**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

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FORM 10-K

**(Mark One)**

**x**                              ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**forthe fiscal year ended December 31, 2004**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**forthe transition period from ____________ to ____________.**

**Commissionfile number 000-21640**

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STATION CASINOS, INC.

(Exact name of registrantas specified in its charter)
| **Nevada**                                                       | **88-0136443**                        |
|------------------------------------------------------------------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) | (I.R.S. Employer  Identification No.) |
| **2411 West Sahara Avenue, Las Vegas, Nevada 89102**             |
| (Address of principal  executive offices, Zip Code)              |

 

Registrant’s telephonenumber, including area code: (702) 367-2411

Securities registeredpursuant to Section 12(b) of the Act:
| ** ** | Title of each class  Common Stock, $0.01 Par Value | ** ** | ** ** | **Name of each exchange on which registered  New York Stock Exchange** | ** ** |
|------------|----------------------------------------------------|------------|------------|------------------------------------------------------------------------|------------|

 

Securities registeredpursuant to Section 12(g) of the Act: None

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Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes x  No o

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K isnot contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated by referencein Part III of this Form 10-K or any amendment to the Form 10-K.  ̈

Indicate by check markwhether the registrant is an accelerated filer. Yes x  No o

The aggregate market valueof the voting stock held by non-affiliates (all persons other than executiveofficers or directors) of the registrant as of June 30, 2004, based on theclosing price per share of $48.40 as reported on the New York Stock Exchangewas $2,189,693,972.

As of February 28,2005, the registrant has 67,539,235 shares of common stock outstanding.

**DocumentsIncorporated by Reference**

Portionsof the Proxy Statement for the Registrant’s 2005 Annual Meeting of Stockholdersto be held May 18, 2005 (which has not been made publicly available as ofthe date of this filing) are incorporated by reference into Part III.

 

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**PART I**

**ITEM 1. BUSINESS**

Unless the contextindicates otherwise, all references to the “Company” refer to Station Casinos, Inc.and all references to “Station”, “we”, “our”, “ours” and “us” refer to StationCasinos, Inc. and its consolidated subsidiaries.

**Forward-lookingStatements**

When used in this reportand elsewhere by management from time to time, the words “believes”, “anticipates”and “expects” and similar expressions are intended to identify forward-lookingstatements with respect to our financial condition, results of operations andour business including our expansion, development and acquisition projects,legal proceedings and employee matters. Certain important factors, includingbut not limited to, financial market risks, could cause our actual results todiffer materially from those expressed in our forward-looking statements.Further information on potential factors which could affect our financialcondition, results of operations and business including, without limitation,the ability to maintain existing management, integration of acquisitions,competition within the gaming industry, the cyclical nature of the hotelbusiness and gaming business, economic conditions, development and constructionrisks, regulatory matters and litigation are included in our filings with theSecurities and Exchange Commission. Readers are cautioned not to place unduereliance on any forward-looking statements, which speak only as of thedate thereof. We undertake no obligation to publicly release any revisions tosuch forward-looking statements to reflect events or circumstances afterthe date hereof.

**General**

We are a gaming and entertainment company thatcurrently owns and operates eight major hotel/casino properties (one of whichis 50% owned) and five smaller casino properties (one of which is 50% owned),in the Las Vegas metropolitan area, as well as manages a casino for a NativeAmerican tribe. We are developing a ninth major hotel/casino property known asRed Rock Resort Spa and Casino that we expect to open in the first quarter of2006. Our growth strategy includes the master-planned expansion of ourexisting gaming facilities in Nevada, the development of gaming facilities oncertain real estate we own in the Las Vegas valley, the evaluation and pursuit ofadditional acquisition or development opportunities in Nevada and other gamingmarkets and the pursuit of additional management agreements with NativeAmerican tribes.

We own and operate PalaceStation Hotel & Casino (“Palace Station”), Boulder Station Hotel &Casino (“Boulder Station”), Texas Station Gambling Hall & Hotel (“TexasStation”), Sunset Station Hotel & Casino (“Sunset Station”), Santa FeStation Hotel & Casino (“Santa Fe Station”), Fiesta Rancho CasinoHotel (“Fiesta Rancho”), Fiesta Henderson Casino Hotel (“Fiesta Henderson”),Wild Wild West Gambling Hall & Hotel (“Wild Wild West”), WildfireCasino (“Wildfire”), Magic Star Casino (“Magic Star”) and Gold Rush Casino (“GoldRush”). We also own a 50% interest in Green Valley Ranch Station Casino (“GreenValley Ranch Station”) and Barley’s Casino & Brewing Company (“Barley’s”).Each of our casinos caters primarily to local Las Vegas area residents. Wemarket the six “Station” casinos (including Green Valley Ranch Station)together under the Station Casinos’ brand and the two “Fiesta” casinos underthe Fiesta brand, offering convenience and choices to residents throughout theLas Vegas valley with our strategically located properties. In addition, wemanage Thunder Valley Casino (“Thunder Valley”) in Sacramento, California onbehalf of the United Auburn Indian Community (“UAIC”).

**Operating Strategy**

We believe that thefollowing key principles have been integral to our success as a gaming operatorand we intend to continue to employ these strategies at each of our properties.

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*Targeted Customer Base*

Our operating strategyemphasizes attracting and retaining customers primarily from the local andrepeat visitor markets. Our casino properties attract customers throughinnovative, frequent and high-profile promotional programs directedtowards the local market, focused marketing efforts and convenient locations,aggressive marketing to the repeat visitor market and the development of strongrelationships with specifically targeted travel wholesalers. Although perceivedvalue initially attracts a customer to our casino properties, actual valuegenerates customer satisfaction and loyalty. We believe that actual valuebecomes apparent during the customer’s visit through an enjoyable, affordableand high-quality entertainment experience. Las Vegas, which is and hasbeen one of the fastest growing cities in the United States, is characterizedby a historically strong economy and demographics, which include an increasingnumber of retirees and other active gaming customers. We believe that ourout-of-town patrons are also discerning customers who enjoy our value-oriented,high-quality approach. We believe that our patrons view our hotel and casinoproduct as a preferable alternative to attractions located on the Las VegasStrip and downtown Las Vegas. In markets outside of Las Vegas we believecustomers come from farther distances, a radius in some cases more than 150miles; however, the business model for local customers remains the same.

*Provide a High-Value Experience*

Because we target the repeat customer, we arecommitted to providing a high-value entertainment experience for our customersin our restaurants, hotels, casinos and other entertainment amenities. Wedevelop regional entertainment destinations for locals that include otheramenities such as movie theaters, bowling centers, ice skating, liveentertainment venues and child care facilities. In addition, we believe thevalue offered by restaurants at each of our casino properties is a major factorin attracting local gaming customers, as dining is a primary motivation forcasino visits by many locals. Through their restaurants, each of which has adistinct style of cuisine, our casino properties offer generous portions ofhigh-quality food at reasonable prices. In addition, our operating strategyfocuses on slot and video poker machine play. Our target market consists offrequent gaming patrons who seek not only a friendly atmosphere andconvenience, but also higher than average payout rates. Because locals andrepeat visitors demand variety and quality in their slot and video pokermachine play, our casino properties offer the latest in slot and video pokertechnology.

As part of our commitmentto providing a quality entertainment experience for our patrons, we arededicated to ensuring a high level of customer satisfaction and loyalty byproviding attentive customer service in a friendly, casual atmosphere. Werecognize that consistent quality and a comfortable atmosphere stem from thecollective care and friendliness of each employee. We began as a family-runbusiness, and have maintained close-knit relationships among our management andwe endeavor to instill among our employees this same sense of loyalty. Towardthis end, we take a hands-on approach through active and direct involvementwith employees at all levels.

*Marketing and Promotion*

We employ an innovativemarketing strategy that utilizes frequent high profile promotional programs inorder to attract customers and establish a high level of name recognition. Inaddition to aggressive marketing through television, radio and newspaperadvertising, we have created and sponsored such promotions as “Paycheck Bonanza”and “Great Giveaway”, a popular football season contest. These promotions havebecome a tradition in the locals’ market and have had a positive impact uponour patronage during their respective promotion periods.

We are heavily focused on using cutting edgetechnology to drive customer traffic with products such as our Jumbo Brandproducts, which include “Jumbo Jackpot”, “Jumbo Penny”, “Jumbo Bingo” and “JumboPoker”. Other products include “Xtra Play Cash” and “Sports Connection”, amongothers. We 

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believe that theseproducts create sustainable competitive advantages and distinguish us from ourcompetitive set.

In 1999, we introduced aunified Boarding Pass player rewards program at our Station properties. TheBoarding Pass program allows guests to earn points based on their level ofgaming activity. The Fiesta properties offer a similar player rewards programcalled the Amigo Club. Members of the Boarding Pass and the Amigo Club canredeem points at any of our properties for meals in any of the restaurants, forhotel rooms, movie passes, show tickets or for merchandise in our gift shops.We believe that this “single card”, for which the technology was developedin-house, sets us apart from our competition in the Las Vegas locals’ market.

