STATION CASINOS INC, 10-Q, 2000-08-14

STATION CASINOS INC
10-Q, 2000-08-14
MISCELLANEOUS AMUSEMENT & RECREATION

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[STATIONS CASINO LOGO]
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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, 2000

[ ] 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
incorporation or organization)
No.)

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 31, 2000
---------------------------- ----------------------------
Common stock, $.01 par value 60,219,463

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STATION CASINOS, INC.
INDEX

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
<TABLE>
<CAPTION>
<S> <C> <C>
Condensed Consolidated Balance Sheets (unaudited) -
June 30, 2000 and December 31, 1999 3

Condensed Consolidated Statements of Operations (unaudited) -
Three and six months ended June 30, 2000 and 1999 4

Condensed Consolidated Statements of Cash Flows (unaudited) -
Six months ended June 30, 2000 and 1999 5

Notes to Condensed Consolidated Financial Statements (unaudited) 6

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12

PART II. OTHER INFORMATION

Item 1. Legal Proceedings 23

Item 2. Changes in Securities 23

Item 3. Defaults Upon Senior Securities 23

Item 4. Submission of Matters to a Vote of Security Holders 23

Item 5. Other Information 23

Item 6. Exhibits and Reports on Form 8-K 23

Signature 25
</TABLE>

<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,
2000 1999
-------------------- --------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 57,103 $ 73,072
Accounts and notes receivable, net........................................... 10,385 12,346
Inventories ................................................................. 5,168 6,013
Prepaid gaming taxes......................................................... 12,145 10,035
Prepaid expenses............................................................. 7,024 8,219
Deferred income tax.......................................................... 10,119 10,519
-------------------- --------------------
Total current assets..................................................... 101,944 120,204

Property and equipment, net........................................................ 1,023,827 1,025,753
Land held for development.......................................................... 55,404 18,839
Deferred income tax, net........................................................... 13,553 21,823
Other assets, net.................................................................. 92,149 89,654
-------------------- --------------------
Total assets............................................................. $ 1,286,877 $ 1,276,273
==================== ====================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt............................................ $ 11,013 $ 8,647
Accounts payable............................................................. 11,466 11,998
Accrued payroll and related.................................................. 19,749 25,065
Construction contracts payable............................................... 692 750
Accrued interest payable..................................................... 13,145 12,341
Accrued progressives......................................................... 9,099 8,877
Accrued expenses and other current liabilities............................... 46,180 50,011
-------------------- --------------------
Total current liabilities................................................ 111,344 117,689

Long-term debt, less current portion............................................... 925,576 933,833
Other long-term liabilities, net................................................... 10,840 7,950
-------------------- --------------------
Total liabilities........................................................ 1,047,760 1,059,472
-------------------- --------------------

Commitments and contingencies

Temporary equity................................................................... 13,537 -

Stockholders' equity:
Common stock, par value $.01; authorized 135,000,000 shares;
63,756,743 and 63,683,999 shares issued................................... 425 424
Treasury stock, 3,268,110 and 1,167,494 shares, at cost...................... (37,900) (11,862)
Additional paid-in capital................................................... 272,949 282,294
Deferred compensation - restricted stock..................................... (7,048) (7,432)
Accumulated deficit.......................................................... (2,846) (45,907)
Accumulated other comprehensive income....................................... - (716)
-------------------- --------------------
Total stockholders' equity............................................... 225,580 216,801
-------------------- --------------------
Total liabilities and stockholders' equity............................... $ 1,286,877 $ 1,276,273
==================== ====================
</TABLE>

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

3
<PAGE>
STATION CASINOS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Operating revenues:
Casino................................................. $ 199,016 $ 190,724 $ 407,926 $ 376,848
Food and beverage...................................... 34,804 35,305 70,052 71,426
Room................................................... 11,474 10,399 23,139 21,143
Other.................................................. 16,187 15,687 32,302 30,087
--------------- --------------- --------------- ---------------
Gross revenues.................................... 261,481 252,115 533,419 499,504
Promotional allowances................................. (17,153) (16,744) (34,248) (34,202)
--------------- --------------- --------------- ---------------
Net revenues...................................... 244,328 235,371 499,171 465,302
--------------- --------------- --------------- ---------------

Operating costs and expenses:
Casino................................................. 92,399 87,715 185,517 176,803
Food and beverage...................................... 20,777 22,655 41,802 45,074
Room................................................... 4,076 4,012 7,990 7,867
Other.................................................. 9,003 7,818 17,688 14,806
Selling, general and administrative.................... 40,512 47,896 86,342 96,939
Corporate expense...................................... 6,275 5,644 14,186 10,469
Depreciation and amortization.......................... 16,212 18,079 32,266 36,016
--------------- --------------- --------------- ---------------
189,254 193,819 385,791 387,974
--------------- --------------- --------------- ---------------

Operating income............................................. 55,074 41,552 113,380 77,328
--------------- --------------- --------------- ---------------

Other income (expense):
Interest expense, net.................................. (22,319) (21,058) (44,726) (42,385)
Merger settlement, net of related legal costs.......... - 14,074 - 12,824
Other.................................................. (117) (43) (563) (245)
--------------- --------------- --------------- ---------------
(22,436) (7,027) (45,289) (29,806)
--------------- --------------- --------------- ---------------

Income before income taxes and extraordinary item............ 32,638 34,525 68,091 47,522
Income tax provision......................................... (11,913) (12,933) (25,030) (17,814)
--------------- --------------- --------------- ---------------
Income before extraordinary item............................. 20,725 21,592 43,061 29,708

Extraordinary item - loss on early retirement of debt, net of
applicable income tax benefit.......................... - - - (10,350)
--------------- --------------- --------------- ---------------
Net income................................................... 20,725 21,592 43,061 19,358
Preferred stock dividends.................................... - - - (1,811)
--------------- --------------- --------------- ---------------
Net income applicable to common stock........................ $ 20,725 $ 21,592 $ 43,061 $ 17,547
=============== =============== =============== ===============

