% to $17.5 million for the three months ended June 30, 1998, from
$16.0 million in the prior year. This increase is due primarily to the
opening of Sunset Station in June 1997.

PREOPENING EXPENSES. The Company capitalizes preopening expenses
associated with its construction projects, including Sunset Station which
opened June 10, 1997. Such amounts are expensed upon the opening of the
related project. During the three months ended June 30, 1997, the Company
expensed preopening expenses of $10.9 million related primarily to Sunset
Station.

INTEREST EXPENSE, NET. Interest costs incurred (expensed and
capitalized) increased 2.9% to $22.5 million for the three months ended
June 30, 1998. During the three months ended June 30, 1997 the Company had
capitalized interest of $5.6 million related to the construction of Sunset
Station and an expansion project at Station Casino St. Charles. Effective
January 1, 1998, the Company has ceased capitalizing interest on the
expansion project at Station Casino St. Charles.

SUBSEQUENT EVENT. On July 20, 1998, Palace Station suffered damage to
its casino and hotel tower as a result of separate incidents involving
thunderstorms and lightning in the Las Vegas Valley. Injuries were minor in
both incidents. Currently, all but eight rooms in the 21-story hotel tower
are fully functional and approximately 50 percent of the casino was reopened
on July 22, 1998. On the basis of conversations with insurance
representatives, the Company believes the losses associated with the property
damage and business interruption are covered under the Company's insurance
policies. The Company is conducting its own analysis of the insurance
policies and is currently working with its insurance representatives,
construction consultants, and engineers to determine the extent of damages
and to determine a realistic timetable for repairs and full reopening. The
Company currently estimates that the facility will be fully functional within
90 days.

In addition, the Company expects to write off up to $3 million of costs
incurred related to the Merger. The Company also expects to incur ongoing
litigation costs associated with the current lawsuits involving the Merger
Agreement. (See Part II, Item 1 Legal Proceedings).

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

3. LIQUIDITY AND CAPITAL RESOURCES

During the three months ended June 30, 1998, the Company's sources of
capital included cash flows from operating activities of $19.4 million and
$25 million of borrowings under a note payable with a bank. These borrowings
were used to reduce borrowings under the secured amended and restated
reducing revolving loan agreement (the "Bank Facility"). At June 30, 1998,
the Company had available borrowings of $2.1 million under the Bank Facility
and $58.8 million in cash and cash equivalents. At August 13, 1998, total
borrowings under the Bank Facility were $299 million. Total available
borrowings under the Bank Facility are currently $307.6 million and will
reduce to $285.2 million on September 30, 1998. The Company expects that it
will need, and therefore has requested, a waiver from its bank group
regarding this reduction at September 30, 1998. Based on discussions with its
banks, the Company expects to receive this waiver.

During the three months ended June 30, 1998, total capital expenditures
were approximately $11.1 million, of which approximately (i) $5.3 million was
associated with the expansion projects at Sunset Station and Texas Station,
(ii) $3.8 million was associated with maintenance capital expenditures, and
(iii) $2.0 million was associated with various other projects.

The Company's primary capital requirements during the remainder of
fiscal year 1999 are expected to include (i) the payment of construction
contracts payable of approximately $8.8 million as of June 30, 1998, (ii) the
remaining costs of the expansion project at Sunset Station, estimated to cost
approximately $45 million, (iii) the remaining costs of the expansion project
at Texas Station estimated to cost approximately $51 million, (iv) maintenance
capital expenditures, (v) principal and interest payments on indebtedness,
including required reductions in the Bank Facility, including $22.4 million
each quarter through March 30, 2000 and (vi) dividend payments on convertible
preferred stock. The Company previously commenced construction of an
expansion project at Station Casino St. Charles (the "St. Charles Expansion
Project"). As of March 31, 1998, construction on the project has ceased and
management is evaluating the scope and timing of the project. Effective
January 1, 1998, the Company has ceased capitalizing interest on this project.

The Company believes that cash flows from operations, vendor and lease
financing of equipment, and existing cash balances will be adequate to
satisfy the Company's anticipated uses of capital during the remainder of
fiscal year 1999. The Company plans to modify its Bank Facility to reduce the
scheduled amortization, obtain additional borrowing capacity and modify
certain covenants to complete the Sunset Station and Texas Station projects
in a timely manner. In the event that this is not obtained, construction on
these projects may be delayed until alternative financing is obtained or cash
flows from operations are sufficient to complete the projects. The Company,
however, continually is evaluating its financing needs. If more attractive
financing alternatives become available to the Company, the Company may amend
its financing plans assuming such financing would be permitted under its
existing debt agreements (See "Description of Certain Indebtedness and
Capital Stock") and other applicable agreements.

In connection with the Merger Agreement (see Note 4), the Company has
the option to issue to Crescent and Crescent has agreed to purchase up to an
aggregate of 115,000 shares of a new series of preferred stock ("Redeemable
Preferred Stock") of the Company at a price of $1,000 per share (plus accrued
dividends) in cash in increments of 5,000 shares (See "Description of Certain
Indebtedness and Capital Stock - New Series of Preferred Stock"). On July 28,
1998, the Company requested Crescent to purchase $20 million of the
Redeemable Preferred Stock and on August 11, 1998, the Company requested
Crescent to purchase the remaining $95 million of the Redeemable Preferred
Stock to repay amounts under the Bank Facility borrowings under which were
used to pay for master planned expansions. On August 7, 1998, Crescent
notified the Company that Crescent believed it was not obligated to make such
purchases. The Company and Crescent are currently involved in litigation
regarding the Merger Agreement, including whether or not Crescent is
obligated to purchase the $115 million of

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Redeemable Preferred Stock, and both parties have asserted that the other
party has breached the Merger Agreement and is liable for damages. While the
Company believes that Crescent has breached the Merger Agreement and that
Crescent's allegations of breach by the Company are without merit, as with
any litigation, no assurance as to the outcome of such litigation can be
made. Were the outcome of the litigation to be unfavorable to the Company,
the Company's ability to finance future capital expenditures and expansions
could be limited. (See Part II, Item 1 Legal Proceedings).

RECENTLY ISSUED ACCOUNTING STANDARDS

The Financial Accounting Standards Board has issued Statement on
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," both of which are effective for fiscal years beginning
after December 15, 1997. Management estimates that these SFAS's will have no
impact on the Company's results of operations or financial position.

The Accounting Standards Executive Committee of the American Institute
of Certified Public Accountants issued Statement of Position ("SOP") No. 98-5
"Reporting the Costs of Start-up Activities." The provisions of SOP 98-5 are
effective for fiscal years beginning after December 15, 1998, and require
that the costs associated with start-up activities (including preopening
costs of casinos) be expensed as incurred.