**Properties**

Setforth below is certain information as of December 31, 2004, concerning ourproperties, all of which we own and/or operate except as otherwise indicated.The properties are more fully described following the table.
| ** **                             | ** ** | **   Hotel     Rooms** | ** ** | **Slots(1)** | ** ** | **Gaming  Tables(2)** | ** ** | **  Parking    Spaces(3)** | ** ** |
|----------------------------------------|------------|------------------------------------------------------|------------|--------------|------------|-----------------------|------------|------------------------------------------------|------------|
| Casino Properties                      |       |                                                 |       |         |       |                  |       |                                           |       |   |   |   |   |
| Palace Station                         |       | 1,008                                                |       |         | 1,847      |                  |       |                                           | 53         |   |   | 2,600 |   |
| Boulder Station                        |       | 300                                                  |       |         | 2,852      |                  |       |                                           | 42         |   |   | 4,800 |   |
| Texas Station                          |       | 200                                                  |       |         | 2,450      |                  |       |                                           | 37         |   |   | 5,900 |   |
| Sunset Station                         |       | 457                                                  |       |         | 2,613      |                  |       |                                           | 53         |   |   | 7,100 |   |
| Santa Fe Station                       |       | 200                                                  |       |         | 2,558      |                  |       |                                           | 34         |   |   | 3,750 |   |
| Green Valley Ranch Station (50% owned) |       | 496                                                  |       |         | 2,161      |                  |       |                                           | 50         |   |   | 3,400 |   |
| Fiesta Rancho                          |       | 100                                                  |       |         | 1,602      |                  |       |                                           | 16         |   |   | 2,300 |   |
| Fiesta Henderson                       |       | 224                                                  |       |         | 1,400      |                  |       |                                           | 29         |   |   | 2,300 |   |
| Other Properties                       |       |                                                 |       |         |       |                  |       |                                           |       |   |   |   |   |
| Wild Wild West                         |       | 262                                                  |       |         | 240        |                  |       |                                           | 10         |   |   | 600 |   |
| Barley’s (50% owned)              |       | —                                               |       |         | 199        |                  |       |                                           | —     |   |   | — |   |
| Wildfire                               |       | —                                               |       |         | 243        |                  |       |                                           | —     |   |   | 200 |   |
| Magic Star                             |       | —                                               |       |         | 190        |                  |       |                                           | —     |   |   | 250 |   |
| Gold Rush                              |       | —                                               |       |         | 169        |                  |       |                                           | —     |   |   | 150 |   |
| Managed Properties                     |       |                                                 |       |         |       |                  |       |                                           |       |   |   |   |   |
| Thunder Valley  (4)                    |       | —                                               |       |         | 2,715      |                  |       |                                           | 98         |   |   | 4,500 |   |

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(1)          Includes slot and videopoker machines and other coin-operated devices.

(2)          Generally includesblackjack (“21”), craps, roulette, pai gow poker, mini baccarat, let it ride,three-card poker and wild hold ‘em. The Casino Properties, with theexception of Green Valley Ranch Station, also offer a keno lounge, bingo parlorand poker. The Casino Properties also offer a race and sports book and the OtherProperties offer a sports book.

(3)          Includes covered parkingspaces of 1,900 for Palace Station, 1,900 for Boulder Station, 3,500 for TexasStation, 2,900 for Sunset Station, 1,500 for Santa Fe Station, 1,600 for GreenValley Ranch Station and 1,000 for Fiesta Rancho.

(4)          Wemanage Thunder Valley, on behalf of the UAIC.

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**Casino Properties**

*Palace Station*

Palace Station is strategically located onapproximately 38 acres at the intersection of Sahara Avenue and Interstate 15,one of Las Vegas’ most heavily traveled areas. Palace Station is a shortdistance from McCarran International Airport and from major attractions on theLas Vegas Strip and downtown Las Vegas. Palace Station features a turn-of-the-20th-centuryrailroad station theme with non-gaming amenities including seven full-servicerestaurants, several fast-food outlets, a 250-seat entertainment lounge,four additional bars, two swimming pools, an approximately 20,000-squarefoot banquet and convention center, a 24-hour gift shop and a non-gamingvideo arcade.

Palace Station’s sevenfull-service restaurants have a total of approximately 1,230 seats. Theserestaurants offer a variety of high-quality food at reasonable prices,including the 24-hour Palace Cafe (featuring American and Chinese fare),an all-you-can-eat buffet known as “The Feast”, The Broiler (a steak andseafood restaurant), Pasta Palace (an Italian restaurant), Guadalajara Bar &Grille (a Mexican restaurant), Jack’s Irish Pub and a 17-seat Oyster Bar.In addition to these restaurants, Palace Station offers various fast-foodoutlets. Palace Station also features the Laugh Trax Comedy Club.

*Boulder Station*

Boulder Station, which opened in August 1994, isstrategically located on approximately 46 acres on Boulder Highway andimmediately adjacent to the Interstate 515 interchange. We believe that thishighly visible location at this well-traveled intersection offers a competitiveadvantage relative to existing hotels and casinos located on Boulder Highway.Boulder Station is located approximately four miles east of the Las Vegas Stripand approximately four miles southeast of downtown Las Vegas. Boulder Stationfeatures a turn-of-the-20th-century railroad stationtheme with non-gaming amenities including five full-service restaurants,several fast-food outlets, a 750-seat entertainment lounge, sevenadditional bars, an 11-screen movie theater complex, a Kid’s Quest child-carefacility, a swimming pool, a non-gaming video arcade and a gift shop.

Boulder Station’s fivefull-service restaurants have a total of over 1,400 seats. These restaurantsoffer a variety of high-quality meals at reasonable prices, including, the 24-hourBoulder Cafe (featuring American and Chinese fare), an all-you-can-eat buffetknown as “The Feast”, The Broiler (a steak and seafood restaurant), PastaPalace (an Italian restaurant) and Guadalajara Bar & Grille (a Mexicanrestaurant). In addition to these restaurants, Boulder Station offers variousfast-food outlets. Boulder Station’s restaurants and bars are located in opensettings that are designed to intermingle the dining and gaming experience.

*Texas Station*

Texas Station, which opened in July 1995, isstrategically located on approximately 47 acres at the corner of Lake MeadBoulevard and Rancho Road in North Las Vegas. Texas Station features afriendly, “down-home” Texas atmosphere, highlighted by distinctive early Texasarchitecture with non-gaming amenities including five full-service restaurants,several fast-food outlets, a Kid’s Quest child-care facility, a 300-seatentertainment lounge, a 1,700-seat event center, eight additional bars,an 18-screen movie theater complex, a swimming pool, a non-gaming videoarcade, a gift shop, a 60-lane bowling center and approximately 40,000square feet of meeting and banquet space.

Texas Station’s fivefull-service restaurants have a total of approximately 1,230 seats. Theserestaurant facilities offer a variety of high-quality food at reasonableprices, including the 24-hour Texas Cafe, Austin’s Steakhouse, SanLorenzo (an Italian restaurant), The Feast Buffet (featuring seven differentfood stations) and Texas Star Oyster Bar, which has 110 seats. In addition tothe Texas Station-themed 

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restaurants,guests may also enjoy the unique features of several bars and lounges includingthe Martini Ranch, the Whiskey Bar, the Garage Bar, or the Armadillo HonkyTonk. Texas Station also offers a variety of fast-food outlets to enhance thecustomers’ dining selection. The quality and variety of the restaurants offeredat the facility are a major draw in the rapidly growing North Las Vegas market.

*Sunset Station*

Sunset Station, which opened in June 1997, isstrategically located on approximately 82 acres at the intersection ofInterstate 515 and Sunset Road. Multiple access points provide customersconvenient access to the gaming complex and parking areas. Situated in a highlyconcentrated commercial corridor along Interstate 515, Sunset Station hasprominent visibility from the freeway and the Sunset commercial corridor.Sunset Station is located approximately nine miles east of McCarranInternational Airport and approximately seven miles southeast of BoulderStation. Sunset Station features a Spanish/Mediterranean-style theme withnon-gaming amenities including eight full-service restaurants themed tocapitalize on the familiarity of the restaurants at our other properties, a 520-seatentertainment lounge and a 4,000-seat outdoor amphitheater, sevenadditional bars, a gift shop, a non-gaming video arcade, a 13-screenmovie theater complex, a Kid’s Quest child-care facility, and a swimming pool,as well as several fast-food outlets and franchises.

Sunset Station’s eightfull-service restaurants have a total of approximately 2,300 seats featuring “live-action”cooking and simulated patio dining. These restaurant facilities offer a varietyof high-quality food at reasonable prices, including the 24-hour SunsetCafe (featuring American fare), Sonoma Cellar (a steakhouse), Costa Del Sol (aseafood restaurant), Capri (an Italian restaurant), Guadalajara Bar &Grille (a Mexican restaurant), The Feast Around the World, a live action buffetfeaturing Mexican, Italian, barbecue, American and Chinese cuisine, Hooter’sand a 65-seat Oyster Bar. Guests may also enjoy the Gaudi Bar, acenterpiece of the casino featuring over 8,000 square feet of stained glass.Sunset Station also offers a variety of fast-food outlets to enhance thecustomers’ dining selection.

*Santa Fe Station*

On October 2, 2000, we purchased Santa Fe Hotel &Casino and renamed the property “Santa Fe Station”. Santa Fe Station isstrategically located on approximately 38 acres at the intersection ofHighway 95 and Rancho Road, approximately five miles northwest of TexasStation. Santa Fe Station features a Southwestern theme with non-gamingamenities including four full-service restaurants, several fast-food outlets, agift shop, a non-gaming video arcade, a swimming pool, a 460-seatentertainment lounge, five additional bars, a 60-lane bowling center, and10,000 square feet of meeting and banquet facilities. Santa Fe Station iscurrently being expanded. See “Expansion Strategy” for the detail of theexpansion plan.

Santa Fe Station’s fourfull-service restaurants have a total of approximately 850 seats, which includethe 24-hour Santa Fe Cafe, Charcoal Room (a steakhouse), CaboRestaurant (a Mexican restaurant) and Memphis Championship Barbecue. Santa FeStation also offers a variety of fast-food outlets to enhance the customers’dining selection.

*Green Valley RanchStation*

Green Valley Ranch Station, which opened in December 2001,is strategically located at the intersection of Interstate 215 and Green ValleyParkway in Henderson, Nevada. Green Valley Ranch Station is approximately fiveminutes from McCarran International Airport and seven minutes from the LasVegas Strip. We jointly developed the project on 40 acres of a 170-acremulti-use commercial development with GCR Gaming. In addition to our 50%ownership, we are also the managing partner of 

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Green Valley Ranch Stationand receive a management fee equal to 2% of the property’s revenues andapproximately 5% of Earnings Before Interest, Taxes, Depreciation and Amortization(“EBITDA”).

Green Valley Ranch Station was designed to complementthe Green Valley master-planned community. The AAA Four diamond 496 roomresort features a Mediterranean-style villa theme with non-gamingamenities including eight full-service restaurants, a fast-food court with sixquick-serve outlets, a 4,200 square-foot non-gaming arcade, astate-of-the-art spa with outdoor pools, a 10-screen movie theatercomplex, a gift shop and approximately 45,500 square feet of meeting andconvention space. Green Valley Ranch Station also offers “Whiskey Beach”, an 8-acrecomplex featuring private poolside cabanas, luxurious open lawn areas, acontemporary poolside bar, three acres of vineyards and an outdoor performancevenue. Green Valley Ranch Station is currently being expanded. See “ExpansionStrategy” for the detail of the expansion plan.

