STATION CASINOS INC, 10-Q, 1999-08-13

STATION CASINOS INC
10-Q, 1999-08-13
MISCELLANEOUS AMUSEMENT & RECREATION

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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, 1999

[ ] 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 (I.R.S. Employer Identification No.)
of 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 JULY 30, 1999
--------------------------- ----------------------------
Common stock, $.01 par value 42,102,266

<PAGE>

STATION CASINOS, INC.
INDEX

<TABLE>

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

<S> <C>
Condensed Consolidated Balance Sheets (unaudited) -
June 30, 1999 and December 31, 1998 3

Condensed Consolidated Statements of Operations (unaudited) -
Three and Six months ended June 30, 1999 and 1998 4

Condensed Consolidated Statements of Cash Flows (unaudited) -
Six months ended June 30, 1999 and 1998 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 19

Item 2. Changes in Securities 22

Item 3. Defaults Upon Senior Securities 22

Item 4. Submission of Matters to a Vote of Security Holders 22

Item 5. Other Information 22

Item 6. Exhibits and Reports on Form 8-K 22

Signature 23
</TABLE>

2
<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>
JUNE 30, DECEMBER 31,
1999 1998
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 52,463 $ 59,040
Cash - restricted for payment of long-term debt - defeased January 4, 1999 - 202,383
Accounts and notes receivable, net................................................ 10,412 18,372
Inventories....................................................................... 5,234 5,466
Prepaid gaming taxes.............................................................. 11,773 8,908
Prepaid expenses and other........................................................ 18,275 11,767
----------------- -----------------
Total current assets.......................................................... 98,157 305,936

Property and equipment, net........................................................... 1,142,983 1,147,890
Land held for development............................................................. 17,028 17,009
Other assets, net..................................................................... 63,950 63,096
----------------- -----------------
Total assets.................................................................. $ 1,322,118 $ 1,533,931
================= =================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt................................................. $ 9,660 $ 13,323
Accounts payable.................................................................. 13,807 18,636
Accrued payroll and related....................................................... 32,641 25,081
Construction contracts payable.................................................... 6,610 10,399
Accrued interest payable.......................................................... 13,307 15,306
Accrued expenses and other current liabilities.................................... 58,529 42,110
----------------- -----------------
Total current liabilities..................................................... 134,554 124,855

Long-term debt, less current portion.................................................. 886,502 946,308
9 5/8% Senior subordinated notes - defeased January 4, 1999..................... - 187,635
Deferred income taxes, net............................................................ 12,822 5,372
----------------- -----------------
Total liabilities............................................................. 1,033,878 1,264,170
----------------- -----------------
Commitments and contingencies

Stockholders' equity:
Preferred stock, par value $.01; authorized 5,000,000 shares; 0 and
2,070,000 convertible preferred shares issued and outstanding.................. - 103,500
Common stock, par value $.01; authorized 90,000,000 shares;
42,094,378 and 35,312,192 shares issued and outstanding........................ 421 353
Additional paid-in capital........................................................ 271,441 167,216
Deferred compensation - restricted stock.......................................... (20) (159)
Retained earnings (accumulated deficit)........................................... 16,398 (1,149)
----------------- -----------------
Total stockholders' equity.................................................... 288,240 269,761
----------------- -----------------
Total liabilities and stockholders' equity.................................... $ 1,322,118 $ 1,533,931
================= =================
</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
JUNE 30, JUNE 30,
1999 1998 1999 1998
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Operating revenues:
Casino................................................ $ 190,724 $ 165,367 $ 376,848 $ 329,342
Food and beverage..................................... 35,305 34,213 71,426 67,719
Room.................................................. 10,399 9,695 21,143 19,333
Other................................................. 15,687 12,535 30,087 24,796
-------------- --------------- --------------- ---------------
Gross revenues................................... 252,115 221,810 499,504 441,190
Promotional allowances................................ (16,744) (15,560) (34,202) (30,139)
-------------- --------------- --------------- ---------------
Net revenues..................................... 235,371 206,250 465,302 411,051
-------------- --------------- --------------- ---------------
Operating costs and expenses:
Casino................................................ 87,715 80,201 176,803 159,801
Food and beverage..................................... 22,655 21,100 45,074 43,402
Room.................................................. 4,012 3,707 7,867 7,167
Other................................................. 7,818 5,917 14,806 11,350
Selling, general and administrative................... 47,896 45,170 96,939 90,244
Corporate expense..................................... 5,644 3,468 10,469 7,698
Depreciation and amortization......................... 18,079 17,508 36,016 34,526
-------------- --------------- --------------- ---------------
193,819 177,071 387,974 354,188
-------------- --------------- --------------- ---------------

Operating income.......................................... 41,552 29,179 77,328 56,863
-------------- --------------- --------------- ---------------

Other income (expense):
Interest expense, net................................. (21,058) (22,410) (42,385) (45,639)
Merger settlement, net of related legal costs......... 14,074 - 12,824 -
Write-off costs to elect REIT status.................. - - - (2,914)
Other................................................. (43) (1,241) (245) (3,010)
-------------- --------------- --------------- ---------------
(7,027) (23,651) (29,806) (51,563)
-------------- --------------- --------------- ---------------

