STATION CASINOS INC, 10-Q, 1998-11-16

STATION CASINOS INC
10-Q, 1998-11-16
MISCELLANEOUS AMUSEMENT & RECREATION

Previous: TR FINANCIAL CORP, 10-Q, 1998-11-16

Next: ELECTRONIC RETAILING SYSTEMS INTERNATIONAL INC, 10-Q, 1998-11-16

<PAGE>

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 SEPTEMBER 30, 1998
------------------

[ ] 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

STATION CASINOS, INC.
(Exact name of registrant as specified in its charter)

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

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

89102
(Zip Code)

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

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

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

<PAGE>

STATION CASINOS, INC.
INDEX

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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

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

Condensed Consolidated Statements of Cash Flows (unaudited) -
Six months ended September 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 11

PART II. OTHER INFORMATION

Item 1. Legal Proceedings 21

Item 2. Changes in Securities 25

Item 3. Defaults Upon Senior Securities 25

Item 4. Submission of Matters to a Vote of Security Holders 25

Item 5. Other Information 25

Item 6. Exhibits and Reports on Form 8-K 25

Signature 26

<PAGE>

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

STATION CASINOS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
(unaudited)

<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
--------------- ----------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 50,402 $ 50,158
Accounts and notes receivable, net........................................... 11,651 12,288
Inventories.................................................................. 4,510 4,209
Prepaid gaming taxes......................................................... 9,285 6,763
Prepaid expenses and other................................................... 15,476 14,073
--------------- ----------------
TOTAL CURRENT ASSETS...................................................... 91,324 87,491

Property and equipment, net.................................................... 1,143,947 1,132,719
Land held for development...................................................... 24,286 24,268
Other assets, net.............................................................. 54,730 55,738
--------------- ----------------
TOTAL ASSETS............................................................... $ 1,314,287 $ 1,300,216
--------------- ----------------
--------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt............................................ $ 155,054 $ 97,931
Accounts payable............................................................. 14,107 16,498
Accrued payroll and related.................................................. 21,518 21,896
Construction contracts payable............................................... 8,580 10,534
Accrued interest payable..................................................... 15,482 16,776
Accrued expenses and other................................................... 37,418 33,874
--------------- ----------------
TOTAL CURRENT LIABILITIES.................................................. 252,159 197,509