YEAR 2000

The Company has evaluated its computer systems to determine whether or
not such systems are Year 2000 compliant and a plan is currently in place to
modify or replace those systems which are not Year 2000 compliant. All
maintenance costs associated with this plan are being expensed as incurred
and management does not expect such cost to be material.

DESCRIPTION OF CERTAIN INDEBTEDNESS AND CAPITAL STOCK

BANK FACILITY

The Company's secured amended and restated reducing revolving loan
agreement, dated as of March 19, 1996, as amended in June 1998 (the "Bank
Facility"), is a reducing revolving credit facility which provides for
borrowings up to an aggregate principal amount of $307.6 million as of June
30, 1998. The Bank Facility is secured by substantially all of the assets of
Palace Station, Boulder Station, Texas Station, Sunset Station, Station
Casino Kansas City and Station Casino St. Charles (collectively, the
"Borrowers"). The Company and Southwest Gaming Services, Inc. guarantee the
borrowings under the Bank Facility (collectively the "Guarantors"). The Bank
Facility matures on September 30, 2000. The Bank Facility will reduce by
$22.4 million each fiscal quarter through March 31, 2000. The Company expects
to obtain a modification to the Bank Facility to limit the reduction for the
quarter ending September 30, 1998 to $2 million. Borrowings under the Bank
Facility bear interest at a margin above the bank's prime rate or the
Eurodollar Rate, as selected by the Company. The margin above such rates, and
the fee on the unfunded portions of the Bank Facility, will vary quarterly
based on the combined Borrowers and the Company's consolidated ratio of
funded debt to earnings before interest, taxes, depreciation and amortization
("EBITDA") adjusted for preopening expenses. As of June 30, 1998, the
Borrowers' margin above the Eurodollar Rate on borrowings under the Bank
Facility was 2.25%. Such margin will increase to 2.75% if the maximum funded
debt to EBITDA (adjusted for preopening expenses) ratio is reached.

The Bank Facility contains certain financial and other covenants. These
include a maximum funded debt to EBITDA (adjusted for preopening expenses)
ratio for the Borrowers combined of 2.75 to

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

1.00 for each fiscal quarter through June 30, 1998, and 2.50 to 1.00 for each
fiscal quarter thereafter, a minimum fixed charge coverage ratio for the
preceding four quarters for the Borrowers combined of 1.35 to 1.00 for the
periods March 31, 1996 through June 30, 1998, and 1.50 to 1.00 for periods
thereafter, a limitation on indebtedness, and limitations on capital
expenditures. As of June 30, 1998, the Borrowers funded debt to EBITDA ratio
was 2.10 to 1.00 and the fixed charge coverage ratio for the preceding four
quarters ended June 30, 1998 was 1.79 to 1.00. A tranche of the Bank Facility
contains a minimum tangible net worth requirement for Palace Station
($10 million plus 95% of net income determined as of the end of each fiscal
quarter with no reduction for net losses) and certain restrictions on
distributions of cash from Palace Station to the Company. As of June 30,
1998, Palace Station's tangible net worth exceeded the requirement by
approximately $8.3 million. These covenants limit Palace Station's ability to
make payments to the Company, a significant source of anticipated cash for
the Company.

In addition, the Bank Facility has financial covenants relating to the
Company. These include prohibitions on dividends on, or redemptions of, the
Company's common stock, restrictions on repayment of any subordinated debt,
limitations on indebtedness beyond existing indebtedness, the Company's
senior subordinated notes and other specified indebtedness, minimum
consolidated tangible net worth requirements (adjusted upwards for post
October 1, 1995 preopening expenses, not to exceed $18 million and for
potential losses on disposed or discontinued assets, not to exceed $30
million), for the Company of $165 million plus 95% of post October 1, 1995
net income (not reduced by net losses) and 100% of net equity offering
proceeds, and limitations on capital expenditures and investments. As of
June 30, 1998, the Company's consolidated net worth exceeded the requirement
by approximately $15.4 million. Under the Bank Facility, Sunset Station had
been designated an Unrestricted Subsidiary (as defined) and therefore
excluded from financial covenants under the Bank Facility. In May 1998, the
Bank Facility was amended to designate Sunset Station as a Restricted
Subsidiary (as defined) and as such its financial performance will be
considered in the calculation of compliance with the covenants under the Bank
Facility. As amended in June 1998, the Bank Facility includes a maximum
funded debt to EBITDA (adjusted for preopening expenses) ratio, including
annualized EBITDA (adjusted for preopening expenses) for any new venture, as
defined, open less than a year, for the Company on a consolidated basis of
5.50 to 1.00 for the fiscal quarter ended June 30, 1998, 5.40 to 1.00 for the
fiscal quarter ending September 30, 1998, 5.20 to 1.00 for the fiscal quarter
ending December 31, 1998, 5.00 to 1.00 for the fiscal quarter ending March 31,
1999, 4.25 to 1.00 for the fiscal quarter ending June 30, 1999, 4.00 to 1.00
for the fiscal quarter ending September 30, 1999 and 3.75 to 1.00 thereafter.
The funded debt to EBITDA ratio was 5.15 to 1.00 as of June 30, 1998. The
Bank Facility also prohibits the Company from holding cash and cash
equivalents in excess of the sum of the amounts necessary to make the next
scheduled interest or dividend payments on the Company's senior subordinated
notes and preferred stock, the amounts necessary to fund casino bankroll in
the ordinary course of business and $2.0 million. The Guarantors waive
certain defenses and rights including rights of subrogation and
reimbursement. The Bank Facility contains customary events of default and
remedies and is cross-defaulted to the Company's senior subordinated notes
and the Change of Control Triggering Event as defined in the indentures
governing the senior subordinated notes.