Income before income taxes and extraordinary item......... 34,525 5,528 47,522 5,300
Income tax provision...................................... (12,933) (2,229) (17,814) (2,647)
-------------- --------------- --------------- ---------------

Income before extraordinary item.......................... 21,592 3,299 29,708 2,653

Extraordinary item - loss on early retirement of debt,
net of applicable income tax benefit.................. - - (10,350) (2,042)
-------------- --------------- --------------- ---------------

Net income................................................ 21,592 3,299 19,358 611
Preferred stock dividends................................. - (1,811) (1,811) (3,622)
-------------- --------------- --------------- ---------------

Net income (loss) applicable to common stock......... $ 21,592 $ 1,488 $ 17,547 $ (3,011)
============== =============== =============== ===============

Basic and diluted earnings (loss) per common share:
Earnings (loss) applicable to common stock, before
extraordinary item:
Basic............................................. $ 0.58 $ 0.04 $ 0.77 $ (0.03)
Diluted........................................... $ 0.50 $ 0.04 $ 0.69 $ (0.03)
Earnings (loss) applicable to common stock:
Basic............................................. $ 0.58 $ 0.04 $ 0.48 $ (0.09)
Diluted........................................... $ 0.50 $ 0.04 $ 0.45 $ (0.09)

Weighted average common shares outstanding:
Basic............................................. 37,121 35,312 36,222 35,310
Diluted........................................... 43,214 35,312 42,818 35,310
</TABLE>

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

4
<PAGE>

STATION CASINOS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1999 1998
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................................................. $ 19,358 $ 611
-------------- ---------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization....................................................... 36,016 34,526
Amortization of debt discount and issuance costs.................................... 1,371 7,901
Loss on early retirement of debt.................................................... 15,923 2,668
Write-off of expired land options................................................... - 5,011
Write-off of costs to elect REIT status............................................. - 2,914
Increase in deferred income taxes................................................... 2,312 1,995
Changes in assets and liabilities:
Decrease in accounts and notes receivable, net.................................... 7,960 4,095
Increase in inventories and prepaid expenses and other current assets............. (4,009) (1,669)
(Decrease) increase in accounts payable........................................... (4,829) 543
Increase in accrued expenses and other current liabilities........................ 23,756 1,916
Other, net.......................................................................... (1,858) (9,516)
-------------- ---------------
Total adjustments............................................... 76,642 50,384
-------------- ---------------
Net cash provided by operating activities................................. 96,000 50,995
-------------- ---------------

Cash flows from investing activities:
Capital expenditures................................................................ (32,768) (20,124)
Proceeds from sale of property and equipment........................................ 3,183 4,925
Decrease in construction contracts payable.......................................... (3,789) (3,701)
Other, net.......................................................................... (4,331) (3,026)
-------------- ---------------
Net cash used in investing activities..................................... (37,705) (21,926)
-------------- ---------------

Cash flows from financing activities:
(Payments) borrowings under bank facility, net...................................... (54,000) 75,500
Payments under Sunset loan agreement, net........................................... - (110,000)
Principal payments on notes payable................................................. (9,757) (7,313)
Proceeds from the issuance of notes payable......................................... - 25,000
Defeasance of 9 5/8% senior subordinated notes...................................... (201,670) -
Dividends paid...................................................................... (1,811) (3,622)
Other, net.......................................................................... (17) (3,481)
-------------- ---------------
Net cash used in financing activities..................................... (267,255) (23,916)
-------------- ---------------

Cash and cash equivalents:
(Decrease) increase in cash and cash equivalents.................................... (208,960) 5,153
Balance, beginning of period........................................................ 261,423 53,662
-------------- ---------------
Balance, end of period.............................................................. $ 52,463 $ 58,815
============== ===============

Supplemental cash flow disclosures:
Cash paid for interest, net of amounts capitalized.................................. $ 43,128 $ 43,713
Cash paid for income taxes.......................................................... $ 4,602 $ 10
Property and equipment purchase financed by debt.................................... $ 35 $ -
Preferred stock converted to common stock and additional paid-in capital............ $ 100,131 $ -
</TABLE>

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

5
<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 hotel/casino properties and two
smaller casino properties in Las Vegas, Nevada, and gaming and entertainment
complexes in St. Charles and 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 the Company 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"),
Southwest Gaming Services, Inc. ("SGSI"), and Tropicana Station, Inc., the
operator of the Wild Wild West Gambling Hall ("Wild Wild West"), which opened
in July 1998. The Company also owns a 50% interest in Town Center Amusements,
Inc., d.b.a. Barley's Casino & Brewing Company ("Barley's"). 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 June 30, 1999 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
Transition Report on Form 10-K for the transition period from April 1, 1998
to December 31, 1998.