Basic and diluted earnings per common share:
Earnings applicable to common stock, before
extraordinary item:
Basic.............................................. $ 0.34 $ 0.39 $ 0.71 $ 0.51
Diluted............................................ $ 0.33 $ 0.33 $ 0.68 $ 0.46
Earnings applicable to common stock:
Basic.............................................. $ 0.34 $ 0.39 $ 0.71 $ 0.32
Diluted............................................ $ 0.33 $ 0.33 $ 0.68 $ 0.30

Weighted average common shares outstanding:
Basic.............................................. 60,482 55,682 60,765 54,332
Diluted............................................ 63,742 64,822 63,552 64,227
</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,
2000 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................................................... $.43,061 $ 19,358
-------------- --------------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization................................................... 32,266 36,016
Amortization of debt discount and issuance costs................................ 1,304 1,371
Loss on early retirement of debt................................................ - 15,923
Changes in assets and liabilities:
Decrease in accounts and notes receivable, net................................ 1,961 7,960
Increase in inventories and prepaid expenses.................................. (434) (4,009)
Decrease in deferred income tax............................................... 8,670 2,312
Decrease in accounts payable.................................................. (532) (4,829)
(Decrease) increase in accrued expenses and other liabilities................. (5,231) 23,756
Other, net...................................................................... (1,326) (1,858)
-------------- --------------
Total adjustments..................................................... 36,678 76,642
-------------- --------------
Net cash provided by operating activities............................. 79,739 96,000
-------------- --------------

Cash flows from investing activities:
Capital expenditures............................................................ (31,540) (32,768)
Proceeds from sale of property and equipment.................................... 3,503 3,183
Land held for development....................................................... (36,051) -
Decrease in construction contracts payable...................................... (58) (3,789)
Other, net...................................................................... (3,261) (4,331)
-------------- --------------
Net cash used in investing activities................................. (67,407) (37,705)
-------------- --------------

Cash flows from financing activities:
Payments under bank facility, net............................................... (300) (54,000)
Principal payments on notes payable............................................. (5,870) (9,757)
Defeasance of 9 5/8% senior subordinated notes.................................. - (201,670)
Purchase of treasury stock...................................................... (26,038) -
Sale of put options............................................................. 2,348 -
Dividends paid on preferred stock............................................... - (1,811)
Exercise of stock options....................................................... 501 480
Other, net...................................................................... 1,058 (497)
-------------- --------------
Net cash used in financing activities................................. (28,301) (267,255)
-------------- --------------

Cash and cash equivalents:
Decrease in cash and cash equivalents........................................... (15,969) (208,960)
Balance, beginning of period.................................................... 73,072 261,423
-------------- --------------
Balance, end of period.......................................................... $ 57,103 $ 52,463
============== ==============

Supplemental cash flow disclosures:
Cash paid for interest, net of amounts capitalized.............................. $ 42,709 $ 43,128
Cash paid for income taxes...................................................... $ 9,250 $ 4,602
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 & Hotel ( "Wild Wild West
"). 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, 2000 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 December 31, 1999.

Certain amounts in the three and six months ended June 30, 1999 condensed
consolidated financial statements have been reclassified to be consistent with
the current year presentation. These reclassifications had no effect on the
previously reported net income.

6
<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,
2000 1999
----------- --------------
<S> <C> <C>
Amended and restated reducing revolving credit facility, $380.8 million
limit at June 30, 2000, due September 30, 2003, interest at a
margin above the bank's prime rate or the Eurodollar Rate (8.24%
at June 30, 2000)........................................................... $ 178,000 $ 177,300
Secured term loan facility, $199.0 million limit at June 30, 2000,
due December 31, 2005, interest at 2.50% above the Eurodollar
Rate (9.29% at June 30, 2000) .............................................. 199,000 200,000
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 $4.4
million at June 30, 2000.................................................... 145,548 145,326
10 1/8% senior subordinated notes, interest payable semi-annually,
principal due March 15, 2006, net of unamortized discount of $0.9
million at June 30, 2000.................................................... 197,144 197,087
Other long-term debt, collateralized by various assets, including slot
machines, furniture and equipment, and land, monthly installments
including interest ranging from 8.50% to 9.02% at June 30, 2000............. 16,997 22,867
------------ ------------
Total long-term debt................................................. 936,589 942,480
Current portion of long-term debt............................................... (11,013) (8,647)
------------ ------------
Total long-term debt, less current portion........................... $ 925,576 $ 933,833
============ ============
</TABLE>

In August 1999, the Company amended its existing bank credit facility (the
"Revolving Facility ") and entered into a new secured term loan facility (the
"Term Loan ") (collectively, "the Amended Bank Facility "). The Amended Bank
Facility is 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 "). The proceeds from the Term Loan
were used to repay the Company's existing $75.0 million secured term loan
facility and to reduce outstanding borrowings under the Company's Revolving
Facility. The Company recorded an extraordinary charge of $0.3 million (net of
applicable tax benefit) to reflect the write-off of the unamortized loan costs
on the refinanced $75.0 million secured term loan facility. See discussion below
regarding the termination of the Term Loan.

In March 2000, the Company exercised its right to increase the Revolving
Facility by $50.0 million. The Revolving Facility provides for borrowings up to
an aggregate principal amount of $380.8 million at June 30, 2000. The Revolving
Facility matures on September 30, 2003. The availability under the Revolving
Facility will reduce by $14.0 million on each of March 31, 2001 and June 30,
2001; by $17.5 million on each fiscal quarter end until and including September
30, 2002; by $30.6 million on each fiscal quarter end until and including June
30, 2003; and by $173.4 million on September 30, 2003. Borrowings under the
Revolving Facility bear interest at a margin above the Alternate Base Rate or
the Eurodollar Rate (each, as defined in the Revolving 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 Revolving
Facility). As of June 30, 2000, the Borrowers' margin above the Eurodollar Rate
on borrowings under the Revolving Facility was 1.50%. The maximum margin for
Eurodollar Rate borrowings is 2.75%. The maximum

7
<PAGE>

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

margin for Alternate Base Rate borrowings is 1.50%. As of June 30, 2000, the fee
for the unfunded portion of the Revolving Facility was 35 basis points.