Green Valley Ranch Station’seight full-service restaurants include China Spice (an Asian restaurant), SushiSake, Il Fornaio Cucina Italiano (an Italian restaurant), BullShrimp (featuringsteak and seafood), Trophy’s (a sports bar/restaurant), Fado’s Irish Pub, TheOriginal Pancake House and The Feast Around the World, a live action buffetfeaturing Mexican, Italian, barbecue, American and Chinese cuisine. GreenValley Ranch Station also offers a variety of fast-food outlets to enhance thecustomers’ dining selection. Guests may also enjoy the Drop Bar, a centerpieceof the casino, and the Whiskey Bar, a 5,300 square-foot nightclub.

*Fiesta Rancho*

On January 4, 2001, we purchased Fiesta CasinoHotel. In December 2001, we renamed the property Fiesta Rancho. FiestaRancho is strategically located on approximately 25 acres at the intersectionof Lake Mead Boulevard and Rancho Road in North Las Vegas across from TexasStation. Fiesta Rancho features a Southwestern theme with non-gaming amenitiesincluding four full-service restaurants, several fast-food outlets, a giftshop, a non-gaming video arcade, a swimming pool, a 700-seatentertainment lounge, a regulation sized ice skating rink and five additionalbars.

Fiesta Rancho’s fourfull-service restaurants have a total of over 1,100 seats, and include the 24-hourBaja Beach Cafe (featuring American fare), Garduno’s (a Mexican restaurant),Blue Agave Steakhouse, and Festival Buffet. Fiesta Rancho also offers a varietyof fast-food outlets to enhance the customers’ dining selection.

*Fiesta Henderson*

On January 30, 2001, we purchased The ReserveHotel & Casino. In December 2001, the property was renamed FiestaHenderson and was re-themed to our Fiesta brand. Fiesta Henderson isstrategically located on approximately 46 acres at the intersection ofInterstate 215 and Interstate 515. The property features four full-servicerestaurants, a gift shop, a swimming pool, three bars and lounges and meetingspace.

Fiesta Henderson’s fourfull-service restaurants have a total of approximately 1,070 seats, and includethe 24-hour Baja Beach Cafe (featuring American and Chinese fare), FuegoSteakhouse, Garduno’s (a Mexican restaurant) and the Festival Buffet.

**Other Properties**

*Wild Wild West*

Wild Wild West, which weacquired in July 1998, is strategically located on approximately 19 acreson Tropicana Avenue and immediately adjacent to Interstate 15. Wild Wild West’snon-gaming amenities include a full-service restaurant, a bar, a gift shop anda truck plaza.

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*Barley’s*

Barley’s, which opened in January 1996,is a casino and brew pub located in Henderson, Nevada. We are the managingpartner and own a 50% interest in Barley’s. Barley’s non-gaming amenitiesinclude a full-service restaurant, a pizza kitchen and a bar.

*Wildfire*

On January 27, 2003,we purchased Wildfire. Wildfire is located on Rancho Road across from TexasStation. Wildfire’s non-gaming amenities include a lounge, outdoor patio and afull-service restaurant.

*Magic Star &Gold Rush*

On August 2, 2004, wepurchased Magic Star and Gold Rush for approximately $19.8 million, includingacquisition costs and enhancements to the facilities. Magic Star is located onBoulder Highway in Henderson, Nevada. Gold Rush is located at the intersectionof Interstate 515 and Sunset Road, adjacent to Sunset Station in Henderson,Nevada. Both properties offer non-gaming amenities which include a full servicerestaurant and a bar.

**Managed Properties**

*Thunder Valley*

We have entered into aDevelopment Services Agreement and a Management Agreement with the UAIC.Pursuant to those agreements, and in compliance with a Memorandum ofUnderstanding entered into by the UAIC and Placer County, California, wedeveloped, with the UAIC, Thunder Valley, a gaming and entertainment facilityon approximately 49 acres located approximately seven miles north of Interstate80, in Placer County, California, near Sacramento, which opened on June 9,2003. We receive a management fee equal to 24% of the facility’s net income (asdefined in the management agreement). Thunder Valley has 2,715 Class IIIslot machines, 98 table games, including a private VIP gaming area, threespecialty restaurants, a 500-seat buffet, a food court, a center pit barand parking for over 4,500 vehicles.

**Expansion Strategy**

*Selection Criteria*

We believe that a highlyvisible location, convenient access and ample parking are critical factors inattracting local patronage and repeat visitors. Additionally, sites must belarge enough to support multi-phased master-planned growth tocapitalize on growing demand in incremental stages. We select sites that arelocated within a dense population base so that the facility cannot be cut-offfrom its primary market. These sites generally have been adjacent tohigh-traffic surface streets and interstate highways. We believe that each ofour Casino Properties’ locations has provided us with a significant competitiveadvantage to attract our targeted customer base. In the Las Vegas metropolitanarea, as a result of Senate Bill 208, there are a limited number of sitesavailable for development off of “The Strip” or downtown and we control anumber of these sites.

*Master-PlannedDevelopment*

Our expansion strategy includes the master-plannedexpansion of our existing and future gaming locations. In designing projectsites, we plan and engineer for multi-phased facility expansion toaccommodate future growth and to allow us to develop dominant properties ineach market. A project’s master-planned design typically allows theoption of adding hotel rooms, casino space, parking structures 

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and non-gamingentertainment such as movie theaters, additional restaurants, retail shops andvarious other entertainment venues.

We continually evaluate the timing and scope of ourmaster-planned developments at each of our properties and may determinefrom time to time to expand the scope of, improve on or suspend theimplementation of our master plans. These decisions are dependent upon theavailability of financing, competition and future economic and gamingregulatory environments, many of which are beyond our control. We recently completeda master-planned expansion at Fiesta Rancho and currently have master-planexpansions underway at Green Valley Ranch Station, Santa Fe Station and SunsetStation.

We completed a 31,000 square-foot expansion project atFiesta Rancho in September 2004, which added a new ice arena to the property,complete with concession area, pro shop, locker rooms and private social rooms.The cost of the expansion was approximately $9.6 million.

In the fourth quarter of 2003, we began a$125 million expansion at Green Valley Ranch Station. The expansionincludes 296 hotel rooms, 25,500 square feet of additional meeting space and anexpanded spa facility. Construction of the hotel rooms and additional meetingspace was completed in December 2004. Construction of the spa facility isexpected to be completed in the first quarter of 2005. In connection with theexpansion, Green Valley Ranch Station purchased the lease from the spa operatorduring 2004. Green Valley Ranch Station also terminated the lease of arestaurant at the property and paid the tenant an agreed upon sum during 2004.

In 2003, we began a $52 million expansion at Santa FeStation. The expansion includes more than 20,000 square-feet of additionalcasino space, 350 slot machines, a new 16-screen movie theater complex,an upgrade of the property’s bowling center, a new entertainment venue and bar,a new Kid’s Quest facility and other amenities as well as removal of the icearena. The additional slots, upgrade of the bowling center and newentertainment venue were completed in December 2004. We believe theremaining items will be completed in the first quarter of 2005 with theexception of the movie theater complex, which will be completed in April 2005.

We are currently expandingSunset Station to add a bowling center. We believe the project will costapproximately $27 million and will be completed in April 2005.

*Development andAcquisition Opportunities*

We have acquired severalparcels of land in the Las Vegas valley, which can be used for new casinodevelopment. We also evaluate other development and acquisition opportunitiesin current and emerging gaming markets, including land-based, dockside,riverboat and Native American gaming. Our decision whether to proceed with anynew gaming development or acquisition opportunity is dependent upon futureeconomic and regulatory factors, the availability of financing and competitiveand strategic considerations, many of which are beyond our control.

*Red Rock*

In April 2004, wecommenced construction of Red Rock Resort Spa and Casino (“Red Rock”) locatedon Charleston Boulevard at the Interstate 215/Charleston interchange in theSummerlin master-planned community in Las Vegas, Nevada. The initial phase ofthe property is expected to be completed near the end of the first quarter of2006. We have also announced plans to accelerate the construction of a phase IIexpansion. Construction on phase II of Red Rock is expected to begin in thelatter part of 2005 and is expected to be completed by the end of 2006. Thetotal project will now include over 2,800 slot machines, over 850 hotel rooms,94,000 square-feet of meeting and convention space, a 35,000 square-foot spa,nine full service restaurants, a 16-screen movie theater complex, a night cluband private pool club to be operated by Midnight Oil Company, both indoor andoutdoor entertainment venues and parking for 

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almost5,500 vehicles. As a result of an increase in amenities, an upgrade in thequality of finishes throughout the project, general increases in constructioncost and addition of the phase II expansion, the total cost of Red Rock isexpected to be approximately $800 million, of which approximately $151.3million has been spent as of December 31, 2004.

*The FederatedIndians of Graton Rancheria*

We have entered into Development and ManagementAgreements with the Federated Indians of Graton Rancheria (the “FIGR”) afederally recognized Native American tribe. Pursuant to those agreements wewill assist the FIGR in developing and operating a gaming and entertainmentproject to be located in Sonoma County, California. The FIGR selected us to assistit in designing, developing and financing the project and, upon opening we willmanage the facility on behalf of the FIGR. The Management Agreement has a termof seven years from the opening of the facility and we will receive amanagement fee equal to 22% of the facility’s net income. We will also receivea development fee equal to 2% of the cost of the project upon the opening ofthe facility.

In August 2003, weentered into an option to purchase 360 acres of land just west of the RohnertPark city limits in Sonoma County, California. The proposed site of the projectis bordered by Stony Point Road, Wilfred Avenue and Rohnert Park Expressway,approximately one-half mile from Highway 101 and approximately 43 miles fromdowntown San Francisco. In October 2003, the FIGR entered into aMemorandum of Understanding with the City of Rohnert Park. Development of thegaming and entertainment project is subject to certain governmental andregulatory approvals, including, but not limited to, negotiating a gamingcompact with the State of California, the United States Department of theInterior (“DOI”) accepting the land into trust on behalf of the FIGR andapproval of the Management Agreement by the National Indian Gaming Commission (“NIGC”).Prior to obtaining third-party financing, we will contribute significant financialsupport to the project. As of December 31, 2004, we had advancedapproximately $22.4 million toward the development of this project,primarily to perform due diligence and secure real estate for the FIGR project,which is included in other assets, net on our consolidated balance sheets.Funds advanced by us are expected to be repaid from the proceeds of the projectfinancing or from the FIGR’s gaming revenues. In addition, we have agreed topay approximately $11.3 million of payments upon achieving certain milestones,which will not be reimbursed. As of December 31, 2004, approximately$2.0 million of these payments had been made and were expensed indevelopment expense as incurred. The timing of this type of project isdifficult to predict and is dependent upon the receipt of the necessarygovernmental and regulatory approvals. There can be no assurances when or ifthese approvals will be obtained.