Long-term debt, less current portion........................................... 753,787 802,295
Deferred income taxes, net..................................................... 18,651 13,525
--------------- ----------------
TOTAL LIABILITIES.......................................................... 1,024,597 1,013,329
--------------- ----------------
--------------- ----------------
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................................................... 167,216 167,180
Deferred compensation - restricted stock..................................... (282) (528)
Retained earnings............................................................ 18,903 16,382
--------------- ----------------
TOTAL STOCKHOLDERS' EQUITY................................................. 289,690 286,887
--------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................. $ 1,314,287 $ 1,300,216
--------------- ----------------
--------------- ----------------
</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 SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Casino................................................ $ 167,198 $ 149,425 $ 332,565 $ 282,700
Food and beverage..................................... 34,094 34,722 68,307 63,577
Room.................................................. 9,612 9,179 19,307 17,218
Other................................................. 18,726 14,468 31,261 28,676
------------ ------------ ------------ ------------
Gross revenues...................................... 229,630 207,794 451,440 392,171
Less promotional allowances........................... (16,182) (13,697) (31,742) (24,558)
------------ ------------ ------------ ------------
Net revenues........................................ 213,448 194,097 419,698 367,613
------------ ------------ ------------ ------------
OPERATING COSTS AND EXPENSES:
Casino................................................ 83,130 73,301 163,331 137,592
Food and beverage..................................... 21,784 23,581 42,884 44,862
Room.................................................. 3,773 3,380 7,480 6,481
Other................................................. 6,583 6,319 12,500 13,481
Selling, general and administrative................... 44,912 43,240 89,801 81,896
Corporate expenses.................................... 5,434 3,750 9,983 7,748
Depreciation and amortization......................... 17,677 17,186 35,185 33,169
Preopening expenses................................... - - - 10,866
------------ ------------ ------------ ------------
183,293 170,757 361,164 336,095
------------ ------------ ------------ ------------
OPERATING INCOME........................................ 30,155 23,340 58,534 31,518
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense, net................................. (21,998) (19,706) (44,408) (35,713)
Merger and related legal costs........................ (2,943) - (2,943) -
Other................................................. (124) 21 (565) (4,996)
------------ ------------ ------------ ------------
(25,065) (19,685) (47,916) (40,709)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES....................... 5,090 3,655 10,618 (9,191)
INCOME TAX (PROVISION) BENEFIT.......................... (2,246) (1,298) (4,475) 3,258
------------ ------------ ------------ ------------
NET INCOME (LOSS)....................................... 2,844 2,357 6,143 (5,933)
PREFERRED STOCK DIVIDENDS............................... (1,811) (1,811) (3,622) (3,622)
------------ ------------ ------------ ------------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK............ $ 1,033 $ 546 $ 2,521 $ (9,555)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE...... $ 0.03 $ 0.02 $ 0.07 $ (0.27)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.............. 35,312 35,307 35,312 35,310
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</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>
SIX MONTHS ENDED
SEPTEMBER 30,
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................................... $ 6,143 $ (5,933)
---------- ----------
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization........................................... 35,185 33,169
Amortization of debt discount and issuance costs........................ 2,956 3,282
Merger and related legal costs.......................................... 2,943 -
Increase in deferred income taxes....................................... 4,474 7,290
Preopening expenses..................................................... - 10,866
Changes in assets and liabilities:
Decrease (increase) in accounts and notes receivable, net............. 637 (4,635)
Increase in inventories and prepaid expenses and other current assets. (3,574) (5,161)
Decrease in accounts payable.......................................... (2,391) (4,723)
Increase in accrued expenses and other current liabilities............ 1,872 13,896
Other, net.............................................................. (1,083) 6,593
---------- ----------
Total adjustments................................................. 41,019 60,577
---------- ----------
Net cash provided by operating activities........................... 47,162 54,644
---------- ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................... (44,732) (100,029)
Decrease in construction contracts payable.............................. (1,954) (74,904)
Preopening expenses..................................................... - (8,550)
Other, net.............................................................. 671 525
---------- ----------
Net cash used in investing activities............................... (46,015) (182,958)
---------- ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under bank facility, net....................................... (68,000) (63,000)
Borrowings under Sunset loan agreement, net............................. - 57,000
Proceeds from the issuance of notes payable............................. 80,000 15,730
Principal payments on notes payable..................................... (6,953) (19,631)
Proceeds from the issuance of senior subordinated notes, net............ - 144,287
Dividends paid.......................................................... (3,622) (3,622)
Other, net.............................................................. (2,328) (1,049)
---------- ----------
Net cash (used in) provided by financing activities................. (903) 129,715
---------- ----------

CASH AND CASH EQUIVALENTS:
Increase in cash and cash equivalents................................... 244 1,401
Balance, beginning of period............................................ 50,158 42,522
---------- -----------
Balance, end of period.................................................. $ 50,402 $ 43,923
---------- ----------
---------- ----------

SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest, net of amounts capitalized...................... $ 43,019 $ 24,510
Cash paid for income taxes.............................................. $ 10 $ -
Property and equipment purchases financed by debt....................... $ 2,918 $ 3,532
</TABLE>

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

<PAGE>

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 and six months ended September 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.

Certain amounts in the six months ended September 30, 1997 consolidated
financial statements have been reclassified to be consistent with the current
year presentation. These reclassifications had no effect on net income.