Certain amounts in the three and six months ended June 30, 1998
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>
June 30, December 31,
1999 1998
------------ -------------
<S> <C> <C>
Amended and restated reducing revolving credit facility and term loan (the
"Amended Bank Facility"), $350.0 million limit at June 30, 1999 on the
revolving facility, due September 2003, interest at a margin above the
bank's prime rate or the Eurodollar Rate (7.03% at June 30, 1999), $75.0
million limit at June 30, 1999 on the term loan, due December 31, 2005,
interest at 3.25% above the Eurodollar Rate (8.28% at June 30,
1999)....................................................................... $ 325,000 $ 379,000
8 7/8% senior subordinated notes, interest payable semi-annually,
principal due December 1, 2008.............................................. 199,900 199,900
9 3/4% senior subordinated notes, interest payable semi-annually,
principal due April 15, 2007, net of unamortized discount of $4.9 million
at June 30, 1999............................................................ 145,115 144,914
10 1/8% senior subordinated notes, interest payable semi-annually,
principal due March 15, 2006, net of unamortized discount of $1.0
million at June 30, 1999.................................................... 197,033 196,981
Other long-term debt, collateralized by various assets, including slot
machines, furniture and equipment, and land, monthly installments
including interest ranging from 6.92% to 10.08% at June 30, 1999............ 29,114 38,836
------------ -------------
Total long-term debt................................................. 896,162 959,631
Current portion of long-term debt............................................... (9,660) (13,323)
------------ -------------
Total long-term debt, less current portion........................... 886,502 946,308

9 5/8% senior subordinated notes, net of unamortized discount of $5.4
million at December 31, 1998, defeased January 4, 1999...................... - 187,635
------------ -------------
Total................................................................ $ 886,502 $ 1,133,943
============ =============
</TABLE>

In December 1998, the Company completed an offering of $199.9
million of senior subordinated notes due in December 2008, that have equal
priority with the Company's other senior subordinated notes. The $199.9
million senior subordinated notes bear interest payable semi-annually, at a
rate of 8 7/8% per year (the "8 7/8% Notes"). At December 31, 1998, the
Company had deposited the net proceeds from the sale of the 8 7/8% Notes and
a portion of the funds borrowed under the Amended Bank Facility in a separate
trust account with the trustee under the indenture relating to the 9 5/8%
senior subordinated notes (the "9 5/8% Notes") to redeem and to pay accrued
interest and redemption premiums related to the 9 5/8% Notes on the
redemption date. The redemption occurred on January 4, 1999. The Company
recorded an extraordinary charge of $10.4 million (net of applicable tax
benefit) to reflect the write-off of the unamortized debt discount,
unamortized loan costs and the premium to redeem the 9 5/8% Notes.

7
<PAGE>

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

2. LONG-TERM DEBT (CONTINUED)

30, 1999; by $12.25 million on each of December 31, 1999, March 31, 2000 and
June 30, 2000; by $14.0 million on September 30, 2000, December 31, 2000,
March 31, 2001 and June 30, 2001; and by $17.5 million on each fiscal quarter
end thereafter. The Term Loan matures on December 31, 2005 and amortizes in
installments of $187,500 on each fiscal quarter end from March 31, 2000 until
and including December 31, 2004 and of $17.8 million on each fiscal quarter
end thereafter. Borrowings under the Revolving Facility bear interest at a
margin above the Alternate Base Rate or the Eurodollar Rate (each, as defined
in the Amended Bank Facility), as selected by the Company. The margin above
such rates, and the fee on the unfunded portions of the Revolving Facility,
will vary quarterly based on the Company's combined consolidated ratio of
debt to EBITDA (each, as defined in the Amended Bank Facility). As of June
30, 1999, the Borrowers' margin above the Eurodollar Rate on borrowings under
the Revolving Facility was 2.00%. The maximum margin for Eurodollar Rate
borrowings is 2.75%. The maximum margin for alternate base rate borrowings is
1.50%. The maximum fee for the unfunded portion of the Revolving Facility is
0.50% multiplied by the average of the unfunded portion of the Revolving
Facility. The interest rate on the Term Loan is 3.25% above the Eurodollar
Rate.

The Amended Bank Facility contains certain financial and other
covenants. These include a maximum funded debt to Adjusted EBITDA 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 fiscal quarter, limitations on
indebtedness, limitations on asset dispositions, limitations on investments,
limitations on prepayments of indebtedness and rent and limitations on
capital expenditures. As of June 30, 1999, the Borrowers combined funded debt
to Adjusted EBITDA ratio was 1.71 to 1.00 and their combined fixed charge
coverage ratio for the preceding four quarters ended June 30, 1999 was 1.98
to 1.00. A tranche of the Revolving Facility contains a minimum tangible net
worth requirement for Palace Station and certain restrictions on
distributions of cash from Palace Station to the Company. As of June 30,
1999, Palace Station's tangible net worth exceeded the requirement by
approximately $8.9 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 Amended Bank Facility has financial and other
covenants relating to the Company. These include a tangible net worth
covenant and a covenant limiting the consolidated funded debt to Adjusted
EBITDA ratio to no more than 5.25 to 1.00 on June 30, 1999 and reducing
quarterly to 4.00 to 1.00 on September 30, 2001. Other covenants limit
prepayments of indebtedness or rent (including, subordinated debt other than
refinancings meeting certain criteria), limitations on asset dispositions,
limitation on dividends, limitations on indebtedness, limitations on
investments and limitations on capital expenditures. The Amended Bank
Facility also prohibits the Company from holding excess cash and cash
equivalents. As of June 30, 1999, the Company's consolidated funded debt to
Adjusted EBITDA ratio was 4.23 to 1.00. The Company has pledged the stock of
all of its subsidiaries except Kansas City Station Corporation and St.
Charles Riverfront Station, Inc. and has agreed to pledge the stock of the
latter two subsidiaries upon regulatory approval (which is expected to be
obtained).