SENIOR SUBORDINATED NOTES

The Company has $528.9 million, net of unamortized discount of
$12.1 million, of senior subordinated notes outstanding as of June 30, 1998,
$187.3 million of these notes bear interest, payable semi-annually, at a rate
of 9 5/8% per year, $196.9 million of these notes bear interest, payable
semi-annually, at a rate of 10 1/8% per year and $144.7 million of the notes
bear interest, payable semi-annually, at a rate of 9 3/4% per year
(collectively the "Notes"). The indentures governing the Notes (the
"Indentures") contain certain customary financial and other covenants which
prohibit the Company and its subsidiaries from incurring indebtedness
(including capital leases) other than (a) non-recourse debt for certain
specified subsidiaries, (b) certain equipment financings, (c) the Notes,
(d) up to $15 million of additional indebtedness, (e) additional indebtedness
if, after giving effect thereto, a 2.00 to 1.00 pro forma

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Consolidated Coverage Ratio (as defined) has been met, (f) Permitted
Refinancing Indebtedness (as defined), (g) borrowings of up to $72 million
under the Bank Facility (as required by the indenture governing the 9 5/8%
Senior Subordinated Notes) and borrowings under the Bank Facility not to
exceed the greater of $200 million or 1.5 times Operating Cash Flow (as
defined) for the four most recent quarters (as required by the indentures
governing the 9 3/4% and 10 1/8% Senior Subordinated Notes) and (h) certain
other indebtedness. At June 30, 1998, the Company's Consolidated Coverage
Ratio was 1.95 to 1.00. In addition, the Indentures prohibit the Company from
paying dividends on any of its capital stock unless at the time of and after
giving effect to such dividends, among other things, the aggregate amount of
all Restricted Payments and Restricted Investments (as defined in the
Indentures, and which include any dividends on any capital stock of the
Company) do not exceed the sum of (i) 50% of Cumulative Consolidated Net
Income (as defined) of the Company (less 100% of any consolidated net
losses), (ii) certain net proceeds from the sale of equity securities of the
Company, and (iii) $15 million. The limitation on the incurrence of
additional indebtedness and dividend restrictions in the Indentures may
significantly affect the Company's ability to pay dividends on its capital
stock. The Indentures also give the holders of the Notes the right to require
the Company to purchase the Notes at 101% of the principal amount of the
Notes plus accrued interest thereon upon a Change of Control and Rating
Decline (each as defined in the Indentures) of the Company.

SUNSET OPERATING LEASE

The Company has entered into an operating lease for furniture, fixtures
and equipment (the "Equipment") with a cost of $40 million, dated as of
September 25, 1996 (the "Sunset Operating Lease") between the Company and
First Security Trust Company of Nevada. The Sunset Operating Lease expires in
October 2000 and carries a lease rate of 225 basis points above the
Eurodollar Rate. A total of $35.7 million of this facility has been drawn and
no further draws pursuant to the lease will be made. The Company has entered
into a sublease with Sunset Station for the Equipment pursuant to an
operating lease with financial terms substantially similar to the Sunset
Operating Lease. The Company currently incurs approximately $2.2 million of
rent expense per quarter related to this lease. In the event that Sunset
Station elects to purchase the Equipment, the Company has provided a funding
commitment up to the amount necessary for such purchase. The Company has an
option to purchase the equipment for $33.1 million at June 30, 1998. This
amount reduces throughout the term of the lease to $21.4 million at October
2000.

In connection with the Sunset Operating Lease, the Company also entered
into a participation agreement, dated as of September 25, 1996 (the
"Participation Agreement") with the trustee, as lessor under the Sunset
Operating Lease, and holders of beneficial interests in the Lessor Trust (the
"Holders"). Pursuant to the Participation Agreement, the Holders advanced
funds to the trustee for the purchase by the trustee of, or to reimburse the
Company for the purchase, of the Equipment, which is currently being leased
to the Company under the Sunset Operating Lease, and in turn subleased to
Sunset Station. Pursuant to the Participation Agreement, the Company also
agreed to indemnify the Lessor and the Holders against certain liabilities.

COMMON STOCK

The Company is authorized to issue up to 90,000,000 shares of its common
stock, $0.01 par value per share (the "Common Stock"), 35,311,792 shares of
which were issued and outstanding as of June 30, 1998. Each holder of the
Common Stock is entitled to one vote for each share held of record on each
matter submitted to a vote of stockholders. Holders of the Common Stock have
no cumulative voting, conversion, redemption or preemptive rights or other
rights to subscribe for additional shares other than pursuant to the Rights
Plan described below. Subject to any preferences that may be granted to the
holders of the Company's preferred stock, each holder of Common Stock is
entitled to receive ratably

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

such dividends as may be declared by the Board of Directors out of funds
legally available therefor as well as any distributions to the stockholders
and, in the event of liquidation, dissolution or winding up of the Company,
is entitled to share ratably in all assets of the Company remaining after
payment of liabilities.

RIGHTS PLAN

On October 6, 1997, the Company declared a dividend of one preferred
share purchase right (a "Right") for each outstanding share of Common Stock.
The dividend was paid on October 21, 1997. Each Right entitles the registered
holder to purchase from the Company one one-hundredth of a share of Series A
Preferred Stock, par value $0.01 per share ("Preferred Shares") of the
Company at a price of $40.00 per one one-hundredth of a Preferred Share,
subject to adjustment. The Rights are not exercisable until the earlier of
10 days following a public announcement that a person or group of affiliated
or associated persons have acquired beneficial ownership of 15% or more of the
outstanding Common Stock ("Acquiring Person") or 10 business days (or such
later date as may be determined by action of the Board of Directors prior to
such time as any person or group of affiliated persons becomes an Acquiring
Person) following the commencement of, or announcement of an intention to
make, a tender offer or exchange offer, the consummation of which would
result in the beneficial ownership by a person or group of 15% or more of the
outstanding Common Stock. The Rights will expire on October 21, 2007.
Acquiring Persons do not have the same rights to receive Common Stock as
other holders upon exercise of the Rights. Because of the nature of the
Preferred Shares' dividend, liquidation and voting rights, the value of one
one-hundredth interest in a Preferred Share purchasable upon exercise of each
Right should approximate the value of one Common Share. In the event that any
person or group of affiliated or associated persons becomes an Acquiring
Person, the proper provisions will be made so that each holder of a Right,
other than Rights beneficially owned by the Acquiring Person (which will
thereafter become void), will thereafter have the rights to receive upon
exercise that number of Common Shares having a market value of two times the
exercise price of the Right. In the event that the Company is acquired in a
merger or other business combination transaction or 50% or more of its
consolidated assets or earning power are sold after a person or group has
become an Acquiring Person, proper provision will be made so that each holder
of a Right will thereafter have the right to receive, upon exercise thereof,
that number of shares of common stock of the acquiring company which at the
time of such transaction will have a market value of two times the exercise
price of the Right. Because of the characteristics of the Rights in
connection with a person or group of affiliated or associated persons
becoming an Acquiring Person, the Rights may have the effect of making an
acquisition of the Company more difficult and may discourage such an
acquisition.