The Revolving 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,
2000, the Borrowers combined funded debt to Adjusted EBITDA ratio was 1.38 to
1.00 and their combined fixed charge coverage ratio for the preceding four
quarters ended June 30, 2000 was 2.84 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, 2000, Palace Station's tangible net worth exceeded the
requirement by approximately $9.8 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 Revolving 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 4.75 to 1.00 on June 30, 2000 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 Revolving Facility also prohibits the Company from holding
excess cash and cash equivalents. As of June 30, 2000, the Company's
consolidated funded debt to Adjusted EBITDA ratio was 3.46 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).

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.

In July 2000, the Company completed an offering of $375.0 million of senior
subordinated notes due in July 2010, that have equal priority with the other
senior subordinated notes. The $375.0 million senior subordinated notes have a
coupon rate of 9 7/8% and were priced to yield 9.94% to maturity. The discount
on the $375.0 million senior subordinated notes will be recorded as a reduction
to long-term debt. Proceeds from the sale of the $375.0 million senior
subordinated notes were used to repay all amounts outstanding under our Term
Loan Agreement dated August 25, 1999 and terminate the Term Loan Agreement. The
remaining proceeds were used to reduce amounts outstanding under our Revolving
Facility.

3. EQUITY

On May 23, 2000, the Company announced a 3-for-2 stock split. The record
date for the stock split was June 30, 2000 and the distribution date was July
17, 2000. Cash was paid for any fractional

8
<PAGE>
STATION CASINOS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

shares. All share data has been adjusted retroactively in the accompanying
condensed consolidated financial statements for the 3-for-2 stock split.

Adjusted for the stock split, the Company is authorized to repurchase up to
approximately 9.5 million shares of its Common Stock. As of June 30, 2000, the
Company had purchased 3.3 million shares at a cost of $37.9 million.

During the quarter ended March 31, 2000, the Company sold put options,
adjusted for the stock split, on 2.2 million shares of its Common Stock. On
April 27, 2000, options on 1.1 million shares expired unexercised. The Company
has the option to settle in cash or shares of Common Stock. The proceeds from
the sale of the put options of $2.3 million have been recorded in additional
paid-in capital. As of June 30, 2000, the Company's potential obligation of
$13.5 million to buy back the remaining 1.1 million shares of its Common Stock
has been charged to additional paid-in capital and reflected as temporary equity
on the condensed consolidated balance sheet. On July 27, 2000, the remaining
options on 1.1 million shares were rolled into another option for 1.1 million
shares for which the Company received $1.5 million. This put option was
terminated on August 4, 2000 at a cost of $1.8 million.

In July 2000, the Company entered into an equity forward contract that
allows for shares of the Company's Common Stock to be purchased by a
financial institution and held on the Company's behalf. This contract expires
in January 2001 and can be settled in either net shares or cash. As of August
11, 2000, 3.2 million shares have been purchased under the contract for $44.2
million.

4. OTHER MATTERS

SANTA FE HOTEL & CASINO

On June 12, 2000, the Company entered into an asset purchase agreement
with Santa Fe Gaming Corporation and Santa Fe Hotel, Inc. for the purchase of
substantially all of the assets of the Santa Fe Hotel & Casino (the "Santa
Fe ") and an option to acquire an adjacent 21-acre parcel of real property
for an aggregate purchase price of $205.0 million. The Santa Fe is located at
the intersection of Interstate 95 and Rancho Road, approximately five miles
northwest of Texas Station. Situated on 38 acres, the Santa Fe currently
offers approximately 85,000 square feet of casino space featuring 1,675
gaming devices and 27 table games, 200 guest rooms, four full-service
restaurants, a buffet, several fast-food outlets, a 60-lane bowling center, a
regulation-sized ice skating arena, and 10,000 square feet of meeting and
banquet facilities. Upon completion of the transaction, the property will be
renamed "Santa Fe Station. "

In connection with the execution of the asset purchase agreement, the
Company agreed to make a $36.0 million secured loan to Pioneer Hotel, Inc.
("PHI"), a subsidiary of Santa Fe Gaming Corporation that is the owner and
operator of the Pioneer Hotel & Gambling Hall in Laughlin, Nevada. The amount
loaned to PHI will be credited against the purchase price of the Santa Fe.
This loan was funded on August 11, 2000. All amounts outstanding under the
loan to PHI will become due and payable on the earliest of the consummation
of the purchase of the assets of the Santa Fe, the date on which any
indebtedness of Santa Fe Hotel, Inc. or Santa Fe Gaming Corporation in excess
of $5 million is refinanced or September 28, 2001. The acquisition is subject
to the satisfaction of numerous conditions, including the receipt of all
necessary gaming and non-gaming regulatory approvals and is expected to close
in the fourth quarter of 2000.

GREEN VALLEY PROJECT

A 50/50 joint venture between the Company and GCR Gaming, LLC has
commenced construction of a new resort/casino in Henderson, Nevada.
Construction is expected to be completed in the fourth quarter of 2001. The
estimated construction cost of this project is approximately $300 million.
The project is expected to be funded with total equity contributions from the
partners of approximately $80 million and third party financing for the
remainder. If third party financing cannot be obtained or is insufficient to
fund the construction costs, the Company and GCR Gaming, LLC would be
obligated to contribute amounts necessary to finance the construction and
opening of the project.