<PAGE>

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

2. LONG-TERM DEBT

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

<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
------------- ---------
<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, $285.2
million limit at September 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 (8.25% at September 30, 1998) . . . . . . . . . . . . . . . . . . . . $ 256,000 $ 324,000
Supplemental revolving facility, secured by the same assets as the reducing
revolving credit facility, payable interest only monthly, principal due
March 31, 1999, interest at a margin above the bank's prime rate or
the Eurodollar rate (8.31% at September 30, 1998). . . . . . . . . . . . . 80,000 -
9 5/8% senior subordinated notes, payable interest only semi-annually,
principal due June 1, 2003, net of unamortized discount of $5.5 million
at September 30, 1998. . . . . . . . . . . . . . . . . . . . . . . . . . . 187,487 187,051
9 3/4% senior subordinated notes, payable interest only semi-annually,
principal due April 15, 2007, net of unamortized discount of $5.2 million
at September 30, 1998. . . . . . . . . . . . . . . . . . . . . . . . . . . 144,816 144,629
10 1/8% senior subordinated notes, payable interest only semi-annually,
principal due March 15, 2006, net of unamortized discount of $1.0
million at September 30, 1998. . . . . . . . . . . . . . . . . . . . . . . 196,956 196,908
Notes payable to banks and others, collateralized by slot machines and
related equipment, monthly installments including interest ranging from
7.53% to 11.50% at September 30, 1998. . . . . . . . . . . . . . . . . . . 9,974 8,499
Capital lease obligations, collateralized by furniture and equipment . . . . . 3,441 4,191
Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,167 34,948
----------- ----------
Total long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . 908,841 900,226
Current portion of long-term debt. . . . . . . . . . . . . . . . . . . . . . . (155,054) (97,931)
----------- ----------
Total long-term debt, less current portion. . . . . . . . . . . . . . . . $ 753,787 $ 802,295
----------- ----------
----------- ----------
</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
4.92 to 1.00 as of September 30, 1998.

In September 1998, the Company executed a supplemental secured revolving
loan agreement with a group of banks for $80 million (the "Supplemental
Facility"). The Supplemental Facility is supplemental to and related to the
Bank Facility. The liens and security interests securing the Supplemental
Facility rank equal with the liens and security interests securing the Bank
Facility and

<PAGE>

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

2. LONG-TERM DEBT (CONTINUED)

contain the same financial and other covenants. The Supplemental Facility
bears interest at the same rate as the Bank Facility plus 25 basis points and
is payable monthly. The Supplemental Facility matures in March 1999.

In October 1998, the Company received commitments for $425 million
for an amended and restated reducing revolving credit facility (the "Amended
Facility"). These commitments are subject to satisfactory documentation
which is expected to be completed during calendar year 1998. This facility
will amend the Company's existing Bank Facility and will refinance the
Supplemental Facility (described above). The Amended Facility will be funded
in two tranches (a revolving tranche and a term tranche). The revolving tranche
will be a $350 million reducing revolving credit facility maturing in
September 2003. The term tranche will be a $75 million term loan maturing in
December 2005. The Amended Facility will contain certain financial and other
covenants including a maximum funded debt to EBITDA ratio, a minimum fixed
charge coverage ratio, limits on capital expenditures and investments, limits
on indebtedness, minimum consolidated net worth requirements, limits on
payments of dividends, and a maximum basket for the repurchase of equity
securities.

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
six months ended September 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 six months ended September 30, 1997.

PALACE STATION FIRE AND FLOOD

On July 20, 1998, Palace Station suffered damage to its casino and hotel
tower as a result of a thunderstorm in the Las Vegas Valley. Currently, all
of the rooms in the 21-story hotel tower are fully functional and
approximately 80 percent of the casino has been reopened. The Company
expects the repair of the casino to be completed by the end of November 1998.
Losses associated with the property damage and business interruption are
covered under the Company's insurance policies. As of September 30, 1998,
the insurance company has advanced $6 million to the Company on this claim.
Any business interruption proceeds have been reflected in other operating
revenue in the accompanying condensed consolidated statements of operations.
The Company expects no significant losses from the business interruption or
property claims, however, no assurance as to the final settlement can be made.

4. COMMITMENTS AND CONTINGENCIES

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

<PAGE>

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

4. COMMITMENTS AND CONTINGENCIES (CONTINUED)

Company. During the three months ended September 30, 1998, the Company wrote
off $2.9 million of costs incurred related to the Merger (which are included
in other expense in the accompanying condensed consolidated statements of
operations). The Company also expects to incur ongoing litigation costs
associated with the current lawsuits involving the 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. Although Crescent
issued its own press release supporting the postponement of the meeting,
Crescent has advised the Company that Crescent takes the position that
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 covenants, representations or
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 at
this time.