Immediately prior to the execution of the Merger Agreement, the Company
amended its Rights Agreement dated October 6, 1997, (the "Rights Agreement")
in order to facilitate consummation of the Merger, to exclude Crescent and
its affiliates from the definition of Acquiring Person (as defined in the
Rights Agreement) to the extent that it is a Beneficial Owner (as defined in
the Rights Agreement) as a result of the approval, execution or delivery of,
or the consummation of the transactions contemplated by, the Merger
Agreement, including, without limitation, the purchase by Crescent of the
Redeemable Preferred Stock.

PREFERRED STOCK

The Company is authorized to issue up to 5,000,000 shares of its
preferred stock, $0.01 par value per share (the "Preferred Stock"). As of
June 30, 1998, 2,070,000 shares of $3.50 Convertible Preferred Stock (the
"Convertible Preferred Stock") have been issued and are outstanding. The
Board of Directors, without further action by the holders of Common Stock or
the Convertible Preferred Stock, may issue shares of Preferred Stock in one
or more series and may fix or alter the rights, preferences, privileges and
restrictions, including the voting rights, redemption provisions (including
sinking fund provisions), dividend rights, dividend rates, liquidation rates,
liquidation preferences, conversion rights and the description and number of
shares constituting any wholly unissued series of Preferred Stock. Except as
described above,

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

the Board of Directors, without further stockholder approval, may issue
shares of Preferred Stock with rights that could adversely affect the rights
of the holders of Common Stock or the Convertible Preferred Stock. The
issuance of shares of Preferred Stock under certain circumstances could have
the effect of delaying or preventing a change of control of the Company or
other corporate action.

CONVERTIBLE PREFERRED STOCK

Each of the Convertible Preferred Stock shares outstanding, have a
liquidation preference of $50.00 per share plus an amount equal to any
accumulated and unpaid dividends at the annual rate of $3.50 per share, or 7.0%
of such liquidation preference. Such dividends accrue and are cumulative from
the date of issuance and are payable quarterly. The Convertible Preferred Stock
is convertible at the option of the holder thereof at any time, unless
previously redeemed, into shares of Common Stock at an initial conversion rate
of 3.2573 shares of Common Stock for each share of Convertible Preferred Stock,
subject to adjustment in certain circumstances. The Company may reduce the
conversion price of the Convertible Preferred Stock by any amount for any period
of at least 20 days, so long as the decrease is irrevocable during such period.
The Convertible Preferred Stock is redeemable, at the option of the Company, in
whole or in part, for shares of Common Stock, at any time after March 15, 1999,
initially at a price of $52.45 per share of Convertible Preferred Stock, and
thereafter at prices decreasing annually to $50.00 per share of Convertible
Preferred Stock on and after March 15, 2006, plus accrued and unpaid dividends.
The Common Stock to be issued is determined by dividing the redemption price by
the lower of the average daily closing price for the Company's Common Stock for
the preceding 20 trading days or the closing price of the Company's Common Stock
on the first business day preceding the date of the redemption notice. Any
fractional shares would be paid in cash. There is no mandatory sinking fund
obligation with respect to the Convertible Preferred Stock. The holders of the
Convertible Preferred Stock do not have any voting rights, except as required by
applicable law and in connection with certain extraordinary events and except
that, among other things, whenever accrued and unpaid dividends on the
Convertible Preferred Stock are equal to or exceed the equivalent of six
quarterly dividends payable on the Convertible Preferred Stock, the holders of
the Convertible Preferred Stock, voting separately as a class with the holders
of any other series of parity stock upon which like voting rights have been
conferred and are exercisable, will be entitled to elect two directors to the
Board of Directors until dividend arrearage has been paid or amounts have been
set apart for such payment. The Convertible Preferred Stock is senior to the
Common Stock with respect to dividends and upon liquidation, dissolution or
winding-up.

NEW SERIES OF PREFERRED STOCK

Pursuant to the Merger Agreement, at the option of the Company, the
Company may issue to Crescent and Crescent has agreed to purchase subject to
the terms, conditions and procedures set forth in the Merger Agreement up to
an aggregate of 115,000 shares of a new series of preferred stock of the
Company (the "Redeemable Preferred Stock") at a price of $1,000 per share
(plus accrued dividends) in cash in increments of 5,000 shares. On July 28,
1998, the Company requested Crescent to purchase $20 million of the
Redeemable Preferred Stock and on August 11, 1998, the Company requested
Crescent to purchase the remaining $95 million of the Redeemable Preferred
Stock. On August 7, 1998, Crescent notified the Company that Crescent
believed that it was not obligated to make such purchases. (See Part
II, Item 1 Legal Proceedings). The Company and Crescent are currently in
litigation regarding whether or not Crescent is obligated to purchase the
Redeemable Preferred Stock (see "Liquidity and Capital Resources").

The Redeemable Preferred Stock is convertible at the option of the holder
any time after January 16, 1999, unless previously redeemed, into shares of
Common Stock at a conversion rate of 60.606 shares of Common Stock for each
share of Redeemable Preferred Stock subject to ordinary antidilution provisions.
Crescent must fund the purchase price for the purchase of shares of Redeemable
Preferred Stock on the tenth business day following notice from the Company or,
in the case of a notice to sell 25,000 or more shares of Redeemable Preferred
Stock, the twentieth business day following such notice.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company may not require Crescent to purchase shares of Redeemable
Preferred Stock more than two times in any 30-day period. The Company may
redeem the Redeemable Preferred Stock at any time for cash or for Common
Stock of the Company that has a then market price (determined on the basis of
closing prices for such stock for the 20 trading days immediately preceding
the redemption notice) equal to approximately 111% of the redemption price
for the Redeemable Preferred Shares to be redeemed. Any such issuance in
redemption will be made such that stock held by each owner of such Common
Stock so issued in excess of 9.9% of the Company's outstanding Common Stock
will generally be non-voting common stock. The Redeemable Preferred Stock
will have no voting rights except as required by law. Dividends of $100 per
share of Redeemable Preferred Stock per annum shall accrue without interest
and be payable when, as, and if declared out of legally available funds on a
fully cumulative basis. Unless written consent from Crescent is received, the
Company has agreed to use the net proceeds from the sale of the Redeemable
Preferred Stock to repay indebtedness under the Bank Facility, borrowings
under which were used for acquisitions and master planned expansions.