3. CONVERTIBLE PREFERRED STOCK

As of June 14, 1999, the Company had redeemed all 2,070,000 shares
of its $3.50 Convertible Preferred Stock in exchange for 6,741,632 shares of
the Company's Common Stock.

<PAGE>

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

4. OTHER MATTERS

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. In
November 1998, repairs were completed to the casino and all of the rooms in
the 21-story hotel tower became fully functional. Losses associated with the
property damage and business interruption were covered under the Company's
insurance policies. During the quarter ended March 31, 1999, the Company
received its final payment from its insurance company on these claims.

5. COMMITMENTS AND CONTINGENCIES

SETTLEMENT OF CRESCENT LITIGATION

On April 14, 1999, the Company announced that it had settled its
lawsuits with Crescent Real Estate Equities, Inc. ("Crescent") arising out of
the failed merger of the two companies. Under the terms of the settlement
agreement, Crescent has paid the Company $15 million, and the parties have
released each other from claims. The settlement payment was received on April
22, 1999.

CLASS ACTION/DERIVATIVE ACTION

A suit seeking status as a class action and a derivative action 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,
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 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.
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 (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- PERCENT ------------------------- PERCENT
1999 1998 CHANGE 1999 1998 CHANGE
----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET REVENUES - TOTAL $ 235,371 $ 206,250 14.1% $ 465,302 $ 411,051 13.2%
Nevada Operations (a) 147,278 131,637 11.9% 288,467 260,583 10.7%
Missouri Operations (a) 77,017 69,112 11.4% 155,373 139,538 11.3%
Other (a) 11,076 5,501 101.3% 21,462 10,930 96.4%

OPERATING INCOME (LOSS) - TOTAL $ 41,552 $ 29,179 42.4% $ 77,328 $ 56,863 36.0%
Nevada Operations (a) 37,162 28,689 29.5% 69,640 56,922 22.3%
Missouri Operations (a) 9,780 3,906 150.4% 17,736 7,434 138.6%
Other (a) (5,390) (3,416) (57.8%) (10,048) (7,493) (34.1%)

OPERATING MARGIN - TOTAL 17.7% 14.1% 16.6% 13.8%
Nevada Operations (a) 25.2% 21.8% 24.1% 21.8%
Missouri Operations (a) 12.7% 5.7% 11.4% 5.3%

CASH FLOWS FROM:
Operating activities $ 58,360 $ 19,366 201.4% $ 96,000 $ 50,995 88.3%

EBITDA (b) - TOTAL $ 59,631 $ 46,687 27.7% $ 113,344 $ 91,389 24.0%
Nevada Operations (a) 47,171 37,861 24.6% 89,184 74,990 18.9%
Missouri Operations (a) 17,189 11,736 46.5% 32,872 22,887 43.6%
Other (a) (4,729) (2,910) (62.5%) (8,712) (6,488) (34.3%)

EBITDA, AS ADJUSTED FOR THE
SUNSET EQUIPMENT LEASE (c) - TOTAL $ 61,590 $ 48,864 26.0% $ 117,288 $ 95,630 22.6%
Nevada Operations (a) 49,130 40,038 22.7% 93,128 79,231 17.5%
</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.
Other includes the operations of Wild Wild West, which opened in July 1998,
the Company's Investment in Barley's, SGSI and Corporate.

(b) EBITDA consists of operating income plus depreciation and amortization. The
Company believes that in addition to cash flows and net income, EBITDA is a
useful financial performance measurement for assessing the operating
performance of the Company. Together with net income and cash flows, EBITDA
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 and the trends it depicts, the components should be
considered. The impact of interest, taxes, depreciation and amortization,
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. Further, EBITDA
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 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 or adjustments to such measures may
calculate EBITDA, or such adjustments in the same manner as the Company,
and therefore, the Company's measure of EBITDA may not be comparable to
similarly titled measures used by other gaming companies.

(c) EBITDA, as adjusted for the Sunset equipment lease consists of EBITDA
(described above) plus the rent related to the Sunset Station equipment
lease.

10
<PAGE>

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

2. RESULTS OF OPERATIONS

CONSOLIDATED NET REVENUES

The increase in consolidated net revenues for the three months ended
June 30, 1999 as compared to the three months ended June 30, 1998 is due to
increasing revenues at all of the Company's properties. Increased revenues at
the Nevada Operations are partially a result of the completed master-planned
expansions at Texas Station and Sunset Station, which were completed in
February 1999 and November 1998, respectively.

The increase in consolidated net revenues for the six months ended
June 30, 1999 as compared to the six months ended June 30, 1998 is due to the
factors noted above, with the exception of Station Casino St. Charles, which
experienced a 1.1% decline in revenues as a result of significant competition
in the St. Louis market.

OPERATING INCOME/OPERATING MARGIN

Consolidated operating income improved by $12.4 million in the three
months ended June 30, 1999 as compared to the three months ended June 30,
1998 with operating income at all of the Company's properties increasing.
Consolidated operating margin improved in the three months ended June 30,
1999 as compared to the three months ended June 30, 1998, due to the
operating margin at Station Casino Kansas City improving from 6.2% to 16.2%
and smaller increases at all of the Nevada properties.