<PAGE>

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

4. COMMITMENTS AND CONTINGENCIES (CONTINUED)

to the shareholders/class members. The lawsuit seeks damages allegedly
suffered by the shareholders/class members as a result of the transactions
with Crescent, as well as all costs and disbursements of the lawsuit. The
Company and the Board of Directors do not believe the suit has merit and
intend to defend themselves vigorously.

<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 SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NEVADA OPERATIONS (a):
Net revenues $ 128,853 $ 117,810 $ 260,490 $ 217,280
Operating income $ 27,416 $ 22,433 $ 56,105 $ 34,104
EBITDA, As Adjusted (b) $ 36,694 $ 31,331 $ 74,555 $ 61,300
EBITDA, As further adjusted for
the Sunset Equipment lease (c) $ 38,898 $ 33,001 $ 78,936 $ 63,411

MISSOURI OPERATIONS (a):
Net revenues $ 75,675 $ 69,511 $ 144,787 $ 136,144
Operating income $ 7,836 $ 4,168 $ 11,742 $ 4,276
EBITDA, As Adjusted (b) $ 15,642 $ 11,841 $ 27,378 $ 19,665

STATION CASINOS, INC. AND OTHER:
Net revenues $ 8,920 $ 6,776 $ 14,421 $ 14,189
Operating loss $ (5,097) $ (3,261) $ (9,313) $ (6,862)
EBITDA, As Adjusted (b) $ (4,504) $ (2,646) $ (8,214) $ (5,412)

TOTAL STATION CASINOS, INC.:
Net revenues $ 213,448 $ 194,097 $ 419,698 $ 367,613
Operating income $ 30,155 $ 23,340 $ 58,534 $ 31,518
EBITDA, As Adjusted (b) $ 47,832 $ 40,526 $ 93,719 $ 75,553
EBITDA, As further adjusted for
the Sunset Equipment lease (c) $ 50,036 $ 42,196 $ 98,100 $ 77,664

</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. The Company believes that in
addition to cash flows and net income, EBITDA, As Adjusted is a useful
financial performance measurement for assessing the operating performance
of the Company. Together with net income and cash flows, EBITDA, As
Adjusted provides 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 the trend it depicts,
its components should be considered. The impact of interest, taxes,
depreciation and amortization, and preopening expenses, 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. Further, EBITDA, As
Adjusted does not represent net income or cash flows from operating,
financing and investing activities as defined by generally accepted
accounting principles ("GAAP") and does not necessarily indicate that cash
flows will be sufficient to fund cash needs. It 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
information or adjustments to such measure may calculate EBITDA, or such
adjustments in the same manner as the Company, and therefore, the Company's
measure of EBITDA, As Adjusted may not be comparable to similarly titled
measures used by other gaming companies.

(c) EBITDA, As further adjusted for the Sunset Equipment lease consists of
EBITDA, As Adjusted (described above) plus the rent related to the
Sunset Station Equipment lease.
11

<PAGE>

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

2. RESULTS OF OPERATIONS

THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE AND SIX MONTHS
ENDED SEPTEMBER 30, 1997.

Consolidated net revenues increased 10.0% to $213.4 million for the three
months ended September 30, 1998, from $194.1 million in the prior year. The
Company's Nevada Operations contributed $128.9 million of net revenues for the
three months ended September 30, 1998, an increase of 9.4% 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 $75.7 million of net revenues for the
three months ended September 30, 1998, an increase of 8.9% over the prior year.
This increase in net revenues is due to continued improvement at Station Casino
Kansas City, offset by a decline of 2.0% 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 has eased 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 was completed at the end of September 1998. For
the six months ended September 30, 1998, consolidated net revenues increased
14.2% to $419.7 million, as compared to $367.6 million in the prior year. The
Nevada Operations contributed $260.5 million of net revenues for the six months
ended September 30, 1998, an increase of $43.2 million over the prior year. The
Missouri Operations contributed $144.8 million of net revenues for the six
months ended September 30, 1998, an increase of $8.6 million over the prior
year. These improvements are due to the factors noted above.