*Gun Lake Tribe*

On November 13, 2003, we agreed to purchase a 50%interest in MPM Enterprises, LLC, a Michigan limited liability company (“MPM”).Concurrently with our agreement to purchase that interest, MPM and theMatch-E-Be-Nash-She-Wish Band of Pottawatomi Indians, a federally recognizedNative American tribe commonly referred to as the Gun Lake Tribe (“Gun Lake”),entered into amended Development and Management Agreements, pursuant to whichMPM will assist Gun Lake in developing and operating a gaming and entertainmentproject to be located in Allegan County, Michigan. We have agreed to pay$6.0 million for our 50% interest in MPM, which is payable upon achievingcertain milestones and is not reimbursable. As of December 31, 2004,approximately $2.0 million of these payments had been made and were expensed indevelopment expense as incurred. An additional $12.0 million in total maybe paid by us in years six and seven of the amended Management Agreement,subject to certain contingencies. Under the terms of the amended DevelopmentAgreement, we have agreed to arrange financing for the ongoing developmentcosts and construction of the project. As of December 31, 2004, we hadadvanced approximately $20.2 million toward the development of thisproject, primarily to secure real estate for the 

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project, which is includedin other assets, net on our consolidated balance sheets. Funds advanced by usare expected to be repaid from the proceeds of the project financing or fromGun Lake’s gaming revenues. The amended Management Agreement has a term ofseven years from the opening of the facility and provides for a management feeof 30% of the project’s net income to be paid to MPM. Pursuant to the terms ofthe MPM Operating Agreement, our portion of the management fee is 50% of thefirst $24 million of management fees earned, 83% of the next$24 million of management fees and 93% of any management fees in excess of$48 million.

The proposed project willbe located on approximately 145 acres on Highway 131 near 129thAvenue, approximately 25 miles north of Kalamazoo, Michigan. As currentlycontemplated, the project will include up to 2,500 slot machines, 75 tablegames, a buffet and specialty restaurants. Construction of the project includesthe conversion of an existing 192,000 square-foot building into the casino andentertainment facility. Development of the gaming and entertainment project andoperation of Class III gaming is subject to certain governmental andregulatory approvals, including, but not limited to, the signing of a gamingcompact by the Governor of the State of Michigan, the DOI accepting the landinto trust on behalf of Gun Lake and approval of the Management Agreement bythe NIGC. On February 27, 2004, the DOI issued a Finding of No SignificantImpact with respect to the proposed project. Prior to obtaining third-partyfinancing, we will contribute significant financial support to the project. Thetiming of this type of project is difficult to predict and is dependent uponthe receipt of the necessary governmental and regulatory approvals. There canbe no assurances when or if these approvals will be obtained.

*Mechoopda IndianTribe*

We have entered intoDevelopment and Management Agreements with the Mechoopda Indian Tribe of ChicoRancheria, California (the “MITCR”) a federally recognized Native Americantribe. Pursuant to those agreements, we will assist the MITCR in developing andoperating a gaming and entertainment facility to be located on approximately650 acres in Butte County, California, at the intersection of State Route 149and Highway 99, approximately 10 miles southeast of Chico, California and 80miles north of Sacramento, California. Under the terms of the DevelopmentAgreement, we have agreed to arrange the financing for the ongoing developmentcosts and construction of the facility. Funds advanced by us are expected to berepaid from the proceeds of the facility financing or from the MITCR’s gamingrevenues. As of December 31, 2004, we had advanced approximately $5.8million toward the development of this project, primarily to secure real estatefor future development, which is included in other assets, net on ourconsolidated balance sheets. In addition, we have agreed to pay approximately$2.2 million of payments upon achieving certain milestones, which will not bereimbursed. As of December 31, 2004, $50,000 of these payments had beenmade and were expensed in development expense as incurred. The ManagementAgreement has a term of seven years from the opening of the facility andprovides for a management fee of 24% of the facility’s net income. As currentlycontemplated, the facility will include approximately 700 slot machines, 12table games and dining and entertainment amenities. Development of the facilityis subject to certain governmental and regulatory approvals, including, but notlimited to, negotiating a gaming compact with the State of California, the DOIaccepting land into trust on behalf of the MITCR and approval of the ManagementAgreement by the NIGC. Prior to obtaining third-party financing, we willcontribute significant financial support to the project. The timing of thistype of project is difficult to predict and is dependent upon the receipt ofthe necessary governmental and regulatory approvals. There can be no assuranceswhen or if these approvals will be received.

*North ForkRancheria of Mono Indian Tribe*

We have entered intoDevelopment and Management Agreements with the North Fork Rancheria of MonoIndians (the “Mono”), a federally recognized Native American tribe located nearFresno, California. Pursuant to those agreements, we will assist the Mono indeveloping and operating a gaming 

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andentertainment facility to be located in Madera County, California. We havesecured for the benefit of the Mono two parcels of land located on Highway 99north of the city of Madera. Under the terms of the Development Agreement, wehave agreed to arrange the financing for the ongoing development costs andconstruction of the facility. Funds advanced by us are expected to be repaidfrom the proceeds of the project financing or from the Mono’s gaming revenues.As of December 31, 2004, we had advanced approximately $1.5 million towardthe development of this project, primarily to secure real estate for futuredevelopment, which is included in other assets, net on our consolidated balancesheets. In addition, we have agreed to pay approximately $1.3 million ofpayments upon achieving certain milestones, which will not be reimbursed. As ofDecember 31, 2004, none of these payments had been made. The ManagementAgreement has a term of seven years from the opening of the facility andprovides for a management fee of 24% of the facility’s net income. As currentlycontemplated, the facility will include approximately 2,000 slot machines, 60table games, dining, hotel and entertainment amenities. Development of thegaming and entertainment project is subject to certain governmental andregulatory approvals, including, but not limited to, negotiating a gaming compactwith the State of California, the DOI accepting the land into trust on behalfof the Mono and approval of the Management Agreement by the NIGC. Prior to obtainingthird-party financing, we will contribute significant financial support to theproject. The timing of this type of project is difficult to predict and isdependent upon the receipt of the necessary governmental and regulatoryapprovals. There can be no assurances when or if these approvals will beobtained.

**Competition**

The gaming industryincludes land-based casinos, dockside casinos, riverboat casinos, racetrackswith slots, casinos located on Native American land and other forms oflegalized gaming. There is intense competition among companies in the gamingindustry, some of which have significantly greater resources than we do.Several states are currently considering legalizing casino gaming in designatedareas. Legalized casino gaming in such states and on Native American land willprovide strong competition to us and could adversely affect our operations,particularly to the extent that such gaming is conducted in areas close to ouroperations. Native American gaming in California, as it currently exists, hashad little, if any impact on our Nevada operations to date, although there areno assurances as to future impact. 61 Native American tribes entered intoTribal-State Gaming Compacts (“Compacts”) with the State of California in1999 and 2000 that are currently in effect. Each of these Native Americantribes may operate up to two gaming facilities. Nine of these Native Americantribes are presently not operating a casino. Two Native American tribes enteredinto Compacts with the State of California in 2003 that are currently ineffect. Both of these Native American tribes may operate one gaming facility;however, they are presently not operating a casino. Currently there are 53Native American casinos in operation in the State of California. These NativeAmerican tribes are allowed to operate slot machines, lottery games, andbanking and percentage games (including “21”) on Native American lands. During2004, five tribes re-negotiated their compacts. These re-negotiated compactsallow for the expansion of the respective tribe’s current facilities. It is notcertain how this or any expansion of Native American gaming in California willaffect our Nevada operations given that visitors from California make up Nevada’slargest visitor market. Moreover, it is uncertain how soon expansion willaffect our interests in Native American gaming in California. Increasedcompetition from Native American gaming may result in a decline in our revenuesand may have a material adverse effect on our business.

Our Nevada casino propertiesalso face competition from 36 non-restricted gaming locations in the Las Vegasarea primarily targeted to the local and the repeat visitor markets. Some ofthese competitors have completed expansions and existing competitors and newentrants into these markets are in the planning stages or under construction onother projects. Although we have competed strongly in these marketplaces, therecan be no assurance that additional capacity will not have a negative impact onour business.

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Our Nevada casinoproperties face competition from all other casinos and hotels in the Las Vegasarea, including to some degree, from each other. In addition, our casinoproperties face competition from all smaller non-restricted gaming locationsand restricted gaming locations (locations with 15 or fewer slot machines) inthe greater Las Vegas area. As of December 31, 2004, there were 1,413restricted gaming locations with a total of 14,385 slot machines. We competewith other hotel/casinos and restricted gaming locations by focusing on repeatcustomers and attracting these customers through innovative marketing programs.Our value-oriented, high-quality approach is designed to generate repeatbusiness. Additionally, our casino properties are strategically located anddesigned to permit convenient access and ample parking, which are criticalfactors in attracting local visitors and repeat patrons. Currently, there areapproximately 37 major gaming properties located on or near the Las VegasStrip, 12 located in the downtown area and several located in other areas ofLas Vegas. Major additions, expansions or enhancements of existing propertiesor the construction of new properties by competitors, could also have amaterial adverse effect on the businesses of our casino properties. While pastadditions to capacity have had little, if any, impact on our casino properties’hotel occupancy or casino volume to date, there can be no assurance that hoteloccupancy or casino volume will not be adversely affected in the future.

To a lesser extent, ourNevada operations compete with gaming operations in other parts of the state ofNevada, such as Reno, Laughlin and Lake Tahoe, riverboat gaming markets in theMidwest and South, facilities in Atlantic City, New Jersey, casinos located onNative American land and in other parts of the world and with state-sponsoredlotteries, on-and-off-track pari-mutuel wagering, card rooms and other forms oflegalized gambling.