Consolidated operating income improved by $20.5 million in the six
months ended June 30, 1999 as compared to the six months ended June 30, 1998.
The only casino property experiencing a decline in operating income was
Station Casino St. Charles, which experienced a $0.6 million decline
primarily related to $2.4 million of costs related to ongoing dredging
requirements and costs related to low water levels which did not occur in the
prior year. See "Part II. Item 1. Legal Proceedings - Low Water Level at
Station Casino St. Charles; EPA Investigation". Consolidated operating margin
improved in the six months ended June 30, 1999 as compared to the six months
ended June 30, 1998, due to the operating margin at Station Casino Kansas
City improving from 4.3% to 14.9% and smaller increases at all of the Nevada
properties.

<PAGE>

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

The following table highlights the various sources of revenues and
expenses for the Company as compared to prior periods (dollars in thousands,
unaudited):

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- PERCENT -------------------------- PERCENT
1999 1998 CHANGE 1999 1998 CHANGE
---------- ----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Casino revenues $ 190,724 $ 165,367 15.3% $ 376,848 $ 329,342 14.4%
Casino expenses 87,715 80,201 9.4% 176,803 159,801 10.6%
MARGIN 54.0% 51.5% 53.1% 51.5%

Food and beverage revenues $ 35,305 $ 34,213 3.2% $ 71,426 $ 67,719 5.5%
Food and beverage expenses 22,655 21,100 7.4% 45,074 43,402 3.9%
MARGIN 35.8% 38.3% 36.9% 35.9%

Room revenues $ 10,399 $ 9,695 7.3% $ 21,143 $ 19,333 9.4%
Room expenses 4,012 3,707 8.2% 7,867 7,167 9.8%
MARGIN 61.4% 61.8% 62.8% 62.9%

Other revenues $ 15,687 $ 12,535 25.1% $ 30,087 $ 24,796 21.3%

Selling, general and administrative $ 47,896 $ 45,170 6.0% $ 96,939 $ 90,244 7.4%
PERCENT OF NET REVENUES 20.3% 21.9% 20.8% 22.0%

Corporate expense $ 5,644 $ 3,468 62.7% $ 10,469 $ 7,698 36.0%
PERCENT OF NET REVENUES 2.4% 1.7% 2.2% 1.9%
</TABLE>

CASINO. Casino revenues increased for the three and six months ended
June 30, 1999 as compared to the three and six months ended June 30, 1998 as
a result of the same factors affecting consolidated net revenues discussed
above. The casino profit margin for both periods increased as compared to
previous year with all properties improving their margin.

FOOD AND BEVERAGE. Food and beverage revenues for the three and six
months ended June 30, 1999 increased 3.2% and 5.5%, respectively, over food
and beverage revenues for the three and six months ended June 30, 1998. This
increase is primarily due to the completion of the expansion projects at
Sunset Station and Texas Station.

Food and beverage net profit margins decreased to 35.8% for the
three months ended June 30, 1999, from 38.3% in the prior year. This decrease
in margin is due primarily to expense increases at Boulder Station and Texas
Station. Food and beverage net profit margins improved to 36.9% for the six
months ended June 30, 1999, from 35.9% in the prior year. This increase in
margin is due to improvement at Station Casino Kansas City, primarily as a
result of continued focus on cost control and purchasing efficiencies, as
well as selected menu price increases which were offset by the expense
increases at Boulder Station and Texas Station mentioned above.

ROOM. Room revenues for the three and six months ended June 30, 1999
increased 7.3% and 9.4%, respectively over room revenues for the three and
six months ended June 30, 1998. This increase is primarily due to the opening
of the Wild Wild West in July 1998, which contributed $0.5 million and $1.1
million, respectively of room revenues in the three and six months ended June
30, 1999. The Company's room margin remained steady for both periods.

The Company-wide room occupancy decreased to 90% from 95%, while the
average daily room rate increased to $53 from $51 during the three months
ended June 30, 1999. During the six months

12
<PAGE>

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

ended June 30, 1999, the Company-wide room occupancy decreased to 90% from
94%, while the average daily room rate increased to $53 from $51.

SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). As a percent of net
revenues, SG&A decreased to 20.3% and 20.8%, respectively in the three and
six months ended June 30, 1999, as compared to 21.9% and 22.0% for the three
and six months ended June 30, 1998. This decrease is due primarily to fine
tuning operations at Sunset Station and Station Casino Kansas City. In the
Company's experience, when a new property opens, SG&A as a percent of net
revenues is higher than normal, and reduces as the property's operations
mature.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization
increased $0.6 million in the three months ended June 30, 1999 to $18.1
million as compared to $17.5 million in the three months ended June 30, 1998.
Depreciation and amortization increased $1.5 million in the six months ended
June 30, 1999 to $36.0 million as compared to $34.5 million in the six months
ended June 30, 1998. This increase is a result of the completion of expansion
projects at Sunset Station and Texas Station, which were completed in
November 1998 and February 1999, respectively.

INTEREST EXPENSE. Interest costs incurred (expensed and capitalized)
decreased 6.1% to $21.1 million for the three months ended June 30, 1999,
from $22.5 million in the prior year. Interest costs incurred decreased 6.3%
to $43.0 million for the six months ended June 30, 1999, from $45.9 million
in prior year. This decrease is due to a decline of $7.2 million in total
long-term debt from the prior year and to a reduction in average interest
rates on long-term debt to 8.9% from 9.7% in the prior year.