FORWARD-LOOKING STATEMENTS

When used in this report and elsewhere by management from time to time, the
words "believes", "anticipates", and "expects" and similar expressions are
intended to identify forward-looking statements with respect to the financial
condition, results of operations and expansion projects of the Company. Certain
important factors, including but not limited to, competition from other gaming
operations, construction risks, the inherent uncertainty and cost associated
with litigation, licensing and other regulatory risks, could cause the Company's
actual results to differ materially from those expressed in the Company's
forward-looking statements. Further information on potential factors which could
affect the financial condition, results of operations and expansion projects of
the Company and its subsidiaries are included in the filings of the Company with
the Securities and Exchange Commission, including, but not limited to, the
Company's Registration Statement on Form S-4 (File No. 333-30685). Readers are
cautioned not to place undue reliance on any forward-looking statements, which
speak only as of the date thereof. The Company undertakes no obligation to
publicly release any revisions to such forward-looking statements to reflect
events or circumstances after the date hereof.

<PAGE>

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS -

The Company and its subsidiaries are defendants in various lawsuits
relating to routine matters incidental to their business. Management does not
believe that the outcome of such litigation, in the aggregate, will have a
material adverse effect on the Company.

POULOS/AHEARN CASE

A suit seeking status as a class action lawsuit was filed by plaintiff,
William H. Poulos, et al., as class representative, on April 26, 1994, in the
United States District Court, Middle District of Florida, naming 41
manufacturers, distributors and casino operators of video poker and electronic
slot machines, including the Company. On May 10, 1994, a lawsuit alleging
substantially identical claims was filed by another plaintiff, William Ahearn,
et al., as class representative, in the United States District Court, Middle
District of Florida, against 48 manufacturers, distributors and casino operators
of video poker and electronic slot machines, including the Company and most of
the other major hotel-casino companies. The lawsuits allege that the defendants
have engaged in a course of fraudulent and misleading conduct intended to induce
persons to play such games based on a false belief concerning how the gaming
machines operate, as well as the extent to which there is an opportunity to win.
The two lawsuits have been consolidated into a single action, and have been
transferred to the United States District Court, for the State of Nevada. On
September 26, 1995, a lawsuit alleging substantially identical claims was filed
by plaintiff, Larry Schreier, et. al, as class representative, in the United
States District Court for the District of Nevada, naming 45 manufacturers,
distributors, and casino operators of video poker and electronic slot machines,
including the Company. Motions to dismiss the Poulos/Ahearn and Schreier cases
were filed by Defendants. On April 17, 1996, the Poulos/Ahearn lawsuits were
dismissed, but plaintiffs were given leave to file Amended Complaints on or
before May 31, 1996. On May 31, 1996, an Amended Complaint was filed, naming
William H. Poulos, et. al, as plaintiff. Defendants filed a motion to dismiss.
On August 15, 1996, the Schreier lawsuit was dismissed with leave to amend. On
September 27, 1996, Schreier filed an Amended Complaint. Defendants filed
motions to dismiss the Amended Complaint. In December 1996, the Court
consolidated the Poulos/Ahearn, the Schreier, and a third case not involving the
Company and ordered all pending motions be deemed withdrawn without prejudice,
including Defendants' Motions to Dismiss the Amended Complaints. The plaintiffs
filed a Consolidated Amended Complaint on February 13, 1997. On or about
December 19, 1997, the Court issued formal opinions granting in part and denying
in part the defendants' motion to dismiss. In so doing, the Court ordered
plaintiffs to file an amended complaint in accordance with the Court's orders in
January of 1998. Accordingly, plaintiffs amended their complaint and filed it
with the United Stated District Court, for the State of Nevada in February 1998.
The Company and all other defendants continue to deny the allegations contained
in the amended complaint filed on behalf of plaintiffs. The plaintiffs are
seeking compensatory, special, consequential, incidental, and punitive damages
in unspecified amounts. The defendants have committed to vigorously defend all
claims and allegations contained in the consolidated action. The Company does
not expect that the lawsuits will have a material adverse effect on the
Company's financial position or results of operations.

NICOLE ANDERSON CASE

A suit seeking status as a class action lawsuit was filed by plaintiff
Nicole Anderson, et. al., as class representative, on September 24, 1997, in the
United States District Court for the Eastern District of Missouri, Eastern
Division. The lawsuit alleges certain racially based discriminatory action at
Station Casino St. Charles and seeks injunctive relief and compensatory,
special, consequential, incidental and punitive damages in unspecified amounts.
On or about October 24, 1997, plaintiff filed her first amended complaint. On
November 24, 1997, the Company filed its answer to plaintiff's first amended
complaint which denied the allegations contained therein. The Company does not
believe the suit has merit and intends to defend itself vigorously.

<PAGE>

ITEM 1. LEGAL PROCEEDINGS - (CONTINUED)

AKIN CASE

On January 16, 1997, the Company's gaming license in Kansas City was
formally issued for its facility, which is located in a man-made basin filled
with water piped in from the surface of the Missouri River. In reliance on
numerous approvals from the Missouri Gaming Commission specific to the
configuration and granted prior to the formal issuance of its gaming license,
the Company built and opened the Station Casino Kansas City facility. The
license issued to the Company and the resolutions related thereto specifically
acknowledge that the Missouri Gaming Commission had reviewed and approved this
configuration. On November 25, 1997, the Supreme Court of Missouri, in a case
challenging the gaming licenses of certain competitors of Station Casino St.
Charles located in Maryland Heights, Missouri, ruled that gaming in artificial
spaces may occur only in spaces that are contiguous to the surface stream of the
Missouri and Mississippi Rivers. The case was remanded to the trial court for a
factual determination as to whether such competing operators meet this
requirement.

Based upon this Missouri Supreme Court ruling (the "Akin Ruling"), the
Missouri Gaming Commission attempted to issue preliminary orders for
disciplinary action to all licensees in Missouri that operate gaming facilities
in artificial basins. These preliminary orders started the hearing process,
which allows the affected licensees to demonstrate that they are, in fact,
contiguous to the surface stream of the Missouri or Mississippi River. Station
Casino Kansas City was issued a preliminary order for disciplinary action.
Station Casino St. Charles did not receive such an order. The preliminary orders
were challenged by the licensees. The Circuit Court of Cole County granted writs
of prohibition preventing the Missouri Gaming Commission from proceeding with
such hearings under the Missouri Gaming Commission's existing procedures. The
Missouri Gaming Commission sought further review of these writs of prohibition
in the Missouri Supreme Court. On May 28, 1998, the Missouri Supreme Court
quashed the writs of prohibition, allowing the Missouri Gaming Commission to
proceed with hearings concerning Station Casino Kansas City and other licensees
for alleged noncompliance with the Akin Ruling. Subsequent thereto, on June 18,
1998, the Missouri Gaming Commission issued an Amended Preliminary Order for
Disciplinary Action against Station Casino Kansas City for noncompliance with
the Akin Ruling. On July 23, 1998, the Company filed a Verified Request for
Hearing with the Missouri Gaming Commission.