In 1997, the Nevadalegislature enacted Senate Bill 208. This legislation identified certain gamingenterprise districts wherein casino gaming development would be permittedthroughout the Las Vegas valley and established more restrictive criteria forthe establishment of new gaming enterprise districts. We believe the growth ingaming supply in the Las Vegas locals’ market has been, and will continue tobe, limited by the provisions of Senate Bill 208.

**Regulation andLicensing**

*Nevada Gaming Regulations*

The ownership andoperation of casino gaming facilities and the manufacture and distribution ofgaming devices in Nevada are subject to: (i) the Nevada Gaming Control Actand the rules and regulations promulgated thereunder (collectively, the “NevadaAct”); and (ii) various local ordinances and regulations. Our gaming operationsin Nevada are subject to the licensing and regulatory control of the NevadaGaming Commission (the “Nevada Commission”), the Nevada State Gaming ControlBoard (the “Nevada Board”), the City of Las Vegas, the Clark County Liquor andGaming Licensing Board (the “Clark County Board”), the City of North Las Vegas,the City of Henderson and certain other local regulatory agencies. The NevadaCommission, the Nevada Board, the City of Las Vegas, the Clark County Board,the City of North Las Vegas, the City of Henderson, and certain other localregulatory agencies are collectively referred to as the “Nevada GamingAuthorities”.

The laws, regulations andsupervisory procedures of the Nevada Gaming Authorities are based upondeclarations of public policy which are concerned with, among other things: (i) theprevention of unsavory or unsuitable persons from having a direct or indirectinvolvement with gaming at any time or in any capacity; (ii) theestablishment and maintenance of responsible accounting practices andprocedures; (iii) the maintenance of effective controls over the financialpractices of licensees, including the establishment of minimum procedures forinternal controls and the safeguarding of assets and revenues, providingreliable record keeping and requiring the filing of periodic reports with theNevada Gaming Authorities; (iv) the prevention of cheating and fraudulentpractices; and (v) providing a source of state and local revenues throughtaxation and licensing fees. Changes in such laws, regulations and procedurescould have an adverse effect on our gaming operations.

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Our direct and indirectsubsidiaries that conduct gaming operations in Nevada are required to belicensed by the Nevada Gaming Authorities. The gaming licenses require the periodicpayment of fees and taxes and are not transferable. Palace Station Hotel &Casino, Inc. (“PSHC”), Boulder Station, Inc. (“BSI”), Texas StationLLC (“TSL”), Sunset Station, Inc. (“SSI”), Tropicana Station, Inc. (“TRSI”),Santa Fe Station, Inc. (“SFSI”), Fiesta Station, Inc. (“FSI”), RanchoStation, LLC (“RSL”), Lake Mead Station, Inc. (“LMSI”), Gold Rush Station,LLC (“GRS”) and Magic Star Station, LLC (“MSS”) have received licenses toconduct non-restricted gaming operations. In addition, Green Valley RanchGaming, LLC (“GVRG”) has received licenses to conduct non-restricted gamingoperations at Green Valley Ranch Station Casino. The Company’s ownership inGVRG is held through an intermediary company known as GV Ranch Station, Inc.(“GVRS”), which is licensed as a member and manager of GVRG. Town CenterAmusements, Inc. (“TCAI”) has been licensed to conduct non-restrictedgaming operations at Barley’s Casino & Brewing Company (“Barley’s”), amicro brewery and casino located in Henderson, Nevada. Station Casinos’ownership in TCAI is held through an intermediary company known as Green ValleyStation, Inc. (“GVSI”), which is licensed as a member and manager of TCAI.We also own a minority interest in Fiesta Palms, LLC, d.b.a. Palms CasinoResort, which we hold through our subsidiary, Palms Station, LLC (“PSL”). StationCasinos is registered by the Nevada Commission as a publicly traded corporation(a “Registered Corporation”) and has been found suitable to own the stock ofPSHC, BSI, TSL, SSI, TRSI, GVSI, SFSI, GVRS, FSI, RSL, LMSI, GRS and MSS. Weare also licensed as a manufacturer and distributor of gaming devices. PSHC,BSI, SSI, TRSI, GVSI, SFSI, GVRG, FSI and LMSI are each a corporate gaminglicensee and TCAI, TSL, GVRG, RSL and PSL are each a limited liability companylicensee (individually a “Gaming Subsidiary” and collectively the “GamingSubsidiaries”) under the terms of the Nevada Act. As a Registered Corporation,Station Casinos is required periodically to submit detailed financial andoperating reports to the Nevada Commission and the Nevada Board and furnish anyother information, which the Nevada Commission or the Nevada Board may require.No person may become a stockholder or holder of an interest of, or receive anypercentage of profits from the Gaming Subsidiaries without first obtaininglicenses and approvals from the Nevada Gaming Authorities. Station Casinos andthe Gaming Subsidiaries have obtained from the Nevada Gaming Authorities thevarious registrations, findings of suitability, approvals, permits and licenses(individually, a “Gaming License” and collectively, the “Gaming Licenses”)required in order to engage in gaming activities in Nevada.

The Nevada GamingAuthorities may investigate any individual who has a material relationship to,or material involvement with, a Registered Corporation, such as Station or theGaming Subsidiaries, which hold a license, in order to determine whether suchindividual is suitable or should be licensed as a business associate of aRegistered Corporation or a gaming licensee. Officers, directors and certainkey employees of the Gaming Subsidiaries must file applications with the NevadaGaming Authorities and may be required to be licensed or found suitable by theNevada Gaming Authorities. Our officers, directors and key employees who areactively and directly involved in gaming activities of the Gaming Subsidiariesmay be required to be licensed or found suitable by the Nevada GamingAuthorities. The Nevada Gaming Authorities may deny an application for licensingfor any cause, which they deem reasonable. A finding of suitability iscomparable to licensing, and both require submission of detailed personal andfinancial information followed by a thorough investigation. The applicant forlicensing or a finding of suitability must pay all the costs of theinvestigation. Changes in licensed positions must be reported to the NevadaGaming Authorities and, in addition to their authority to deny an applicationfor a finding of suitability or licensure, the Nevada Gaming Authorities havejurisdiction to disapprove a change in corporate position.

If the Nevada GamingAuthorities were to find an officer, director or key employee unsuitable forlicensing or unsuitable to continue to have a relationship with Station or theGaming Subsidiaries, the companies involved would have to sever allrelationships with such person. In addition, the Nevada Commission may requireStation or the Gaming Subsidiaries to terminate the employment of any person 

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whorefuses to file the appropriate applications. Determinations of suitability orquestions pertaining to licensing are not subject to judicial review in Nevada.

Station and the GamingSubsidiaries are required to submit detailed financial and operating reports tothe Nevada Commission. Substantially all material loans, leases, sales ofsecurities and similar financing transactions by us and our Gaming Subsidiariesmust be reported to or approved by the Nevada Commission and/or the NevadaBoard.

If it were determined thatthe Nevada Act was violated by a Gaming Subsidiary, the gaming licenses itholds could be limited, conditioned, suspended or revoked, subject tocompliance with certain statutory and regulatory procedures. In addition,Station, the Gaming Subsidiaries and the persons involved could be subject tosubstantial fines for each separate violation of the Nevada Act at thediscretion of the Nevada Commission. Further, a supervisor could be appointedby the Nevada Commission to operate Palace Station, Boulder Station, Texas Station,Sunset Station, Santa Fe Station, Green Valley Ranch Station, Fiesta Rancho,Fiesta Henderson, Wild Wild West, Wildfire, Barley’s, Gold Rush and Magic Starand, under certain circumstances, earnings generated during the supervisor’sappointment (except for the reasonable rental value of the premises) could beforfeited to the State of Nevada. Limitation, conditioning or suspension of theGaming Licenses of the Gaming Subsidiaries or the appointment of a supervisorcould (and revocation of any Gaming License would) have a material adverseaffect on our gaming operations.

Any beneficial owner ofour voting securities, regardless of the number of shares owned, may berequired to file an application, be investigated, and have their suitability asa beneficial owner of our voting securities determined if the Nevada Commissionhas reason to believe that such ownership would otherwise be inconsistent withthe declared policies of the state of Nevada. The applicant must pay all costsof investigation incurred by the Nevada Gaming Authorities in conducting anysuch investigation.

The Nevada Act providesthat persons who acquire beneficial ownership of more than 5% of the votingsecurities of a Registered Corporation must report the acquisition to theNevada Commission. The Nevada Act also requires that beneficial owners of morethan 10% of the voting securities of a Registered Corporation must apply to theNevada Commission for a finding of suitability within thirty days after theChairman of the Nevada Board mails the written notice requiring such filing. An“institutional investor,” as defined in the Nevada Commission’s regulations,which acquires beneficial ownership of more than 10%, but not more than 15% ofour voting securities may apply to the Nevada Commission for a waiver of suchfinding of suitability if such institutional investor holds the votingsecurities for investment purposes only. An institutional investor that hasobtained a waiver may, in certain circumstances, hold up to 19% of our votingsecurities and maintain its waiver for a limited period of time. Aninstitutional investor shall not be deemed to hold voting securities forinvestment purposes unless the voting securities were acquired and are held inthe ordinary course of business as an institutional investor and not for thepurpose of causing, directly or indirectly, the election of a majority of themembers of the our Board of Directors, any change in our corporate charter,bylaws, management policies or our operations, or any of our gaming affiliates,or any other action which the Nevada Commission finds to be inconsistent withholding our voting securities for investment purposes only. Activities whichare not deemed to be inconsistent with holding voting securities for investmentpurposes only include: (i) voting on all matters voted on by stockholders;(ii) making financial and other inquiries of management of the typenormally made by securities analysts for informational purposes and not tocause a change in our management, policies or operations; and (iii) suchother activities as the Nevada Commission may determine to be consistent withsuch investment intent. If the beneficial holder of voting securities who mustbe found suitable is a corporation, partnership or trust, it must submitdetailed business and financial information including a list of beneficialowners. The applicant is required to pay all costs of the investigation.