OTHER. During the three months ended March 31, 1999, the Company
recorded an extraordinary charge of $10.4 million (net of applicable tax
benefit) to reflect the write-off of the unamortized debt discount,
unamortized loan costs and the premium to redeem the 9 5/8% senior
subordinated notes, which were repaid on January 4, 1999.

During the three months ended June 30, 1999, the Company received a
$15 million settlement payment from Crescent Real Estate Equities, Inc.,
which is included in the "Merger settlement, net of related legal costs" line
on the accompanying condensed consolidated statements of operations. See
"Part II. Item 1. Legal Proceedings - Settlement of Crescent Litigation".

3. LIQUIDITY AND CAPITAL RESOURCES

During the six months ended June 30, 1999, the Company's sources of
capital included cash flows from operating activities of $96.0 million. At
June 30, 1999, the Company had total available borrowings of $425.0 million
under the Amended Bank Facility, of which $325.0 million were outstanding,
and $52.5 million in cash and cash equivalents. Total available borrowings
under the Amended Bank Facility will reduce to $418.0 million on September
30, 1999. (See "Description of Certain Indebtedness and Capital Stock" for
discussion regarding a proposed increase in total available borrowings under
the Amended Bank Facility.)

During the six months ended June 30, 1999, total capital
expenditures were approximately $32.8 million, of which approximately (i)
$16.2 million was associated with the expansion project at Texas Station, and
(ii) $16.6 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 $6.6 million as of June 30, 1999, (ii)
maintenance capital expenditures, and (iii) principal and interest payments
on indebtedness. The Company previously commenced construction of an
expansion project at Station

13
<PAGE>

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

Casino St. Charles (the "St. Charles Expansion Project"). As of December 31,
1997, construction on the project and all related capitalized interest
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 June 30,
1999, 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 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 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.

YEAR 2000 READINESS

APPROACH

The Company has established a task force to coordinate the Company's
response to the Year 2000. This task force, which reports to the Company's
Chief Financial Officer, is led by the Vice President of Information
Technology. The Company also engaged an outside consultant which assisted the
Company in establishing an approach to dealing with the Year 2000 issue, and
the Company is in the process of implementing a Year 2000 compliance program
at the Company's properties. The program consists of the following phases:

- Phase 1. Compilation of an inventory of information technology ("IT")
and non-IT systems that may be sensitive to the Year 2000 problem.

- Phase 2. Identification and prioritization of the critical systems from
the systems inventory compiled in Phase 1 and inquiries of third
parties with whom the Company does significant business (i.e. vendors
and suppliers) as to the state of their Year 2000 readiness.

- Phase 3. Analysis of critical systems to determine which systems are
not Year 2000 compliant and evaluation of the costs to repair or
replace those systems.

- Phase 4. Repair or replacement of noncompliant systems and testing of
those systems for which a representation as to Year 2000 compliance has
not been received or for which a representation was received but has
not been confirmed.

STATUS

Phases 1, 2 and 3 are substantially complete. Phase 4 is ongoing and
will continue through the third quarter of the calendar 1999. It is the
Company's goal to have this project completed by October 1, 1999. Based upon
the analysis conducted to date, the Company believes all of the major
critical systems at the Company's properties are currently compliant or will
be compliant by October 1, 1999. The only significant aspect of the Company's
Year 2000 compliance, which has been identified to date, is the need to
replace older computers and software packages whose systems are not Year 2000
compatible.

COSTS

The total cost to the Company of making the Company's systems Year
2000 compliant is currently estimated to be in the range of $2 million to $3
million. Of that amount the Company has incurred approximately $1.3 million
as of June 30, 1999. The Company is, however, still in the process of

14
<PAGE>

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

identifying non-compliant systems and the cost of replacing or repairing such
systems, so the actual cost of making the Company's systems Year 2000
compliant may be materially greater than the amount the Company currently
estimates. The majority of this cost relates to the acquisition of new
computer hardware to replace the systems noted above and the purchase of new
software to replace non-compliant software. These costs will be capitalized
and depreciated over their expected useful life. To the extent existing
hardware or software is replaced, the Company will recognize a loss currently
for the undepreciated balance. This loss is included in the above cost
estimate. Furthermore, all costs related to software modification, as well as
all costs associated with the Company's administration of the Company's Year
2000 project, are being expensed as incurred and are likewise included in the
cost estimated above.