Consolidated operating income increased $6.8 million to $30.1 million
for the three months ended September 30, 1998, from $23.3 million in the
prior year. Operating income at the Company's Nevada Operations increased
$5.0 million to $27.4 million for the three months ended September 30, 1998,
from $22.4 million in the prior year. Operating income at the Company's
Missouri Operations increased $3.6 million to $7.8 million for the three
months ended September 30, 1998, from $4.2 million in the prior year. The
increase in consolidated operating income, offset by an increase in net
interest expense of $2.3 million, and a write-off of $2.9 million in merger
and related legal costs (included in other expense in the accompanying
condensed consolidated statements of operations), resulted in net income
applicable to common stock of $1.0 million, or net income per common share of
$0.03 for the three months ended September 30, 1998, compared to net income
applicable to common stock of $0.5 million, or earnings per common share of
$0.02 in the prior year. For the six months ended September 30, 1998,
consolidated operating income increased 85.7% to $58.5 million, from $31.5
million in the prior year. The Nevada Operations generated operating income
of $56.1 million, an increase of 64.5% over the prior year. Included in the
prior year amount was $10.9 million of preopening expenses primarily related
to the opening of Sunset Station. The Missouri Operations generated
operating income of $11.7 million, an increase of 174.6% over the prior year,
due to the factors noted above.

CASINO. Casino revenues increased 11.9% to $167.2 million for the three
months ended September 30, 1998, from $149.4 million in the prior year. For the
six months ended September 30, 1998, casino revenues increased 17.6% to $332.6
million, from $282.7 million in the prior year. These increases are due
primarily to the opening of Sunset Station in June 1997, and significant
improvements at Texas Station and Station Casino Kansas City. These increases
were offset by a decrease at Palace Station due to the closure of part of the
casino as a result of flood damage in July 1998 (See Palace Station Fire and
Flood below) and Station Casino St. Charles due to the added competition and the
interstate construction noted above.

Casino expenses increased 13.4% to $83.1 million for the three months ended
September 30, 1998, from $73.3 million in the prior year. For the six months
ended September 30, 1998, casino

<PAGE>

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

expenses increased 18.7% to $163.3 million, from $137.6 million in the prior
year. These increases in casino expenses are consistent with the increase in
casino revenues noted above. The casino net profit margin declined slightly
to 50.3% for the three months ended September 30, 1998, from 50.9% 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.
For the six months ended September 30, 1998, the casino net profit margin
declined to 50.9% from 51.3% in the prior year for the same reasons as noted
above.

FOOD AND BEVERAGE. Food and beverage revenues decreased 1.8% to $34.1
million for the three months ended September 30, 1998, from $34.7 million in
the prior year. For the six months ended September 30, 1998, food and
beverage revenues increased 7.4% to $68.3 million, from $63.6 million in the
prior year.

Food and beverage net profit margins improved to 36.1% for the three
months ended September 30, 1998, from 32.1% in the prior year. For the six
months ended September 30, 1998, food and beverage net profit margins
improved to 37.2%, from 29.4% in the prior year. These increases in margin
are due to improvement at the Company's Nevada Operations, especially at
Texas Station and Sunset Station, as a result of continued focus on cost
control.

ROOM. Room revenues increased 4.7% to $9.6 million for the three months
ended September 30, 1998, from $9.2 million in the prior year. For the six
months ended September 30, 1998, room revenues increased 12.1% to $19.3
million, from $17.2 million in the prior year. These increases are due
primarily to the opening of Sunset Station in June 1997, and the 200-room
Wild, Wild West Hotel and Casino which opened in July 1998. Room occupancy
Company-wide decreased to 91% from 95%, while the average daily room rate
remained flat at $49 during the six months ended September 30, 1998.

OTHER. Other revenue increased 29.4% to $18.7 million for the three
months ended September 30, 1998, from $14.5 million in the prior year. For
the six months ended September 30, 1998, other revenue increased 9.0% to
$31.3 million, from $28.7 million in the prior year. These increases are due
primarily to proceeds from business interruption insurance related to the
Palace Station fire and flood (See below).