9
<PAGE>

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

UNITED AUBURN INDIAN COMMUNITY

On October 12, 1999, the Company announced that it has entered into a
Development Services Agreement and a Management Agreement with the United Auburn
Indian Community (the "UAIC "). Subject to the receipt of certain governmental
approvals, as well as voter approval of a proposed amendment to the California
constitution, the Company and the UAIC intend to develop a gaming and
entertainment facility on 49 acres, approximately seven miles north of
Interstate 80, in Placer County, California, near Sacramento. Voter approval of
the proposed amendment to the California constitution was received in March
2000, however, there can be no assurances when or if the necessary government
approvals will be received. The scope and the timing of this project have yet to
be determined.

LAND HELD FOR DEVELOPMENT

The Company has leased, purchased or has options to purchase an additional
185 acres of land for development of three additional gaming sites in the Las
Vegas Valley. The Rhodes Ranch site consists of two parcels totaling 83 acres,
located at the intersection of Durango Road and the Southern Beltway/I-215
located in the southwest quadrant of Las Vegas. The Boulder/Tropicana site is a
68-acre site consisting of two parcels at the intersection of Boulder Highway
and Tropicana Avenue in eastern Las Vegas. The Company is leasing (with an
option to purchase) 34 acres of the site and has entered into an option to
purchase the adjacent 34-acre parcel. The Company paid $30.2 million for the
land mentioned above and will make combined lease and option payments of $1.6
million per year. The Company has no immediate plans to develop these sites.

On April 19, 2000, the Company announced that it had secured a gaming site
in North Las Vegas. The site is a 34-acre parcel near the intersection of Martin
Luther King Jr. Drive and Craig Road in North Las Vegas, Nevada. The Company has
entered into a long-term ground lease with an option to purchase the property.
The parcel is already entitled for gaming. As part of the transaction, the
Company also placed a deed restriction prohibiting casino gaming on an 18-acre
parcel, approximately 1.5 miles east of this site, that was previously entitled
for gaming. The Company is currently evaluating the size, scope and timing of
this project. In order to maintain its gaming entitlements, the Company would be
required to complete the facility prior to the end of 2002.

LAZAROFF INVESTIGATION

On June 28, 2000, the Company learned that the Missouri Gaming
Commission will hold a public fact finding hearing on August 30, 2000 in
Kansas City, Missouri. The decision was announced at an unrelated meeting of
the Missouri Gaming Commission held on June 28, 2000. At the August hearing,
the Missouri Gaming Commission is expected to take testimony relating to
certain bonus payments the Company made between 1994 and 1996 to Michael
Lazaroff, an outside attorney who worked on certain legal matters for the
Company in Missouri. Since late 1999, offices of the United States Attorney
in Missouri and the Missouri Gaming Commission have been conducting
investigations regarding the actions of Lazaroff, including, among other
things, his receipt of the bonus payments from the Company. The Company has
received requests for information from these agencies and is cooperating
fully. Lazaroff recently pled guilty to three felony counts, including (1)
defrauding his law firm by failing to disclose the bonus payments to the law
firm, (2) defrauding clients of the law firm, which included the Company, by
charging them for false expenses and (3) causing false statements to be made
to the Federal Elections Commission concerning the identity of persons at his
law firm making political campaign contributions. In connection with his plea
agreement, Lazaroff agreed to cooperate with the federal and state agencies,
including the Missouri Gaming Commission.

10
<PAGE>
STATION CASINOS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

In connection with the ongoing investigations related to certain bonus
payments made between 1994 and 1996 to Lazaroff, Frank J. Fertitta III, chairman
and chief executive officer, and Glenn C. Christenson, executive vice president
and chief financial officer, recently received subpoenas to testify before a
federal grand jury in the western district of Missouri. No date for the
testimony is presently scheduled.

On July 7, 2000, the board of directors of the Company established a
special committee of independent members of the board to monitor the ongoing
Missouri investigations of matters relating to Michael Lazaroff. Based on
management's internal review, the Company is unaware of any improprieties on
its part. However, due to the uncertainty inherent in any investigation, the
Company cannot predict the ultimate outcome of these investigations. If the
aforementioned investigations were to implicate the Company or its senior
executives in any wrongdoing, this could lead to further proceedings against
the Company or its executives. This could result in fines and other penalties
being imposed on the Company or its executives, restrict the Company's and
its executives ' ability to hold gaming licenses or otherwise materially
adversely affect the Company's business, financial condition and results of
operations.

5. SUBSEQUENT EVENTS

FIESTA CASINO HOTEL

On July 20, 2000, the Company announced that it had entered into an
asset purchase agreement with Fiesta Hotel Corporation ( "Fiesta "), a
subsidiary of Joe G. Maloof & Company, Inc. ( "Maloof ") for the purchase of
substantially all of the assets of the Fiesta Casino Hotel for a purchase
price of $185.0 million, which includes a non-compete agreement with Maloof,
Fiesta, and certain members of the Maloof family. The non-compete agreement
extends for a 25-mile radius from the Fiesta and excludes the property owned
by Maloof on Flamingo Road and Arville Street in Las Vegas, the Las Vegas
Strip and downtown Las Vegas. The Fiesta Casino Hotel is located at the
intersection of Lake Mead Boulevard and Rancho Road in North Las Vegas, near
Texas Station. Situated on 25 acres, the Fiesta currently offers
approximately 70,000 square feet of casino space featuring 1,900 gaming
devices and 30 table games, 100 guest rooms, four full-service restaurants, a
buffet, several fast-food outlets, bingo, and a race and sports book. Upon
completion of the transaction, the property will retain the Fiesta name and
theme. The acquisition is subject to the satisfaction of numerous conditions,
including the receipt of all necessary gaming and non-gaming regulatory
approvals and is expected to close by January 31, 2001.