DESCRIPTION OF CERTAIN INDEBTEDNESS AND CAPITAL STOCK

AMENDED BANK FACILITY

In November 1998, the Company secured a $425.0 million bank credit
facility which amended the Company's existing reducing revolving credit
facility and repaid a supplemental facility which had been obtained in
September 1998. The Amended Bank Facility consists of three tranches 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 (the "Borrowers"). Two revolving tranches constitute a reducing
revolving credit facility (the "Revolving Facility") which provides for
borrowings up to an aggregate principal amount of $350.0 million and the
third tranche constitutes a $75.0 million term loan (the "Term Loan"). The
availability under the Revolving Facility will reduce by $7.0 million on
September 30, 1999; by $12.25 million on each of December 31, 1999, March 31,
2000 and June 30, 2000; by $14.0 million on September 30, 2000, December 31,
2000, March 31, 2001 and June 30, 2001; and by $17.5 million on each fiscal
quarter end thereafter. The Term Loan matures on December 31, 2005 and
amortizes in installments of $187,500 on each fiscal quarter end from March
31, 2000 until and including December 31, 2004 and of $17.8 million on each
fiscal quarter end thereafter. Borrowings under the Revolving Facility bear
interest at a margin above the Alternate Base Rate or the Eurodollar Rate
(each, as defined in the Amended Bank Facility), as selected by the Company.
The margin above such rates, and the fee on the unfunded portions of the
Revolving Facility, will vary quarterly based on the Company's combined
consolidated ratio of debt to EBITDA (each, as defined in the Amended Bank
Facility). As of June 30, 1999, the Borrowers' margin above the Eurodollar
Rate on borrowings under the Revolving Facility was 2.00%. The maximum margin
for Eurodollar Rate borrowings is 2.75%. The maximum margin for alternate
base rate borrowings is 1.50%. The maximum fee for the unfunded portion of
the Revolving Facility is 0.50% multiplied by the average of the unfunded
portion of the Revolving Facility. The interest rate on the Term Loan is
3.25% above the Eurodollar Rate.

15
<PAGE>

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

The Company has received commitments from its bank group to increase
the Term Loan from $75 million to $200 million. The new term loan financial
covenants will be similar to the financial covenants contained in the
indentures governing the Company's subordinated notes. The new term facility
is expected to be completed in the third quarter and is subject to completing
documentation and receiving all regulatory approvals. The proceeds from the
new term loan will be used to pay amounts outstanding on the Revolving
Facility.

SENIOR SUBORDINATED NOTES

The Company has $542.0 million, net of unamortized discount of $5.9
million, of senior subordinated notes outstanding as of June 30, 1999, $197.0
million of these notes bear interest, payable semi-annually, at a rate of
10 1/8% per year, $145.1 million of the notes bear interest, payable
semi-annually, at a rate of 9 3/4% per year and $199.9 million of the notes
bear interest, payable semi-annually, at a rate of 8 7/8% per year
(collectively the "Notes"). The indentures governing the Notes (the
"Indentures") contain certain customary financial and other covenants which
limit the Company and its subsidiaries' ability to incur additional debt and
to pay dividends. At June 30, 1999, the Company's Consolidated Coverage Ratio
was 2.49 to 1.00, compared to a requirement that it be at least 2.00 to 1.00
in order to issue additional debt. In addition, the covenants also limit
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. 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 $2.0 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 $27.9 million at June 30, 1999. This
amount reduces throughout the term of the lease to $21.4 million at October
2000.

16
<PAGE>

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

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"), 42,094,378
shares of which were issued and outstanding as of June 30, 1999. 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 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.

17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 14, 1999, the Company had redeemed all 2,070,000 shares of its $3.50
Convertible Preferred Stock in exchange for 6,741,632 shares of the Company's
Common Stock. The Board of Directors, without further action by the holders
of Common 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. 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.

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 the business of the
Company and its subsidiaries including the expansion, development and
acquisition projects, legal proceedings and employee matters of the Company
and its subsidiaries. Certain important factors, including but not limited
to, competition from other gaming operations, leverage, construction risks,
the inherent uncertainty and costs associated with litigation, and 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 business of the Company and
its subsidiaries including, without limitation, the expansion, development
and acquisition projects, legal proceedings and employee matters of the
Company and its subsidiaries are included in the filings of the Company with
the Securities and Exchange Commission. 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

On April 26, 1994, a suit seeking status as a class action lawsuit
was filed by plaintiff, William H. Poulos, et al., as class representative,
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 District 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
States District Court for the District 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
parties have fully briefed the issues regarding class certification, which
are currently pending before the court. The discovery stay remains in effect
pending resolution of these issues. 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.

19
<PAGE>

ITEM 1. LEGAL PROCEEDINGS (CONTINUED)

On August 25, 1998, a hearing was held to determine whether this
lawsuit could be certified as a class action. The Court conditionally
certified a subclass of dealers in the table game department; the other
plaintiffs may proceed individually with their claims. The parties have
entered into a settlement agreement which has been submitted to the United
States District Court for the Eastern District of Missouri, Eastern Division,
to determine the fairness, reasonableness and adequacy of the terms of
settlement and whether an order and final judgment should be entered
approving the proposed settlement agreement.

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. The plaintiff also sought compensatory, special,
consequential, and incidental damages in unspecified amounts. On September 1,
1998, the United States District Court granted Kansas City Station
Corporation's motion to dismiss the lawsuit. On February 16, 1999, the
plaintiff served the defendants with a notice of appeal of the federal court
dismissal. On October 30, 1998, the plaintiff filed a similar lawsuit in the
Circuit Court of Cole County, Missouri. The lawsuit alleged that the
operators were conducting illegal games of chance prior to December 3, 1998,
the effective date of a Constitutional amendment passed by Missouri voters on
November 3, 1998, legalizing gaming facilities within 1,000 feet of the main
channel of the Mississippi and Missouri Rivers. On February 9, 1999, the Cole
County Circuit Court granted Kansas City Station Corporation's motion to
dismiss the lawsuit. On February 19, 1999, the plaintiff served the
defendants with a notice of appeal of the state court dismissal. Management
believes that the plaintiff's 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.