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses ("SG&A") increased 3.9% to $44.9 million for the
three months ended September 30, 1998, from $43.2 million in the prior year.
For the six months ended September 30,1998, SG&A increased 9.7% to $89.8
million, from $81.9 million in the prior year. These increases are due
primarily to the opening of Sunset Station in June 1997. SG&A as a
percentage of net revenues decreased to 21.0% for the three months ended
September 30, 1998, from 22.3% in the prior year. For the six months ended
September 30, 1998, SG&A as a percentage of net revenues decreased to 21.4%,
from 22.3% in the prior year.

CORPORATE EXPENSES. Corporate expenses increased 44.9% to $5.4 million
for the three months ended September 30, 1998, from $3.8 million in the prior
year. For the six months ended September 30, 1998, corporate expenses
increased 28.8% to $10.0 million, from $7.7 million in the prior year. This
increase can be attributed to legal and referendum costs in Missouri
associated with the "boat in the moat" issue, and costs related to the Indian
gaming referendum in California. The referendum costs also increased the
Company's overall effective tax rate to historically high levels of 44
percent for the quarter, as these costs are not deductible for tax purposes.
Corporate expenses are expected to increase significantly year over year
during the third fiscal quarter, as well, with the culmination of the
referendum process in November. Corporate expenses increased to 2.5% of net
revenues for the three months ended September 30, 1998, from 1.9% in the
prior year. For the six months ended September 30, 1998, corporate expenses
increased to 2.4% of net revenues from 2.1% in the prior year.

<PAGE>

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

DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
2.9% to $17.7 million for the three months ended September 30, 1998, from $17.2
million in the prior year. For the six months ended September 30, 1998,
depreciation and amortization increased 6.1% to $35.2 million, from $33.2
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 six months ended September 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)
decreased 3.5% to $22.5 million for the three months ended September 30, 1998.
For the six months ended September 30, 1998, interest costs incurred decreased
to $45.0 million, compared to $45.2 million in the prior year. During the six
months ended September 30, 1997 the Company had capitalized interest of $9.1
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.

PALACE STATION FIRE AND FLOOD. On July 20, 1998, Palace Station
suffered damage to its casino and hotel tower as a result of a thunderstorm
in the Las Vegas Valley. Currently, all of the rooms in the 21-story hotel
tower are fully functional and approximately 80 percent of the casino has
been reopened. The Company expects the repair of the casino to be completed
by the end of November 1998. Losses associated with the property damage and
business interruption are covered under the Company's insurance policies. As
of September 30, 1998, the insurance company has advanced $6 million to the
Company on this claim. Any business interruption proceeds have been
reflected in other operating revenue in the accompanying condensed
consolidated statements of operations. The Company expects no significant
losses from the business interruption or property claims, however, no
assurance as to the final settlement can be made.

COMMITMENTS AND CONTINGENCIES. During the three months ended September 30,
1998, the Company wrote off $2.9 million of costs incurred related to the
terminated merger agreement with Crescent Real Estate Equities Company. 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).

3. LIQUIDITY AND CAPITAL RESOURCES

During the six months ended September 30, 1998, the Company's sources of
capital included cash flows from operating activities of $47.2 million and
$80 million of borrowings under notes payable with a group of banks. These
borrowings were used to reduce borrowings under the secured amended and
restated reducing revolving loan agreement (the "Bank Facility"). At
September 30, 1998, the Company had total available borrowings of $285.2
million under the Bank Facility, of which $256.0 million were outstanding,
and $50.4 million in cash and cash equivalents. Total available borrowings
under the Bank Facility will reduce to $262.8 million on December 31, 1998.

In October 1998, the Company received commitments for $425 million for
an amended and restated reducing revolving credit facility (the "Amended
Facility"). These commitments are subject to satisfactory documentation
which is expected to be completed during calendar year 1998. This facility
will amend the Company's existing Bank Facility and will refinance the
Supplemental Facility (see Note 2). The Amended Facility will be funded in
two tranches (a revolving tranche and a term tranche). The revolving tranche
will be a $350 million reducing revolving credit facility maturing in
September 2003. The term tranche will be a $75 million term loan maturing in
December 2005. The Amended Facility will contain certain financial and other
covenants including a maximum funded debt to EBITDA ratio, a minimum fixed
charge coverage ratio, limits on capital expenditures and investments, limits
on indebtedness, minimum consolidated net worth requirements, limits on
payments of dividends, and a maximum basket for the repurchase of equity
securities.