SALE OF MISSOURI PROPERTIES

On July 20, 2000, the Company also announced that it has entered into a
definitive agreement to sell its Missouri properties, Station Casino St.
Charles and Station Casino Kansas City, to a management group led by John
Finamore, president of the Company's Midwest operations, and William W.
Warner, the Company's vice president of finance. The purchase price for the
Missouri assets is $475 million. This transaction is subject to certain
customary contingencies, including the purchaser's receipt of regulatory
approvals and financing and is expected to close by January 31, 2001.

11
<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
2000 1999 CHANGE 2000 1999 CHANGE
----------- ----------- ---------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues - total $244,328 $235,371 3.8% $499,171 $465,302 7.3%
Nevada Operations (a) 152,245 147,278 3.4% 312,516 288,467 8.3%
Missouri Operations (a) 80,087 77,017 4.0% 162,564 155,373 4.6%
Other (a) 11,996 11,076 8.3% 24,091 21,462 12.2%

Operating income (loss) - total $55,074 $41,552 32.5% $113,380 $77,328 46.6%
Nevada Operations (a) 43,084 37,162 15.9% 90,987 69,640 30.7%
Missouri Operations (a) 17,341 9,780 77.3% 34,407 17,736 94.0%
Other (a) (5,351) (5,390) 0.7% (12,014) (10,048) (19.6%)

Operating margin - total 22.5% 17.7% 22.7% 16.6%
Nevada Operations (a) 28.3% 25.2% 29.1% 24.1%
Missouri Operations (a) 21.7% 12.7% 21.2% 11.4%

Cash flows from:
Operating activities $33,812 $58,360 (42.1%) $79,739 $96,000 (16.9%)

EBITDA (b) - total $71,286 $59,631 19.5% $145,646 $113,344 28.5%
Nevada Operations (a) 53,222 47,171 12.8% 111,175 89,184 24.7%
Missouri Operations (a) 22,628 17,189 31.6% 44,864 32,872 36.5%
Other (a) (4,564) (4,729) 3.5% (10,393) (8,712) (19.3%)

EBITDA, as adjusted for the
Sunset equipment lease (c) - total $71,286 $61,590 15.7% $145,646 $117,288 24.2%
Nevada Operations (a) 53,222 49,130 8.3% 111,175 93,128 19.4%
</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, the Company's investment
in Barley's, Southwest Gaming and Corporate expense.

(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.

12
<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, 2000 as compared to the three months ended June 30, 1999 is due to
increasing revenues at all of the Company's properties. Revenues at the Nevada
Operations rose due to an increase in gaming revenues at each of the properties.
The gaming revenue growth reflects the impact of the overall Las Vegas market.
Net revenues at the Missouri Operations increased 4.0%, which is primarily
attributed to a 6.0.% increase in gaming revenues at Station Casino Kansas City.
Station Casino Kansas City's gaming revenue reflects the impact of growth of the
overall market in Kansas City.

The increase in consolidated net revenues for the six months ended June 30,
2000 as compared to the six months ended June 30, 1999 is partially a result of
the completed master-planned expansion at Texas Station, which was completed in
February 1999, in addition to the introduction of the Boarding Pass player
rewards program in April 1999, which makes it more convenient for customers to
redeem points earned from gaming activity at any of the Nevada Operations.

OPERATING INCOME/OPERATING MARGIN

Consolidated operating income improved by $13.5 million in the three
months ended June 30, 2000 as compared to the three months ended June 30,
1999, with operating income at all of the Company's properties increasing
with the exception of Texas Station. The increases at the Nevada Operations
are attributed to the same factors affecting consolidated net revenues
discussed above and due to a reduction in operating costs primarily in the
food and beverage and general and administrative departments. The increases
at the Missouri Operations are primarily due to significant improvement in
operations at both Station Casino St. Charles and Station Casino Kansas City.
Operating income at Station Casino St. Charles increased significantly due to
a reconfiguration of the gaming operations which transferred all gaming
activities from the riverboat to the barge. The new configuration is much
more efficient from a cost perspective than the two facility layout.

Consolidated operating margin improved in the three months ended June 30,
2000 as compared to the three months ended June 30, 1999, due to the operating
margin at the Missouri Operations improving 9.0 percentage points as a result of
the elimination of costs associated with the riverboat and the Nevada Operations
improving 3.1 percentage points.

Consolidated operating income improved by $36.1 million in the six months
ended June 30, 2000 as compared to the six months ended June 30, 1999, with
operating income at all of the Company's properties increasing by at least 20%.
In addition to the factors noted above, operating income at Station Casino St.
Charles increased significantly due to a reduction of costs related to ongoing
dredging requirements and costs related to low-water levels from $2.4 million in
the prior year to $0.6 million in the current year.

Consolidated operating margin improved in the six months ended June 30,
2000 as compared to the six months ended June 30, 1999, due to the operating
margin at the Missouri Operations improving 9.8 percentage points as a result
of the elimination of costs associated with the riverboat in St. Charles, as
discussed above, and the Nevada Operations improving 5.0 percentage points.