Prior to this ruling, on January 16, 1998, Station Casino Kansas City's
licenses were renewed for one year, subject to the satisfactory resolution of
the issues raised in the Akin Ruling. Furthermore, after the Akin Ruling was
entered by the Missouri Supreme Court, but before any further proceeding on
remand, the plaintiffs dismissed the Akin case without prejudice. Because of the
open questions raised but not answered in the Akin Ruling, it is not possible to
predict what effect, if any, the Akin Ruling or Missouri Gaming Commission's
action will have on operations at Station Casino Kansas City.

At this time, based on discussions with its Missouri legal counsel,
management of the Company believes that it has potentially meritorious defenses
in any lawsuits or administrative actions that are based on the Akin Ruling.
Management cannot provide any assurance, however, as to whether the Station
Casino Kansas City facility would be found to comply with the guidelines
described in the Akin Ruling, whether it would be permitted to modify the
facility to comply with such standards, or whether the Company's legal defenses,
electoral alternatives or other means available to permit the continued use of
this current configuration would succeed. Further, it is unclear, in the event
of a determination that the configuration of Station Casino Kansas City does not
comply with the Akin Ruling, whether Station Casino Kansas City would be able to
continue to operate or whether such findings would result in the temporary or
permanent closure of Station Casino Kansas City. Any or all of the steps
management is currently taking in response to the Akin Ruling, including
consideration of possible remediation of the site at a cost that management
believes would not have a material adverse effect on the Company's financial
position, could reverse or mitigate the financial impact of this action.
However, the Company cannot provide any assurance that there would not be a
material adverse impact in such an eventuality. Management of the Company does
not believe, however, that the Akin Ruling will have a material adverse impact
on the existing Station Casino St. Charles operations.

<PAGE>

ITEM 1. LEGAL PROCEEDINGS - (CONTINUED)

STEPHEN B. SMALL CASE

A class action lawsuit was filed by plaintiff Stephen B. Small, et al., as
class representative, on November 28, 1997, in the United States District Court
for the Western District of Missouri, naming four gaming operators in Kansas
City, Missouri, including Kansas City Station Corporation. The lawsuit alleges
that the defendants are conducting gaming operations that are not located on the
Missouri River in violation of certain state and federal statutes. The
plaintiffs are seeking declaratory judgment that the operators are conducting
illegal games of chance, as well as compensatory, special, consequential, and
incidental damages in unspecified amounts. On January 28, 1998, the Company
filed its answer to the complaint denying the allegations contained therein.
Management believes that the claims are without merit and does not expect that
the lawsuit will have a material adverse effect on the Company's financial
position or results of operations.

MERGER AGREEMENT

On July 27, 1998, the Company and Crescent announced the postponement of
the joint annual and special meeting of stockholders of the Company,
originally scheduled to be held August 4, 1998, in order to address concerns
expressed by holders of the Company's preferred stock. Subsequent to the
announcement, Crescent advised the Company that Crescent believed postponing
the meeting was a breach of the Merger Agreement. On July 28, 1998, the
Company requested that Crescent purchase $20 million of the Company's $100
Redeemable Preferred Stock issuable under the Merger Agreement (the
"Redeemable Preferred Stock"). Under the terms of the Merger Agreement,
Crescent is required to fund up to $115 million of Redeemable Preferred
Stock, even in the event of termination of the Merger Agreement, so long as
the Company is not in material breach of its representations and warranties.
On July 30, 1998, the Company filed suit against Crescent in Clark County
District Court, State of Nevada, seeking declaratory relief. The suit
asserts, among other things, that postponement of the meeting did not breach
the Merger Agreement, that the Company had received Crescent's consent to
postponement of the meeting and was otherwise in full compliance with its
obligations under the Merger Agreement.

On August 11, 1998, the Company requested that Crescent purchase the
additional $95 million of Redeemable Preferred Stock. Also on August 11, 1998,
the Company amended its complaint in Nevada state court to include claims
regarding Crescent's breaches of the Merger Agreement. The Company's lawsuit
against Crescent seeks damages for Crescent's breaches and specific performance
requiring Crescent to fulfill its obligation under the Merger Agreement to
purchase $115 million of Redeemable Preferred Stock.

On August 12, 1998, Crescent announced that it intended to assert a claim
for damages for the $54 million break-up fee under the Merger Agreement or its
equivalent and for expenses.

<PAGE>

ITEM 1. LEGAL PROCEEDINGS - (CONTINUED)

While the Company believes that Crescent has breached the Merger Agreement
and that Crescent's allegations are without merit, as with any litigation, no
assurance as to the outcome of such litigation can be made.

<PAGE>

ITEM 2. CHANGES IN SECURITIES - None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None.

ITEM 5. OTHER INFORMATION - None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits -

Exhibit
Number
-------
27 Financial Data Schedule
99.1 Press Releases

(b) Reports on Form 8-K - On June 18, 1998, the Company filed a current
report on Form 8-K dated June 15, 1998. The Company reported under
Item 5 the Second Amendment to Agreement and Plan of Merger with
Crescent Real Estate Equities Company and the Company's consent to a
press release issued by Crescent dated June 15, 1998.

<PAGE>

SIGNATURE

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

Station Casinos, Inc.,
Registrant

DATE: August 14, 1998 /s/ Glenn C. Christenson
------------------------
Glenn C. Christenson,
Executive Vice President,
Chief Financial Officer, and
Chief Administrative Officer
(Principal Accounting Officer)

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS FOUND ON PAGE 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE THREE MONTHS
ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 58,815
<SECURITIES> 0
<RECEIVABLES> 11,951
<ALLOWANCES> 0
<INVENTORY> 4,514
<CURRENT-ASSETS> 99,590
<PP&E> 1,305,468
<DEPRECIATION> 180,331
<TOTAL-ASSETS> 1,304,256
<CURRENT-LIABILITIES> 222,886
<BONDS> 528,919
0
103,500
<COMMON> 353
<OTHER-SE> 184,678
<TOTAL-LIABILITY-AND-EQUITY> 1,304,256
<SALES> 0
<TOTAL-REVENUES> 206,250
<CGS> 0
<TOTAL-COSTS> 110,925
<OTHER-EXPENSES> 17,508
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,410
<INCOME-PRETAX> 5,528
<INCOME-TAX> (2,229)
<INCOME-CONTINUING> 3,299
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,488
<EPS-PRIMARY> .04
<EPS-DILUTED> .04

</TABLE>

<PAGE>

EXHIBIT 99.1

August 11, 1998

STATION CASINOS, INC. ANNOUNCES AMENDED COMPLAINT AGAINST CRESCENT REAL ESTATE
EQUITIES COMPANY

LAS VEGAS,- Station Casinos, Inc. ("Station") announced today that it has
amended the complaint filed in the Nevada state court proceeding against
Crescent Real Estate Equities Company. As amended, the complaint states that
Crescent embarked on a series of actions to avoid its obligations under the
Agreement and Plan of Merger between Station and Crescent (the "Merger
Agreement") and seeks damages. Station believes its damages are in excess of
$400,000,000. Station also announced that it sent Crescent a demand to
purchase an additional $95,000,000 of new Station preferred shares which
Station believes Crescent is required to fund by the Merger Agreement. The
amended complaint seeks specific performance for Crescent's purchase of the
$95,000,000 of new preferred shares, as well as the $20,000,000 of preferred
shares previously drawn.