<PAGE>

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

During the six months ended September 30, 1998, total capital
expenditures were approximately $47.7 million, of which approximately (i)
$30.0 million was associated with the expansion projects at Sunset Station
and Texas Station, and (ii) $17.7 million was associated with maintenance
capital expenditures and 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 $8.6 million as of September 30, 1998,
(ii) the remaining costs of the expansion projects at Sunset Station and
Texas Station, estimated to cost approximately $66 million, (iii) maintenance
capital expenditures, (iv) principal and interest payments on indebtedness,
and (v) 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 December 31, 1997,
construction on the project and all related capitalized interest has ceased.
In the event the Company determines that it will not complete the project it
may be required to recognize an impairment loss. As of September 30, 1998,
approximately $169.0 million had been incurred related to the St. Charles
Expansion Project.

The Company believes that cash flows from operations, borrowings under the
amended and restated bank facility (see Note 2), 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, 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. 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 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. (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."

<PAGE>

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

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 $285.2 million as of September
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. 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 September 30, 1998, the Borrowers'
margin above the Eurodollar Rate on borrowings under the Bank Facility was
2.50%. 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 2.50 to 1.00 for each fiscal quarter, a minimum
fixed charge coverage ratio for the preceding four quarters for the Borrowers
combined of 1.50 to 1.00 for each quarter, a limitation on indebtedness, and
limitations on capital expenditures. As of September 30, 1998, the Borrowers
funded debt to EBITDA ratio was 2.01 to 1.00 and the fixed charge coverage ratio
for the preceding four quarters ended September 30, 1998 was 1.81 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
September 30, 1998, Palace Station's tangible net worth exceeded the requirement
by approximately $8.4 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 September 30,

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)

1998, the Company's consolidated net worth exceeded the requirement by
approximately $17.4 million. At March 31, 1998, 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 4.92 to 1.00 as of September 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 amouns 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.

In October 1998, the Company received commitments for $425 million for
an amended and restated reducing revolving credit facility (the "Amended
Facility"). These commitments are subject to satisfactory documentation
which is expected to be completed during calendar year 1998. This facility
will amend the Company's existing Bank Facility and will refinance the
Supplemental Facility (see Note 2). The Amended Facility will be funded in
two tranches (a revolving tranche and a term tranche). The revolving tranche
will be a $350 million reducing revolving credit facility maturing in
September 2003. The term tranche will be a $75 million term loan maturing in
December 2005. The Amended Facility will contain certain financial and other
covenants including a maximum funded debt to EBITDA ratio, a minimum fixed
charge coverage ratio, limits on capital expenditures and investments, limits
on indebtedness, minimum consolidated net worth requirements, limits on
payments of dividends, and a maximum basket for the repurchase of equity
securities.

SENIOR SUBORDINATED NOTES

The Company has $529.2 million, net of unamortized discount of $11.7
million, of senior subordinated notes outstanding as of September 30, 1998,
$187.5 million of these notes bear interest, payable semi-annually, at a rate
of 9 5/8% per year, $197.0 million of these notes bear interest, payable
semi-annually, at a rate of 10 1/8% per year and $144.8 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 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 September
30, 1998, the Company's Consolidated Coverage Ratio was 1.96 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

17
<PAGE>

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

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 $31.8 million at September 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 September 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 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

18
<PAGE>

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

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. The Company has since rescinded this amendment.

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
September 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, 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.

19
<PAGE>

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

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.

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.

20
<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
continue defending itself vigorously.

On August 25, 1998, a hearing was held to determine whether this lawsuit
could be certified as a class action. The outcome of that hearing is still
pending.

<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 alleged
noncompliance with the Akin Ruling.