13
<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 the prior periods (dollars in thousands,
unaudited):

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ PERCENT ------------------------ PERCENT
2000 1999 CHANGE 2000 1999 CHANGE
----------- ----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Casino revenues $199,016 $190,724 4.3% $407,926 $376,848 8.2%
Casino expenses 92,399 87,715 5.3% 185,517 176,803 4.9%
MARGIN 53.6% 54.0% 54.5% 53.1%

Food and beverage revenues $34,804 $35,305 (1.4%) $70,052 $71,426 (1.9%)
Food and beverage expenses 20,777 22,655 (8.3%) 41,802 45,074 (7.3%)
MARGIN 40.3% 35.8% 40.3% 36.9%

Room revenues $11,474 $10,399 10.3% $23,139 $21,143 9.4%
Room expenses 4,076 4,012 1.6% 7,990 7,867 1.6%
MARGIN 64.5% 61.4% 65.5% 62.8%

Other revenues $16,187 $15,687 3.2% $32,302 $30,087 7.4%

Selling, general and administrative $40,512 $47,896 (15.4%) $86,342 $96,939 (10.9%)
PERCENT OF NET REVENUES 16.6% 20.3% 17.3% 20.8%

Corporate expense $ 6,275 $ 5,644 11.2% $14,186 $10,469 35.5%
PERCENT OF NET REVENUES 2.6% 2.4% 2.8% 2.2%
</TABLE>

CASINO. Casino revenues increased for the three months ended June 30, 2000
as compared to the three months ended June 30, 1999 as a result of the same
factors affecting consolidated net revenues discussed above. The casino profit
margin remained consistent for the three months ended June 30, 2000 as compared
to the three months ended June 30, 1999 despite an increase in slot marketing
expenses at Boulder Station and Texas Station.

Casino revenues increased for the six months ended June 30, 2000 as
compared to the six months ended June 30, 1999 as a result of the same factors
affecting consolidated net revenues discussed above. The casino profit margin
increased to 54.5% in the six months ended June 30, 2000 from 53.1% in the six
months ended June 30, 1999.

FOOD AND BEVERAGE. Food and beverage revenues for the three months ended
June 30, 2000 decreased 1.4% as compared to food and beverage revenues for
the three months ended June 30, 1999. Food and beverage revenues for the
three months ended June 30, 2000, at the Nevada Operations remained
consistent with prior year while the Missouri Operations experienced a 9%
decrease primarily due to an overall reduction of complimentaries at Station
Casino St. Charles.

Food and beverage net profit margins increased to 40.3% for the three
months ended June 30, 2000 from 35.8% in the three months ended June 30, 1999.
This increase in margin is due to improvement at the Nevada Operations,
primarily as a result of continued focus on cost control, purchasing
efficiencies, as well as selected menu price increases. The increase in margin
at the Nevada Operations was offset by a decrease at Station Casino St. Charles.

Food and beverage revenues for the six months ended June 30, 2000
decreased 1.9% as compared to food and beverage revenues for the six months
ended June 30, 1999. At the Nevada Operations, food and beverage revenues
remained consistent with prior year while the Missouri Operations experienced
a 10.2% decrease primarily due to a decrease in food covers at both
properties and to the construction disruption caused by the casino
reconfiguration at Station Casino St. Charles.

14
<PAGE>

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

ROOM. Room revenues for the three months ended June 30, 2000 increased
10.3% over room revenues for the three months ended June 30, 1999. The increase
in room revenues is primarily due to the average daily room rates at Palace
Station and Wild Wild West increasing 16.7% and 19.4%, respectively over prior
year and smaller increases at the other Nevada properties. At Palace Station the
room rates for all market segments were increased. The increase at the Nevada
properties was partially offset by a decrease in the average daily room rate at
Station Casino Kansas City to $108 in the three months ended June 30, 2000 from
$110 in the three months ended June 30, 1999 due to new lower rate competition
that entered the market during 1999. The Company-wide average daily room rate
increased to $57 in the three months ended June 30, 2000 as compared to $53 in
the three months ended June 30, 1999.

The Company-wide room occupancy increased to 91% in the three months ended
June 30, 2000 as compared to 90% in the three months ended June 30, 1999
primarily due to Station Casino Kansas City.

Room revenues for the six months ended June 30, 2000 increased 9.4% over
room revenues for the six months ended June 30, 1999. The increase in room
revenues is primarily due to the average daily room rates at Palace Station and
Wild Wild West increasing 18.6% and 18.8%, respectively over prior year and
smaller increases at the other Nevada properties. At Palace Station the room
rates for all market segments were increased. The increase at the Nevada
properties was offset by a decrease in the average daily room rate at Station
Casino Kansas City to $105 in the six months ended June 30, 2000 from $110 in
the six months ended June 30, 1999 due to new lower rate competition that
entered the market during 1999.

The Company-wide room occupancy decreased to 89% in the six months ended
June 30, 2000 as compared to 90% in the six months ended June 30, 1999 due to
the Company increasing room rates at the Nevada properties.

SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). As a percent of net
revenues, SG&A decreased to 16.6% in the three months ended June 30, 2000, as
compared to 20.3% for the three months ended June 30, 1999. This decrease is
due primarily to the continuing operating efficiencies 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. Also, due to the fixed cost nature of
some of these expenses, they decrease on a percentage basis as the Company
continues to increase revenue.

As a percent of net revenues, SG&A decreased to 17.3% in the six months
ended June 30, 2000 as compared to 20.8% in the six months ended June 30, 1999.
In addition to the factors noted above, as a percent of revenues, SG&A at
Station Casino St. Charles decreased significantly due to the reduction of costs
related to ongoing dredging requirements and costs related to low-water levels
from $2.4 million in the prior year to $0.6 million in the current year.

CORPORATE EXPENSE. Corporate expense as a percent of net revenues increased
to 2.6% in the three months ended June 30, 2000 as compared to 2.4% in the three
months ended June 30, 1999 and to 2.8% in the six months ended June 30, 2000 as
compared to 2.2% in the six months ended June 30, 1999. The Company has
increased its corporate infrastructure and spending on Information Technology
and Human Resources as it continues to lay the foundation for future growth.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased
10.3% in the three months ended June 30, 2000 to $16.2 million as compared to
$18.1 million in the three months ended June 30, 1999. Depreciation and
amortization decreased 10.4% in the six months ended June 30, 2000 to $32.3
million as compared to $36.0 million in the six months ended June 30, 1999. This
decrease is primarily due to the write down of assets at Station Casino St.
Charles in the fourth quarter of 1999 and a portion of the original equipment at
Boulder Station and Station Casino Kansas City became fully

15
<PAGE>

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

depreciated in fiscal 1999 and January 2000, respectively. This decrease was
offset by an increase at Sunset Station due to the purchase of various equipment
leases in October 1999.