LOW WATER LEVEL AT STATION CASINO ST. CHARLES; EPA INVESTIGATION

During December 1998 and January 1999, the water level of the
Missouri River was well below normal. In addition, over time silt and debris
flowing downstream have built up under the gaming barges and other ancillary
barges at Station Casino St. Charles. These circumstances have caused a
portion of these barges, at times, to touch the river bottom. Because these
barges have touched the river bottom, the American Bureau of Shipping
decertified the barges on January 8, 1999. As a result of the
decertification, the Missouri Gaming Commission expressed concern regarding
the effect of the low water level on the barges. However, based upon recent
improvement in the water level and the Company's agreement to work with
American Bureau of Shipping to re-certify all of the barges at a time when
the river levels permit, the Missouri Gaming Commission has allowed the
gaming facility to remain open. The Company continues to monitor the
situation very carefully and believes that the facility should remain in
operation. However, there can be no assurance that the Company's assessment
will not change or that the relevant authorities will continue to permit the
operation of the facility. A prolonged closure of the facility as a result of
the low water level would have a material adverse effect on the Company's
business, financial position and results of operations.

The Company has taken steps and intends to take further steps to
remedy the problems caused by the low water level. These further steps
include dredging material from under the barges. The Company does not expect
the cost of these remedial activities to be material, although there can be
no assurance that such costs will not exceed the Company's expectations.
Dredging and construction activities generally require permits from the
United States Army Corps of Engineers. The Company has received certain
permits to continue dredging activities. The Company is in the process of
applying for additional permits which will allow it to dredge more
efficiently than the current permit. There can be no assurance that the
United States Army Corps of Engineers will grant such permits or that they
will be

20
<PAGE>

ITEM 1. LEGAL PROCEEDINGS (CONTINUED)

granted on a timely basis. In the event that low water levels return, the
Company could be forced to close the facility. The Company's ability to
receive the required permits could be adversely affected by the investigation
described below.

On February 3, 1999, the Company received a subpoena issued by the
EPA requesting that documentation relating to the Company's dredging
activities at the facility be furnished to the Grand Jury in the United
States District Court for the Eastern District of Missouri. Several employees
and persons who contracted to work for the Company received similar
subpoenas. The Company believes that the EPA is investigating allegations
that the Company or the Company's contractors dredged and disposed of silt
and debris from the area of the facility either without proper permits or
without complying with such permits. The Company has completed the
investigation of the substance of the allegations and continues to cooperate
fully with the EPA. The investigation could lead to further proceedings
against the Company which could result in significant fines and other
penalties imposed on the Company. Based on the results of the Company's own
investigation, the Company believes that any fines or other penalties, if
imposed, would not have a material adverse effect on the Company's business,
financial position or results of operations.

SETTLEMENT OF CRESCENT LITIGATION

CLASS ACTION/DERIVATIVE ACTION

<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

The Company's Annual Meeting of Stockholders was held May 24, 1999. At the
meeting Frank J. Fertitta III, Lorenzo J. Fertitta and Delise F. Sartini,
were re-elected to the Board of Directors to serve for a term of three years
until the 2002 Annual Meeting of Stockholders. The result of the stockholder
vote for each nominee was as follows:

IN FAVOR WITHHELD
---------- ----------
Frank J. Fertitta III 30,994,852 1,794,369
Lorenzo J. Fertitta 30,993,265 1,795,956
Delise F. Sartini 30,993,415 1,795,806

The stockholders ratified the appointment of Arthur Andersen LLP as the
Company's independent public accountants for the 1999 fiscal year with
32,699,191 shares in favor, 60,292 shares opposed and 29,738 shares abstained.

The Stockholders also approved the Company's stock compensation program, as
amended, to increase the maximum aggregate number of shares of the Company's
common stock subject to the Stock Compensation Program to 10,807,000 shares
and to remove the requirement of stockholder approval to materially increase
the benefits accruing to participants under the Nonemployee Director Stock
Option Plan with 20,504,545 shares in favor, 6,395,487 shares opposed, 35,059
shares abstained and 5,854,130 shares not voted.

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 - None.

<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 13, 1999 /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 JUNE 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 52,463
<SECURITIES> 0
<RECEIVABLES> 10,412
<ALLOWANCES> 0
<INVENTORY> 5,234
<CURRENT-ASSETS> 98,157
<PP&E> 1,376,517
<DEPRECIATION> 233,534
<TOTAL-ASSETS> 1,322,118
<CURRENT-LIABILITIES> 134,554
<BONDS> 542,048
0
0
<COMMON> 421
<OTHER-SE> 287,819
<TOTAL-LIABILITY-AND-EQUITY> 1,322,118
<SALES> 0
<TOTAL-REVENUES> 465,302
<CGS> 0
<TOTAL-COSTS> 244,550
<OTHER-EXPENSES> 36,016
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,385
<INCOME-PRETAX> 47,522
<INCOME-TAX> 17,814
<INCOME-CONTINUING> 29,708
<DISCONTINUED> 0
<EXTRAORDINARY> (10,350)
<CHANGES> 0
<NET-INCOME> 17,547
<EPS-BASIC> .48
<EPS-DILUTED> .45

</TABLE>