Any person who fails orrefuses to apply for a finding of suitability or a license within thirty daysafter being ordered to do so by the Nevada Commission or the Chairman of theNevada Board, may be found unsuitable. The same restrictions apply to a recordowner if the record owner, after request, fails to 

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identifythe beneficial owner. Any stockholder who is found unsuitable and who holds,directly or indirectly, any beneficial ownership of the common stock of aRegistered Corporation beyond such period of time as may be prescribed by theNevada Commission may be guilty of a criminal offense. We are subject todisciplinary action if, after we receive notice that a person is unsuitable tobe a stockholder or to have any other relationship with us or our GamingSubsidiaries, we (i) pay that person any dividend or interest upon ourvoting securities, (ii) allow that person to exercise, directly orindirectly, any voting right conferred through securities held by that person, (iii) payremuneration in any form to that person for services rendered or otherwise, or (iv) failto pursue all lawful efforts to require such unsuitable person to relinquishhis voting securities including, if necessary, the immediate purchase of saidvoting securities for cash at fair market value. Additionally, the Clark CountyBoard has the authority to approve all persons owning or controlling the stockof any corporation controlling a gaming licensee.

The Nevada Commission may,in its discretion, require the holder of any debt security of a RegisteredCorporation to file applications, be investigated and be found suitable to ownthe debt security of a Registered Corporation if the Nevada Commission hasreason to believe that such ownership would otherwise be inconsistent with thedeclared policies of the State of Nevada. If the Nevada Commission determinesthat a person is unsuitable to own such security, then pursuant to the NevadaAct, the Registered Corporation can be sanctioned, including the loss of itsapprovals, if without the prior approval of the Nevada Commission, it: (i) paysto the unsuitable person any dividend, interest, or any distributionwhatsoever; (ii) recognizes any voting right by such unsuitable person inconnection with such securities; (iii) pays the unsuitable personremuneration in any form; or (iv) makes any payment to the unsuitableperson by way of principal, redemption, conversion, exchange, liquidation orsimilar transaction.

We are required tomaintain a current stock ledger in Nevada, which may be examined by the NevadaGaming Authorities at any time. If any securities are held in trust by an agentor by a nominee, the record holder may be required to disclose the identity ofthe beneficial owner to the Nevada Gaming Authorities. Failure to make suchdisclosure may be grounds for finding the record holder unsuitable. We are alsorequired to render maximum assistance in determining the identity of thebeneficial owner. The Nevada Commission has the power to require our stockcertificates to bear a legend indicating that the securities are subject to theNevada Act. However, to date, the Nevada Commission has not imposed such arequirement on us.

We may not make a publicoffering of our securities without the prior approval of the Nevada Commissionif the securities or proceeds therefrom are intended to be used to construct,acquire or finance gaming facilities in Nevada, or to retire or extendobligations incurred for such purposes. On May 22, 2003, the NevadaCommission granted us prior approval to make public offerings for a period oftwo years, subject to certain conditions (“Shelf Approval”). The Shelf Approvalmay be rescinded for good cause without prior notice upon the issuance of aninterlocutory stop order by the Chairman of the Nevada Board and must berenewed at the end of the two-year approval period. The Shelf Approval alsoapplies to any affiliated company wholly owned by Station (an “Affiliate”),which is a publicly traded corporation or would thereby become a publiclytraded corporation pursuant to a public offering. The Shelf Approval alsoincludes approval for the Gaming Subsidiaries to guarantee any security issuedby, or to hypothecate their assets to secure the payment or performance of anyobligations evidenced by a security issued by, Station or an Affiliate in apublic offering under the Shelf Approval. The Shelf Approval does not constitutea finding, recommendation or approval by the Nevada Commission or the NevadaBoard as to the accuracy or adequacy of the prospectus or the investment meritsof the securities offered. The Shelf Approval also includes approval for us toplace restrictions upon the transfer of, and to enter into agreements not toencumber the equity securities of the Gaming Subsidiaries, as applicable, inconjunction with public offerings made under the Shelf Approval. Anyrepresentation to the contrary is unlawful. On November 17, 2004, wefiled the requisite applications seeking approval for a new Shelf Approval.

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Changes in control of theCompany through merger, consolidation, stock or asset acquisitions, managementor consulting agreements, or any act or conduct by a person whereby such personobtains control, may not occur without the prior approval of the NevadaCommission. Entities seeking to acquire control of a Registered Corporationmust satisfy the Nevada Board and the Nevada Commission that they meet avariety of stringent standards prior to assuming control of such RegisteredCorporation. The Nevada Commission may also require controlling stockholders,officers, directors and other persons having a material relationship orinvolvement with the entity proposing to acquire control, to be investigatedand licensed as part of the approval process relating to the transaction.

The Nevada legislature hasdeclared that some corporate acquisitions opposed by management, repurchases ofvoting securities and corporate defense tactics affecting Nevada corporategaming licensees, and Registered Corporations that are affiliated with thoseoperations, may be injurious to stable and productive corporate gaming. TheNevada Commission has established a regulatory scheme to ameliorate thepotentially adverse effects of these business practices upon Nevada’s gamingindustry and to further Nevada’s policy to: (i) assure the financialstability of corporate gaming licensees and their affiliates; (ii) preservethe beneficial aspects of conducting business in the corporate form; and (iii) promotea neutral environment for the orderly governance of corporate affairs.Approvals are, in certain circumstances, required from the Nevada Commissionbefore a Registered Corporation can make exceptional repurchases of votingsecurities above the current market price thereof and before a corporateacquisition opposed by management can be consummated. The Nevada Act alsorequires prior approval of a plan of re-capitalization proposed by theRegistered Corporation’s Board of Directors in response to a tender offer madedirectly to the Registered Corporation’s stockholders for the purpose ofacquiring control of the Registered Corporation.

License fees and taxes,computed in various ways depending on the type of gaming or activity involved,are payable to the State of Nevada and to the counties and cities in which theNevada licensee’s respective operations are conducted. Depending upon theparticular fee or tax involved, these fees and taxes are payable eithermonthly, quarterly or annually and are based upon either: (i) a percentageof the gross revenues received; (ii) the number of gaming devicesoperated; or (iii) the number of table games operated. A liveentertainment tax is also paid by casino operations where entertainment isfurnished in connection with admission charges, the serving or selling of foodor refreshments or the selling of any merchandise. Nevada licensees that hold alicense as an operator of a slot route, or manufacturer’s or distributor’slicense also pay certain fees and taxes to the state of Nevada.

Any person who islicensed, required to be licensed, registered, required to be registered, or isunder common control with such persons (collectively, “Licensees”), and whoproposes to become involved in a gaming venture outside of Nevada, is requiredto deposit with the Nevada Board, and thereafter maintain, a revolving fund inthe amount of $10,000 to pay the expenses of investigation by the Nevada Boardof their participation in such foreign gaming. The revolving fund is subject toincrease or decrease at the discretion of the Nevada Commission. Thereafter,licensees are required to comply with certain reporting requirements imposed bythe Nevada Act. Licensees are also subject to disciplinary action by the NevadaCommission if they knowingly violate any laws of the foreign jurisdictionpertaining to the foreign gaming operation, fail to conduct the foreign gamingoperation in accordance with the standards of honesty and integrity required ofNevada gaming operations, engage in activities or enter into associations thatare harmful to the state of Nevada or its ability to collect gaming taxes andfees, or employ, contract with or associate with a person in the foreignoperation who has been denied a license or finding of suitability in Nevada onthe grounds of unsuitability or whom a court in the state of Nevada has foundguilty of cheating. The loss or restriction of our gaming licenses in Nevadawould have a material adverse effect on our business and could require us tocease gaming operations in Nevada.

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*Nevada Liquor Regulations*

The sale of alcoholicbeverages at Palace Station, Wildfire and Santa Fe Station is subject tolicensing control and regulation by the City of Las Vegas. The sale ofalcoholic beverages at Boulder Station and Wild Wild West is subject tolicensing control and regulation by the Clark County Board. Texas Station andFiesta Rancho are subject to licensing control and regulation of the City ofNorth Las Vegas. Sunset Station, Green Valley Ranch Station, Fiesta Henderson,Barley’s, Gold Rush and Magic Star are subject to the licensing control andregulation of the City of Henderson and the Department of Treasury, Bureau ofAlcohol, Tobacco and Firearms, as applicable. All licenses are revocable andare not transferable. The agencies involved have full power to limit,condition, suspend or revoke any such license, and any such disciplinary actioncould (and revocation would) have a material adverse effect on the operationsof the Gaming Subsidiaries.

*Native American Gaming*

The terms and conditionsof management contracts and the operation of casinos and all gaming on landheld in trust for Native American tribes in the United States are subject tothe Indian Gaming Regulatory Act of 1988 (“IGRA”), which is administered by theNational Indian Gaming Commission (“NIGC”) and the gaming regulatory agenciesof tribal governments. IGRA is subject to interpretation by the NIGC and may besubject to judicial and legislative clarification or amendment.

IGRA established threeseparate classes of tribal gaming-Class I, Class II and Class III.Class I includes all traditional or social games solely for prizes ofminimal value played by a tribe in connection with celebrations or ceremonies. Class IIgaming includes games such as bingo, pull-tabs, punchboards, instant bingo andnon-banked card games (those that are not played against the house), such aspoker. Class III gaming is casino-style gaming and includes bankedtable games such as blackjack, craps and roulette, and gaming machines such asslots, video poker, lotteries and pari-mutuel wagering. Thunder Valley mayprovide Class II gaming and, as limited by the tribal-state compact,Class III gaming.

IGRA requires NIGCapproval of management contracts for Class II and Class III gaming aswell as the review of all agreements collateral to the management contracts.The management agreement relating to the Company’s management of the casinoowned by the UAIC was approved by the NIGC with respect to Thunder Valley in December 2002.The NIGC will not approve a management contract if a director or a 10%shareholder of the management company: (i) is an elected member of the governingbody of the Indian tribe which is the party to the management contract; (ii) hasbeen or subsequently is convicted of a felony or gaming offense; (iii) hasknowingly and willfully provided materially important false information to theNIGC or the tribe; (iv) has refused to respond to questions from the NIGC;or (v) is a person whose prior history, reputation and associations pose athreat to the public interest or to effective gaming regulation and control, orcreate or enhance the chance of unsuitable activities in gaming or the businessand financial arrangements incidental thereto. In addition, the NIGC will notapprove a management contract if the management company or any of its agentshave attempted to unduly influence any decision or process of tribal governmentrelating to gaming, or if the management company has materially breached theterms of the management contract or the tribe’s gaming ordinance, orresolution, or a trustee, exercising the skill due diligence that a trustee iscommonly held to, would not approve the management contract. A managementcontract can be approved only after the NIGC determines that the contractprovides, among other things, for: (i) adequate accounting procedures andverifiable financial reports, which must be furnished to the tribe; (ii) tribalaccess to the daily operations of the gaming enterprise, including the right toverify daily gross revenues and income; (iii) minimum guaranteed paymentsto the tribe, which must have priority over the retirement of development andconstruction costs; (iv) a ceiling on the repayment of such developmentand construction costs and (v) a contract term not exceeding five yearsand a management fee not exceeding 30% of net revenues (as determined by theNIGC); provided that the NIGC may approve up to a seven year term and amanagement fee not to exceed 40% of net revenues if 

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the NIGCis satisfied that the capital investment required, and the income projectionsfor the particular gaming activity require the larger fee and longer term. Thereis no periodic or ongoing review of approved contracts by the NIGC. The onlypost-approval action that could result in possible modification or cancellationof a contract would be as the result of an enforcement action taken by the NIGCbased on a violation of the law or an issue affecting suitability.