Station stated that it was deeply disappointed by Crescent's actions and
could only believe they were motivated by a desire to avoid the contractual
obligations of the Merger Agreement. Station noted that when its preferred
stockholders first expressed concerns with the structure of the transaction, it
began discussions with its shareholders and with Crescent, and agreed with
Crescent to postpone the stockholder meeting so as to have time to negotiate
with the preferred stockholders and explore alternatives. Station believes it
was making excellent progress in its discussions with preferred holders and
believes their issues would have been resolved with no material effect on the
proposed merger.

Station has commenced $96,000,000 in construction projects, which were
approved by Crescent and to be funded from debt capacity made available from
the use of the proceeds of the new preferred stock to be sold to Crescent. The
Merger Agreement provides that Crescent's funding commitment survives any
termination of the Merger Agreement, so long as Station has not materially
breached any representations or covenants in the Merger Agreement. Station
revealed that Crescent previously asked it several times to delay drawing on
the new preferred stock so as to accommodate Crescent's own capital
availability issues. Station had been attempting to effect a purchase of
preferred stock to pay down debt and to make available funds for the approved
projects. Station stated that after several deferrals to assist Crescent,
Station's development activities caused it to make the recent $20,000,000
request.

Station stated that soon after the joint press release announcing
postponement of the shareholder meeting, Crescent repeatedly advised it over
the course of the week that Crescent had not consented to the postponement of
the meeting. Because Station feared that Crescent would use this as a pretext
for canceling the Merger Agreement and refusing to fund the $20,000,000 of new
preferred stock, Station asked a state court in Nevada to declare that the
postponement did not breach the Merger Agreement. Unfortunately, Station's
suspicions were correct and Crescent filed suit in Federal Court in Texas
seeking to terminate the Merger Agreement and refusing to fund the new
preferred stock on the grounds that Station postponed the meeting and other
equally specious claims of breaches of the Merger Agreement.

Page 5
<PAGE>

While Station called the action by Crescent unfortunate, it said it
planned to vigorously pursue its rights under the Merger Agreement and related
documents and agreements. Station also stated that it is reevaluating its
capital requirements. Station is talking to its banks and, although it needs a
waiver with respect to short term amortization, feedback from the banks to date
has been positive. Station said that it was discussing with its banks
financing alternatives to fund its planned projects and is encouraged by the
course of those discussions.

Frank Fertitta III, chief executive officer of Station stated, "We will
continue in light of Crescent's recent actions to do whatever we can to protect
our stockholders' interests. Despite the distractions related to the merger,
our business trends are strong in Nevada and Missouri. Having recently
announced our fourth consecutive quarter of record cash flows, we are
optimistic about our prospects going forward. Our debt levels have declined,
while our cash flows increased 35% over the same quarter last year."

Station Casinos, Inc. is a multi-jurisdictional gaming company that owns
and operates the Palace Station Hotel & Casino, the Boulder Station Hotel &
Casino, the Texas Station Gambling Hall & Hotel, and the Wild Wild West
Gambling Hall & Hotel in Las Vegas, Nevada, Sunset Station Hotel and Casino in
Henderson, Nevada, as well as slot machine route management services in Clark
County, Nevada. Station Casinos, Inc. also owns and operates Station Casino
St. Charles, a gaming and entertainment facility in St. Charles, Missouri, and
Station Casino Kansas City, a gaming and entertainment facility in Kansas City,
Missouri.

This press release may be deemed to contain certain forward-looking
statements with respect to the financial condition, results of operations and
expansion projects of Station and its subsidiaries which involve risks and
uncertainties including, but not limited to, competition from other gaming
operations, the inherent uncertainty and cost of prolonged litigation,
construction risks, and licensing and other regulatory risks. Further
information on potential factors which could affect the financial condition,
results of operations, expansion projects of Station and its subsidiaries are
included in the filings of Station with the Securities and Exchange Commission,
including, but not limited to Station's Annual Report on Form 10-K for the
fiscal year ended March 31, 1998.

Page 6
<PAGE>

August 7, 1998

STATION CASINOS ANNOUNCES CRESCENT REAL ESTATE EQUITIES FILES SUIT TO TERMINATE
MERGER AGREEMENT

LAS VEGAS,- Station Casinos, Inc. ("Station") announced today that
Crescent Real Estate Equities Company ("Crescent") advised Station that
Crescent is terminating the Agreement and Plan of Merger ("Merger Agreement")
between Crescent and Station and that Crescent has filed suit against Station
in federal court in Texas. According to the Crescent announcement, Crescent
seeks compensatory damages and a declaratory judgment that Crescent does not
need to fund the purchase of 20,000 shares of Station's redeemable preferred
stock for $20 million plus accrued dividends.

Station believes that Crescent's contentions are without merit. Station
plans to assert vigorously its rights under the Merger Agreement and otherwise.

Station Casinos, Inc., is a multi-jurisdictional gaming company that owns
and operates the Palace Station Hotel & Casino, the Boulder Station Hotel &
Casino, the Texas Station Gambling Hall & Hotel, and the Wild Wild West
Gambling Hall & Hotel in Las Vegas, Nevada, Sunset Station Hotel and Casino in
Henderson, Nevada, as well as slot machine route management services in Clark
County, Nevada. Station Casinos, Inc. also owns and operates Station Casino
St. Charles, a gaming and entertainment facility in St. Charles, Missouri, and
Station Casino Kansas City, a gaming and entertainment facility in Kansas City,
Missouri.