On November 3, 1998, the citizens of the State of Missouri approved a
Constitutional amendment which was proposed by initiative petition, that
retroactively legalized lotteries, gift enterprises and games of chance
aboard excursion gambling boats and floating facilities located within
artificial spaces containing water that are within 1,000 feet of the closest
edge of the main channel of the Mississippi or Missouri Rivers. This
amendment to the Constitution will take effect upon its certification which
will be within thirty days subsequent to its approval by the voters.
Accordingly, the Missouri Gaming Commission has stayed its preliminary orders
of disciplinary action against licensees that operate within artificial
basins. It is expected that the Missouri Gaming Commission will dismiss the
preliminary orders for disciplinary action upon certification of this
Constitutional amendment.

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 alleged that the defendants are conducting gaming operations that are
not located on the Missouri River in violation of certain state and federal
statutes. On September 1, 1998, the United States District Court granted
Kansas City Station Corporation's motion to dismiss the lawsuit. On October
30, 1998, the plaintiff filed a similar lawsuit in the Circuit Court of Cole
County, Missouri. The plaintiff is seeking a declaratory judgment that the
operators are conducting illegal games of chance, as well as compensatory,
special, consequential, and incidental damages in unspecified amounts.
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.

<PAGE>

ITEM 1. LEGAL PROCEEDINGS - (CONTINUED)

CRESCENT CASE

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.

DERIVATIVE ACTION

A suit seeking status as a class action lawsuit was filed by plaintiff,
Crandon Capital Partners, as class representative, on August 7, 1998, in
Clark County District Court, State of Nevada, naming the Company and its
Board of Directors as defendants. The lawsuit, which was filed as a result
of the failed merger between the Company and Crescent (See Crescent Case
above), alleges, among other things, a breach of fiduciary duty owed to the
shareholders / class members. The lawsuit seeks damages allegedly suffered
by the shareholders / class members as a result of the transactions with
Crescent, as well as all costs and disbursements of the lawsuit. Although no
assurance can be provided with respect to

<PAGE>

ITEM 1. LEGAL PROCEEDINGS - (CONTINUED)

any litigation, the Company and the Board of Directors do not believe the
suit has merit and intend to defend themselves vigorously.

<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

(b) Reports on Form 8-K -

On August 20, 1998, the Company filed a current report on Form 8-K
dated August 7, 1998. The Company reported under Item 5 that a
stockholder class action and derivative action had been filed against
the Company and each of its seven directors. The suit was filed
August 7, 1998, in the United States District Court for the District
of Nevada by Crandon Capital Partners. The suit alleges, among other
things, that agreement to the break-up fee under the Agreement and
Plan of Merger between the Company and Crescent Real Estate Equities
Company violated the fiduciary duty the Company's directors owed to
the Company and its stockholders because the Company allegedly could
not pay the fee when it was agreed to and because the fee allegedly
prevented other interested bidders from proposing competing
acquisitions of the Company.

On September 10, 1998, the Company filed a current report on Form 8-K
dated August 28, 1998. The Company reported under Item 5 that it had
entered into an amendment to its Bank Facility which allowed for the
incurrence of an $80 million supplemental loan.

<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: November 13, 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 PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE
SIX MONTHS ENDED SEPTEMBER 30, 1998.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 50,402
<SECURITIES> 0
<RECEIVABLES> 11,651
<ALLOWANCES> 0
<INVENTORY> 4,510
<CURRENT-ASSETS> 91,324
<PP&E> 1,341,012
<DEPRECIATION> 197,065
<TOTAL-ASSETS> 1,314,287
<CURRENT-LIABILITIES> 252,159
<BONDS> 529,259
0
103,500
<COMMON> 353
<OTHER-SE> 185,837
<TOTAL-LIABILITY-AND-EQUITY> 1,314,287
<SALES> 0
<TOTAL-REVENUES> 419,698
<CGS> 0
<TOTAL-COSTS> 226,195
<OTHER-EXPENSES> 35,185
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,408
<INCOME-PRETAX> 10,618
<INCOME-TAX> (4,475)
<INCOME-CONTINUING> 6,143
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,521
<EPS-PRIMARY> .07
<EPS-DILUTED> .07

</TABLE>