IGRA prohibits all formsof Class III gaming unless the tribe has entered into a written agreementwith the state that specifically authorizes the types of Class III gamingthe tribe may offer (a “tribal-state compact”). These compacts provide,among other things, the manner and extent to which each state will conductbackground investigations and certify the suitability of the manager, itsofficers, directors, and key employees to conduct gaming on Native Americanlands. The Company has been licensed by the UAIC’s tribal gaming agency tomanage Thunder Valley.

Title 25, Section 81of the United States Code states that “no agreement shall be made by any personwith any tribe of Indians, or individual Indians not citizens of the United States,for the payment or delivery of any money or other thing of value... inconsideration of services for said Indians relative to their lands... unlesssuch contract or agreement be executed and approved” by the Secretary or his orher designee. An agreement or contract for services relative to Native Americanlands which fails to conform with the requirements of Section 81 is voidand unenforceable. All money or other thing of value paid to any person by anyNative American or tribe for or on his or their behalf, on account of suchservices, in excess of any amount approved by the Secretary or his or herauthorized representative will be subject to forfeiture. We believe that wehave complied with the requirements of section 81 with respect to ourmanagement contract for Thunder Valley and intend to comply with Section 81with respect to any other contract to manage casinos located on Native Americanland in the United States.

Native American tribes are sovereign with their owngovernmental systems, which have primary regulatory authority over gaming onland within the tribes’ jurisdiction. Therefore, persons engaged in gamingactivities, including the Company, are subject to the provisions of tribalordinances and regulations on gaming. These ordinances are subject to review bythe NIGC under certain standards established by IGRA. The NIGC may determinethat some or all of the ordinances require amendment, and that additionalrequirements, including additional licensing requirements, may be imposed on us.We have received no such notification regarding Thunder Valley. The possessionof valid licenses from the UAIC are ongoing conditions of our managementagreement with that tribe.

Several bills have beenintroduced in Congress that would amend IGRA. While there have been a number oftechnical amendments to IGRA, to date there have been no material changes. Anyamendment of IGRA could change the governmental structure and requirementswithin which Thunder Valley could conduct gaming, and may have an adverse effecton our results of operations or impose additional regulatory or operationalburdens.

*California GamingRegulations*

In California, licensingand registration requirements for tribal financing sources are governed by thecompact, amended compact and by regulations adopted by the California GamblingControl Commission and the Tribal Gaming Authority (the “TGA”).

The UAIC’S compact was setto expire on December 31, 2020. The Amended Compact extended the termuntil December 31, 2030. UAIC’S compact and amended compact require thatany person who directly or indirectly extends financing to the UAIC’S gamingfacility or gaming operation must be licensed as a “financial source” by the TGA.However, as permitted by the compact and amended compact, the TGA has thediscretion to exempt federally and state regulated banks, savings and loanassociations and other federally and state regulated lending institutions,entities identified by Regulation CGCC-2, subdivision (f) of theCalifornia Gambling Control Commission, as well as persons who hold less than 10%

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of notesissued by the UAIC or a related entity. The Amended Compact further specifiesthat entities identified by Regulation CGCC-2, subdivision (h) ofthe California Gambling Control Commission, and persons or entities whose soleconnection with extending financing to the UAIC is to provide loan brokerage ordebt servicing for a financial source at no cost to the UAIC or the GamingOperation are not considered financial sources. For an applicant who is anon-exempted business entity, these licensing provisions also apply to theentity’s officers, directors, principal management employees, owners (if anunincorporated entity), partners and greater than 10% shareholders. Under thecompact and amended compact, a permanent license cannot be issued unless the TGAhas conducted an investigation as to the suitability of the applicant. Anyapplication for a gaming license may be denied, and any license issued may berevoked, if the TGA determines the applicant to be unsuitable or otherwiseunqualified for a gaming license. Each license is subject to review forcompliance at least every two years.

Prior to receiving alicense, an applicant must apply to the California Gambling Control Commissionfor a determination of suitability. The California Department of Justice,Division of Gambling Control will then conduct an investigation of theapplicant following the guidelines set forth in the California Gambling ControlAct and will provide its suitability recommendation to the California GamblingControl Commission. If the TGA receives notice that the Commission hasdetermined that a person is unsuitable, the compact requires that the TGArevoke any license it has issued to such person.

The compact and amendedcompact state that any agreement between the UAIC and a financial sourceterminates upon revocation or non-renewal of the financial source’s licensebecause of a determination of unsuitability by the California Gambling ControlCommission. Upon such a termination, UAIC’S only liability is for a bona fiderepayment of all outstanding sums (exclusive of interest) owed as of thetermination date, exclusive of unpaid accrued interest.

Further, the UAIC is notpermitted to enter into, or continue to make payments under, any financingagreement with anyone whose application to the California Gambling ControlCommission for a determination of suitability has been denied or has expiredwithout renewal.

*General GamingRegulations in Other Jurisdictions*

If we become involved ingaming operations in any other jurisdictions, such gaming operations will subjectus and certain of our officers, directors, key employees, stockholders andother affiliates (“Regulated Persons”) to strict legal and regulatoryrequirements, including mandatory licensing and approval requirements,suitability requirements, and ongoing regulatory oversight with respect to suchgaming operations. Such legal and regulatory requirements and oversight will beadministered and exercised by the relevant regulatory agency or agencies ineach jurisdiction (the “Regulatory Authorities”). The Company and the RegulatedPersons will need to satisfy the licensing, approval and suitabilityrequirements of each jurisdiction in which we seek to become involved in gamingoperations. These requirements vary from jurisdiction to jurisdiction, butgenerally concern the responsibility, financial stability and character of theowners and managers of gaming operations as well as persons financiallyinterested or involved in gaming operations. In general, the procedures forgaming licensing, approval and finding of suitability require Station and eachRegulated Person to submit detailed personal history information and financialinformation to demonstrate that the proposed gaming operation has adequatefinancial resources generated from suitable sources and adequate procedures tocomply with the operating controls and requirements imposed by law andregulation in each jurisdiction, followed by a thorough investigation by suchRegulatory Authorities. In general, Station and each Regulated Person must pay thecosts of such investigation. An application for any gaming license, approval orfinding of suitability may be denied for any cause that the RegulatoryAuthorities deem reasonable. Once obtained, licenses and approvals may besubject to periodic renewal and generally are not transferable. The RegulatoryAuthorities may at any time revoke, suspend, condition, limit or restrict alicense, approval or finding of suitability for any cause that they deemreasonable. Fines for violations may be levied against the holder of 

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alicense or approval and in certain jurisdictions, gaming operation revenues canbe forfeited to the state under certain circumstances. There can be noassurance that we will obtain all of the necessary licenses, approvals andfindings of suitability or that our officers, directors, key employees, otheraffiliates and certain other stockholders will satisfy the suitabilityrequirements in one or more jurisdictions, or that such licenses, approvals andfindings of suitability, if obtained, will not be revoked, limited, suspendedor not renewed in the future.

Failure by us to obtain,or the loss or suspension of, any necessary licenses, approval or findings ofsuitability would prevent us from conducting gaming operations in suchjurisdiction and possibly in other jurisdictions. We may be required to submitdetailed financial and operating reports to Regulatory Authorities.

*Economic Risks*

Our properties draw asubstantial number of customers from the Las Vegas valley, as well as certaingeographic areas, including Southern California, Arizona and Utah. Adverseeconomic conditions in any of these regions could have a significant adverseeffect on our business, financial condition and results of operations. Sinceall of our properties are located in the Las Vegas valley or NorthernCalifornia, any terrorist activities or disasters in or around Southern Nevadaor Northern California could have a significant adverse effect on our business,financial condition and results of operations.

Our properties usesignificant amounts of electricity, natural gas and other forms of energy.While no shortages of energy have been experienced, the substantial increasesin the cost of electricity, natural gas and gasoline in the United States haveand may continue to negatively affect our operating results. In addition,energy price increases in the regions that constitute a significant source ofcustomers for our properties could result in a decline in disposable income ofpotential customers and a corresponding decrease in visitation and spending atour properties, which could negatively impact revenues.

*Taxes*

The gaming industryrepresents a significant source of tax revenue, particularly to the State ofNevada and its counties and municipalities. From time to time, various stateand federal legislators and officials have proposed changes in tax law, or inthe administration of such law, affecting the gaming industry. The NevadaLegislature is currently in session and there has been no mention ofsignificant tax proposals which would affect the gaming industry.

In June 2004, theUAIC successfully negotiated a new Tribal-State Gaming Compact (“AmendedCompact”) with the State of California which has received approval by the DOI. TheAmended Compact allows an unlimited number of slot machines at Thunder Valleyand extends the term an additional 10 years to 2030. The new compact alsoincludes a revenue sharing agreement with the State of California.

**Employees**

As of February 28,2005, we had approximately 10,800 employees in Nevada, which includes GreenValley Ranch Station and Barley’s. From time to time, certain of our employeesare contacted by unions and we engage in discussions with such employeesregarding establishment of collective bargaining agreements. In 1998, 12 of ouremployees voted to be represented by a union. In 2004, these same employeesvoted to be and were decertified by the union. While we are faced with suchmovements by employees from time to time, we do not believe that such movementswill have any broad-based impact on our employees; however, there can beno assurances to that effect. We believe that we have good relationships withour employees which was demonstrated when we were named one of FORTUNE magazine’s100 best companies to work for in 2005.