INTEREST EXPENSE. Interest costs incurred (expensed and capitalized)
increased 7.6% to $22.7 million for the three months ended June 30, 2000, from
$21.1 million in the prior year. Interest costs incurred (expensed and
capitalized) increased 5.6% to $45.4 million for the six months ended June 30,
2000, from $43.0 million in the prior year. This increase is due to an increase
of $40.4 million in total long-term debt from 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.

In April, 1999, the Company received a $15.0 million settlement payment
from Crescent Real Estate Equities, Inc., which is included in the "Merger
settlement, net of related legal costs " line in the accompanying condensed
consolidated statements of operations.

3. LIQUIDITY AND CAPITAL RESOURCES

During the six months ended June 30, 2000, the Company generated cash flows
from operating activities of $79.7 million. At June 30, 2000, the Company had
total available borrowings of $579.8 million under the Amended Bank Facility, of
which $377.0 million was directly outstanding and $4.8 million was reserved for
the potential payment of an outstanding letter of credit. Total available
borrowings will reduce each quarter in accordance with the terms of the Amended
Bank Facility (see "Description of Certain Indebtedness and Capital
Stock-Amended Bank Facility "). The Company also had $57.1 million in cash and
cash equivalents.

During the six months ended June 30, 2000, total capital expenditures were
approximately $31.5 million, of which approximately (i) $8.0 million was
associated with the expansion project at Texas Station, (ii) $3.0 million was
associated with the reconfiguration of the Station Casino St. Charles facility
to a more efficient layout, (iii) $2.9 million was associated with the hotel
room remodels at Palace Station and Boulder Station, and (iv) $17.6 million was
associated with maintenance capital expenditures and various other projects.

The Company's primary capital requirements during the remainder of 2000
are expected to include (i) purchase and costs of capital improvements of
Santa Fe Hotel & Casino expected to cost approximately $215 to $220 million
in the aggregate, (ii) the remaining costs of the expansion project at Texas
Station, estimated to cost approximately $63 million, (iii) equity
contributions to the proposed Green Valley Ranch project expected to be
approximately $40 million, (iv) strategic land purchases throughout the Las
Vegas area, (v) opportunistic repurchases of the Company's common stock, (vi)
maintenance capital expenditures, and (vii) principal and interest payments
on indebtedness.

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 2000 and 2001. The Company, however,
continually is evaluating its financing needs. If more attractive financing
alternatives or expansion, development or acquisition opportunities 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.

16
<PAGE>

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

ACQUISITIONS AND FUTURE DEVELOPMENT

FIESTA CASINO HOTEL

SANTA FE HOTEL & CASINO

GREEN VALLEY PROJECT

17
<PAGE>

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

UNITED AUBURN INDIAN COMMUNITY

LAND HELD FOR DEVELOPMENT

The Company's capital requirements in 2000 could also include amounts
necessary to fund the proposed development of the project with the United Auburn
Indian Community to the extent development of such project is commenced in 2000.
In addition, the Company has in the past, and may in the future, make
acquisitions and enter into joint ventures on an opportunistic basis. While the
Company has not entered into any agreement with respect to any such future
acquisition or joint venture other than as disclosed in this report, the
Company's capital requirements in 2000 may include amounts necessary to permit
the Company to pursue such expansion activities.

SALE OF MISSOURI PROPERTIES

On July 20, 2000, the Company also announced that it has entered into a
definitive agreement to sell its Missouri properties, Station Casino St. Charles
and Station Casino Kansas City, to a management group led by John Finamore,
president of the Company's Midwest operations and William W. Warner, the
Company's vice president of finance. The purchase price for the Missouri assets
is $475 million. This transaction is subject to certain customary contingencies,
including the purchaser's receipt of regulatory approvals and financing and is
expected to close by January 31, 2001.

18
<PAGE>

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

DESCRIPTION OF CERTAIN INDEBTEDNESS AND CAPITAL STOCK

AMENDED BANK FACILITY

19
<PAGE>

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

SENIOR SUBORDINATED NOTES

The Company had $542.6 million, net of unamortized discount of $5.3
million, of senior subordinated notes outstanding as of June 30, 2000, $198.0
million of these notes bear interest, payable semi-annually, at a rate of
10 1/8% per year, $150.0 million of these notes bear interest, payable
semi-annually, at a rate of 9 3/4% per year and $199.9 million of these 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, 2000, the Company's Consolidated Coverage Ratio
(as defined) was 1.66 to 1.00. The Indentures provide that the Company may
not incur additional indebtedness, other than specified types of
indebtedness, unless the Consolidated Coverage Ratio is at least 2.00 to
1.00. As a result, the covenant limits the Company's ability to incur
additional indebtedness for borrowings under the Amended 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, plus $15 million. The limitation
on the incurrence of additional indebtedness and dividend restrictions in the
Indentures significantly restrict the Company's ability to pay dividends on
its capital stock. On August 10, 2000, the Company completed a consent
solicitation with the holders of the Notes to exclude the write down of
assets at Station Casino St. Charles in December 1999 from the definition of
consolidated net income. As a result of the consent, the Consolidated
Coverage Ratio would have been 3.00 to 1.00 as of June 30, 2000 on a pro
forma basis. 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.

COMMON STOCK

On May 23, 2000, the Company announced a 3-for-2 stock split. The record
date for the stock split was June 30, 2000 and the distribution date was July
17, 2000. Cash was paid for any fractional shares. All share data has been
adjusted retroactively in the accompanying condensed consolidated financial
statements for the 3-for-2 stock split.