This press release may be deemed to contain certain forward-looking
statements with respect to the financial condition, results of operations and
expansion projects of Station and its subsidiaries which involve risks and
uncertainties including, but not limited to, competition from other gaming
operations, construction risks, and licensing and other regulatory risks.
Further information on potential factors which could affect the financial
condition, results of operations and expansion projects of Station and its
subsidiaries, are included in the filings of Station with the Securities and
Exchange Commission, including, but not limited to Station's Annual Report on
Form 10-K for the fiscal year ended March 31, 1998, Registration Statement on
Form S-4 File No. 333-30685, and its Proxy Statement available on Form S-4 File
No. 333-57945.

CONTACT: Glenn C. Christenson, Executive Vice President/Chief Financial
Officer/Chief Administrative Officer, 800-544-2411, Rod S. Atamian, Vice
President of Financial Services, 800-544-2411, or Jack Taylor, Director of
Public Relations, 702-221-6900, all of Station Casinos, Inc.

Page 7
<PAGE>

July 31st 1998

STATION CASINOS FILES FOR DECLARATORY RELIEF

LAS VEGAS, - Station Casinos, Inc. ("Station") announced today that
yesterday it filed actions in Nevada federal and state court seeking
declaratory relief in connection with the Agreement and Plan of Merger (the
"Merger Agreement") between Station and Crescent Real Estate Equities Company
("Crescent"). Station and Crescent previously announced the postponement of
the joint annual and special meeting of stockholders of Station in order to
address concerns expressed by holders of Station's preferred stock. Subsequent
to the announcement, Crescent advised Station that postponing the meeting was
"inconsistent with Station's responsibilities under the Merger Agreement."
Station believes that the postponement of the meeting was not a breach of the
Merger Agreement. Station also announced that it has given a draw notice to
Crescent calling on Crescent to purchase $20 million of redeemable preferred
stock pursuant to the Merger Agreement for repayment of funds drawn on
Station's Revolving Loan Agreement to pay for master-planned expansions.

Frank Fertitta III, chief executive officer of Station stated, "We took
this action to clarify the status of the Merger Agreement and we are hopeful
that a quick resolution of these issues can be achieved so that the parties can
move forward to address the concerns of the preferred stockholders."

This press release may be deemed to contain certain forward-looking
statements with respect to the financial condition, results of operations and
expansion projects of Station and its subsidiaries which involve risks and
uncertainties including, but not limited to, competition from other regulatory
risks. Further information on potential factors which could affect the
financial condition, results of operations and expansion projects of Station
and its subsidiaries, and the ability of Station to consummate the merger with
Crescent Real Estate Equities Company are included in the filings of Station
with the Securities and Exchange Commission, including, but not limited to
Station's Annual Report on Form 10-K for the fiscal year ended March 31, 1998,
Registration Statement on Form S-4 File No. 333-30685, and its Proxy Statement
available on Form S-4 File No. 333-57945.

CONTACT: Glenn C. Christenson, Executive Vice President/Chief Financial
Officer/Chief Administrative Officer, 702-367-2484, Jack Taylor, Director of
Corporate Public Relations, 702-221-6900, or Rod S. Atamian, Vice President of
Financial Services, 702-221-6626, all of Station Casinos, Inc.

Page 8
<PAGE>

July 27th 1998

STATION CASINOS AND CRESCENT REAL ESTATE ANNOUNCE DELAY OF STATION SHAREHOLDER
MEETINGS

LAS VEGAS, - Crescent Real Estate Equities Company ("Crescent") and
Station Casinos, Inc. ("Station") announced today that Station is postponing
its joint annual and special shareholder meeting originally scheduled for
August 4, 1998 for holders of the $3.50 Convertible Preferred Stock ("Station
Preferred") and common stock ("Station Common") until further notice. At this
meeting, holders of the Station Preferred and Station Common were to be asked
to vote on, among other things, the pending merger between Station and
Crescent. Station has determined that it needs additional time to communicate
with the holders of the 2.07 million shares of Station Preferred regarding
terms of the pending merger with Crescent as they relate to the Station
Preferred. The meeting is canceled until further notice.

The Station Preferred has an aggregate liquidation preference of $103.5
million and may be redeemed for Station Common at a 4.9 percent, or
$5.1 million, premium to the liquidation value (plus accrued dividends) on
March 15, 1999. Station plans to discuss with the holders of the Station
Preferred the nature of their concerns with the terms of the proposed merger
and is exploring ways to address those concerns as well as other options.

If a satisfactory resolution of the issues can not be obtained, Station
could, with the consent of Crescent, redeem the Station Preferred on March 15,
1999, prior to the closing of the merger which would then be expected to be on
or before March 31, 1999.

Gerald Haddock, chief executive officer of Crescent, and Frank Fertitta
III, chief executive officer of Station, said, "We remain very excited by the
prospects of the merger of Crescent and Station. The common shareholders are
voting overwhelmingly for the merger with 63 percent of the shares voted to
date. We hope to revolve the concerns of the holders of the Station Preferred
soon to be able to close promptly after approval from the Gaming Authorities in
line with earlier announced expectations."

Crescent is a fully integrated real estate company which, upon completion
of certain pending transactions, including the merger, will own through its
subsidiaries a portfolio of real estate assets, consisting primarily of 99
office properties and seven retail properties totaling 35.3 million square
feet, an approximate 38 percent interest in 94 refrigerated warehouse
facilities, 89 behavioral healthcare facilities, seven casino/hotel properties,
six full-service hotel properties totaling 2,276 rooms, two destination health
and fitness resorts and economic interests in five residential development
corporations. The office rental properties are located primarily in 17
metropolitan submarkets in Texas.

Page 9
<PAGE>

This press release may be deemed to contain certain forward-looking
statements with respect to the financial condition, results of operations and
expansion projects of Station and its subsidiaries which involve risks and
uncertainties including, but not limited to, competition from other gaming
operations, construction risks, and licensing and other regulatory risks.
Further information on potential factors which could affect the financial
condition, results of operations expansion projects of Station and its
subsidiaries, and the ability of Station to consummate the merger with Crescent
Real Estate Equities Company are included in the filings of Station with the
Securities and Exchange Commission, including, but not limited to Station's
Annual Report on Form 10-K for the fiscal year ended March 31, 1998,
Registration Statement on Form S-4 File No. 333-30685, and its Proxy Statement
available on Form S-4 File No. 333-57945.

CONTACT: Glenn C. Christenson, Executive Vice President/Chief Financial
Officer/Chief Administrative Officer, 702-367-2484, or Jack Taylor, Director of
Corporate Public Relations, 702-221-6900, or Rod S. Atamian, Vice President of
Financial Services, 702-221-6626, all of Station Casinos, Inc.; or Dallas E.
Lucas, Senior Vice President-Chief Financial Officer of Crescent Real Estate
Equities Company, 817-877-0426.

Page 10