Adjusted for the stock split, the Company is authorized to issue up to
135,000,000 shares of its common stock, $0.01 par value per share (the "Common
Stock"), 63,756,743 shares of which were issued and 3,268,110 shares were held
in treasury as of June 30, 2000. 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.

20
<PAGE>

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

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 right to
receive upon exercise that number of shares of Common Stock 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.

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,
adjusted for the stock split, the Company redeemed all 2,070,000 shares of its
$3.50 Convertible Preferred Stock in exchange for 10,112,448 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.

TREASURY STOCK

21
<PAGE>

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

PUT OPTIONS

During the quarter ended March 31, 2000, the Company sold put options,
adjusted for the stock split, on 2.2 million shares of its Common Stock. On
April 27, 2000, options on 1.1 million shares expired unexercised. The Company
has the option to settle in cash or shares of Common Stock. The proceeds from
the sale of the put options of $2.3 million have been recorded in additional
paid-in capital. As of June 30, 2000, the Company's potential obligation of
$13.5 million to buy back the remaining 1.1 million shares of its Common Stock
has been charged to additional paid-in capital and reflected as temporary equity
on the condensed consolidated balance sheet. On July 27, 2000, the remaining
options on 1.1 million shares were rolled into another put option for 1.1
million shares for which the Company received $1.5 million. This put option was
terminated on August 4, 2000 at a cost of $1.8 million.

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, factors affecting the Company's ability to complete
acquisitions and dispositions of gaming properties, leverage, construction
risks, the inherent uncertainty and costs associated with litigation and
governmental and regulatory investigations, 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.

22
<PAGE>

Part II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS - No developments with respect to previously reported
legal proceedings.

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 on May 23, 2000. At the
meeting R. Hal Dean and Lowell H. Lebermann, Jr. were re-elected to the Board of
Directors to serve for a term of three years until the 2003 Annual Meeting of
Stockholders. The result of the stockholder vote for each nominee was as
follows:

<TABLE>
<CAPTION>
In Favor Withheld
-------- --------

<S> <C> <C>
R. Hal Dean 35,683,638 548,902
Lowell H. Lebermann, Jr. 35,686,049 546,491
</TABLE>

In addition to the directors elected above, the following directors continued in
office as follows: Frank J. Fertitta, III, Glenn C. Christenson, Blake L.
Sartini, Lorenzo J. Fertitta, Richard J. Heckmann and Delise F. Sartini.

The stockholders ratified the appointment of Arthur Andersen LLP as the
Company's independent public accountants for the 2000 fiscal year with
36,021,209 shares in favor, 17,919 shares opposed and 193,412 shares abstained.

The stockholders also approved the Company's Senior Executive Annual Bonus Plan
with 32,139,776 shares in favor, 966,462 shares opposed, 212,476 shares
abstained and 2,913,826 shares not voted.

ITEM 5. OTHER INFORMATION - None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits -

Exhibit
Number

2.1 Purchase agreement with Santa Fe Gaming Corp. and Santa Fe Hotel, Inc.
dated June 12, 2000.

4.1 Amendment No. 3 to Third Amended and Restated Reducing Revolving Loan
Agreement dated as of June 2, 2000.

4.2 Amendment No. 4 to Third Amended and Restated Reducing Revolving Loan
Agreement dated as of June 28, 2000.

27 Financial Data Schedule

(b) Reports on Form 8-K -

On June 19, 2000, the Company filed a current report on Form 8-K dated June 12,
2000. The Company reported under Item 5 that it had entered into an asset
purchase agreement with Santa Fe Gaming Corp. and Santa Fe Hotel, Inc. for the
purchase of substantially all of the assets of the Santa Fe Hotel & Casino and
an option to acquire an adjacent 21-acre parcel of real property for

23
<PAGE>

an aggregate purchase price of $205 million. In connection with the execution of
the asset purchase agreement, the Company has agreed to make a $36 million
secured loan to Pioneer Hotel Inc., a subsidiary of Santa Fe Gaming Corp. which
is the owner and operator of the Pioneer Hotel & Gambling Hall in Laughlin,
Nevada, subject to receipt of certain consents and approvals, including
bankruptcy court approval. The acquisition is subject to the satisfaction of
certain conditions, including receipt of necessary approvals of the Nevada
Gaming Commission.

On June 29, 2000, the Company filed a current report on Form 8-K dated June 28,
2000. The Company reported under Item 5 that the Missouri Gaming Commission will
hold a public fact finding hearing on August 30, 2000 in Kansas City, Missouri.
At the August hearing, the Gaming Commission is expected to take testimony
relating to certain bonus payments the Company made between 1994 and 1996 to
Michael Lazaroff, an outside attorney who worked on certain legal matters for
the Company in Missouri.

On July 6, 2000, the Company filed a current report on Form 8-K dated June
29, 2000. The Company reported under Item 5 the sale of $375 million of 9
7/8% senior subordinated notes due July 2010 which were priced to yield
9.9375%. Proceeds from the sale of the notes will be used to repay amounts
outstanding under the Company's revolving credit facility and term loan.

On July 21, 2000, the Company filed a current report on Form 8-K dated July 19,
2000. The Company reported under Item 5 the results of its operations for the
second quarter of 2000, the acquisition of the Fiesta Casino Hotel in North Las
Vegas, Nevada for $185 million, the sale of the Missouri assets for $475 million
and that it has commenced the solicitation of consents from holders of record as
of July 19, 2000 of the Company's 8 7/8% senior subordinated notes due 2008, 9
3/4% senior subordinated notes due 2007 and 10 1/8% senior subordinated notes
due 2006.

24
<PAGE>

SIGNATURE

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

Station Casinos, Inc.,
Registrant

DATE: August 14, 2000 /s/ Glenn C. Christenson
------------------------
Glenn C. Christenson,
Executive Vice President,
Chief Financial Officer, and
Chief Administrative Officer
(Principal Accounting Officer)