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**AvailableInformation**

Station Casinos, Inc.is a reporting company under the Securities Exchange Act of 1934, as amended,and files annual reports, quarterly reports, proxy statements and otherdocuments with the SEC. The public may read and copy any of our filings at theSEC’s Public Reference Room at 450 Fifth Street N.W., Washington, D.C.20549. The public may obtain information on the operation of the PublicReference Room by calling the SEC at 1-800-SEC-0330.Because we make filings to the SEC electronically, access to this informationis available at the SEC’s Internet website (www.sec.gov). This site containsreports and other information regarding issuers that file electronically withthe SEC. We also make available, free of charge, through our Internet website(www.stationcasinos.com) our Annual Report on Form 10-K, QuarterlyReports on Form 10-Q, Current Reports on Form 8-K, and,if applicable, amendments to those reports filed or furnished pursuant to theExchange Act as soon as reasonably practicable after we electronically filesuch material with, or furnish it to, the SEC.

**ITEM 2. PROPERTIES**

Substantially all of the property that we own andlease is subject to a lien to secure borrowings under our Revolving Facility.

Palace Station is situatedon approximately 38 acres that we own located on the west side of Las Vegas,Nevada.

Boulder Station issituated on approximately 46 acres located on the east side of Las Vegas,Nevada. We own 19 acres and lease the remaining 27 acres from KB Enterprises, acompany owned by Frank J. Fertitta, Jr. and Victoria K. Fertitta (the “RelatedLessor”), the parents of Frank J. Fertitta III, Chairman of the Board and ChiefExecutive Officer of the Company and Lorenzo J. Fertitta, Vice Chairman and Presidentof the Company. The lease has a maximum term of 65 years, ending in June 2058.The lease provides for monthly payments of $183,333 through June 2008. In July 2008,and every ten years thereafter, the rent will be adjusted by a cost of livingfactor. In July 2013, and every ten years thereafter, the rent will beadjusted to the product of the fair market value of the land and the greater of(i) the then prevailing annual rate of return for comparably situatedproperty or (ii) 8% per year. In no event will the rent for any period beless than the immediately preceding period. Pursuant to the ground lease, wehave an option, exercisable at five-year intervals with the next option in June 2008,to purchase the land at fair market value. We believe that the terms of theground lease are as fair to us as could be obtained from an independent thirdparty.

Texas Station is situatedon approximately 47 acres located in North Las Vegas, Nevada. We lease thisland from Texas Gambling Hall & Hotel, Inc., a company owned bythe Related Lessor. The lease has a maximum term of 65 years, ending in July 2060.The lease provides for monthly rental payments of $287,500 through June 2005.In July 2005, and every ten years thereafter, the rent will be adjusted bya cost of living factor. In July 2010, and every ten years thereafter, therent will be adjusted to the product of the fair market value of the land andthe greater of (i) the then prevailing annual rate of return beingrealized for owners of comparable land in Clark County or (ii) 8% peryear. In no event will the rent for any period be less than the immediatelypreceding period. Pursuant to the ground lease, we have an option, exercisableat five-year intervals with the next option in May 2005, to purchase theland at fair market value. We believe that the terms of the ground lease are asfair to us as could be obtained from an independent third party.

Sunset Station is situatedon approximately 82 acres that we own located in Henderson, Nevada.

Santa Fe Station issituated on approximately 38 acres that we own located on the northwest side ofLas Vegas, Nevada.

Green Valley RanchStation, a 50% owned joint venture, is situated on approximately 40 acres thatis owned by the joint venture in Henderson, Nevada.

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Fiesta Rancho is situatedon approximately 25 acres that we own in North Las Vegas, Nevada.

Fiesta Henderson issituated on approximately 46 acres that we own in Henderson, Nevada.

We have acquired or areunder contract to acquire approximately 58 acres of land on which Wild WildWest is located and the surrounding area of which, approximately 27 acres had beenacquired as of December 31, 2004. We have exercised our option to purchasethe 19-acre parcel of leased land on which Wild Wild West is located. Pursuantto the lease, the purchase will occur in July 2005. We have also agreed topurchase an additional 12 acres of land and are expected to close on thesetransactions in the first quarter of 2005.

We currently own or leasefive sites, which have been acquired for potential gaming projects, consistingof 198 acres in the Las Vegas valley and 188 acres in Sacramento, Californianear Thunder Valley.

**ITEM 3. LEGALPROCEEDINGS**

Station Casinos and oursubsidiaries are defendants in various lawsuits relating to routine mattersincidental to our business. As with all litigation, no assurance can beprovided as to the outcome of the following matters and litigation inherentlyinvolves significant costs. Following is a summary of key litigation impactingus and our subsidiaries.

*Poulos/Ahearn Litigation*

On April 26, 1994, asuit seeking status as a class action lawsuit was filed by plaintiff, WilliamH. Poulos, et al., as class representative, in the United States District Courtfor the Middle District of Florida (the “Florida District Court”), naming 41manufacturers, distributors and casino operators of video poker and electronicslot machines, including Station Casinos. On May 10, 1994, a lawsuitalleging substantially identical claims was filed by another plaintiff, WilliamAhearn, et al., as class representative, in the Florida District Court, against48 manufacturers, distributors and casino operators of video poker andelectronic slot machines, including the Company and most of the other majorhotel/casino companies. The lawsuits allege that the defendants have engaged ina course of fraudulent and misleading conduct intended to induce persons toplay such games based on a false belief concerning how the gaming machinesoperate, as well as the extent to which there is an opportunity to win. The twolawsuits have been consolidated into a single action, and have been transferredto the United States District Court for the District of Nevada (the “NevadaDistrict Court”). On September 26, 1995, a lawsuit alleging substantiallyidentical claims was filed by plaintiff, Larry Schreier, et al., as classrepresentative, in the Nevada District Court, 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 caseswere filed by defendants. On April 17, 1996, the Poulos/Ahearn lawsuitswere dismissed, but plaintiffs were given leave to file Amended Complaints onor before May 31, 1996. On May 31, 1996, an Amended Complaint wasfiled, naming William H. Poulos, et al., as plaintiff. Defendants filed amotion to dismiss. On August 15, 1996, the Schreier lawsuit was dismissedwith leave to amend. On September 27, 1996, Schreier filed an AmendedComplaint. Defendants filed motions to dismiss the Amended Complaint. In December 1996,the Nevada District Court consolidated the Poulos/Ahearn, the Schreier, and athird case not involving the Company and ordered all pending motions be deemedwithdrawn without prejudice, including Defendants’ Motions to Dismiss theAmended Complaints. The plaintiffs filed a Consolidated Amended Complaint on February 13,1997. On or about December 19, 1997, the Nevada District Court issuedformal opinions granting in part and denying in part the defendants’ motion todismiss. In so doing, the Nevada District Court ordered plaintiffs to file anamended complaint in accordance with the Court’s orders in January of1998. Accordingly, plaintiffs amended their complaint and filed it with theNevada District Court in February 1998. The Company and all otherdefendants continue to deny the allegations contained in the 

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amendedcomplaint filed on behalf of plaintiffs. The plaintiffs are seekingcompensatory, special, consequential, incidental, and punitive damages inunspecified amounts.

On June 25, 2002, theNevada District Court denied plaintiffs’ motion for class certification. On July 11,2002, plaintiffs filed a petition for permission to appeal such classcertification ruling with the United States Court of Appeals for the NinthCircuit. On August 15, 2002, the Ninth Circuit granted the plaintiffs’petition for permission to appeal such class certification ruling. On January 15,2004, the Court of Appeals heard oral argument on this matter. On August 10,2004, the Ninth Circuit affirmed the District Court’s order denying theplaintiff’s motion for class certification. Accordingly, the matter isscheduled to move forward on behalf of the three named plaintiffs only. Whileno assurances can be made with respect to any litigation, the Company believesthat the plaintiffs’ claims are without merit and does not expect that thelawsuits will have a material adverse effect on the Company’s financialposition or results of operations.

*Harrah’s Litigation*

On July 13, 2001, theCompany and five of its major operating subsidiaries were named as defendantsin a lawsuit brought by Harrah’s Entertainment, Inc. and Harrah’sOperating Company, Inc. in the United States District Court, District ofNevada (CV-S-01-0825-PMP-RJJ). The plaintiffs allege that theCompany and its subsidiaries are liable for unspecified actual and punitivedamages, and they seek injunctive and other relief, based on allegations thatthe Company’s “Boarding Pass Rewards Program” infringes on various patents heldby the plaintiffs.

On October 4, 2001,the Company and the subsidiaries filed their answer and counterclaim seekingdeclaratory judgment that Harrah’s patents (1) are not infringed by theCompany’s and the subsidiaries’ actions, (2) are invalid under federalpatent law and (3) are rendered unenforceable due to Harrah’s inequitableconduct. On March 27, 2002, Harrah’s filed an amended complaint, whichadded an additional defendant, Green Valley Ranch Gaming, LLC, which is anaffiliate of the Company. On April 22, 2002, the Company and itssubsidiaries and affiliate filed their amended answer and counterclaim denyinginfringement by Green Valley Ranch Gaming, LLC, and alleging Harrah’s committedfurther acts of inequitable conduct.

On January 17, 2003,the Company filed motions for summary judgment or partial summary judgment onseveral issues: (1) a Motion for Summary Judgment of PatentUnenforceability Due To Inequitable Conduct, (2) a Motion for SummaryJudgment of Patent Invalidity Under 35 U.S.C. ss 102 and 103 (lack of noveltyand obviousness), (3) a Motion for Partial Summary Judgment of PatentInvalidity Under 35 U.S.C. s 112 (indefiniteness, lack of written descriptionand failure to disclose best mode), (4) a Motion for Partial SummaryJudgment of Non-Infringement of U.S. Patent No. 6,003,013, and (5) aMotion for Partial Summary Judgment of Non-Infringement of U.S. Patent No. 6,183,362.That same day, Harrah’s filed motions for partial summary judgment on severalissues: (1) a Motion for Partial Summary Judgment of Infringement ofClaims 15-18 of U.S. Patent No. 5,761,647, (2) a Motion forPartial Summary Judgment of Infringement of Claims 1-2 and 49 of U.S.Patent No. 6,003,013, (3) a Motion for Partial Summary Judgment onDefendants’ Invalidity Defenses, and (4) a Motion for Partial SummaryJudgment That Certain Third Party Systems Are Not Prior Art. During February andMarch of 2003, the parties filed oppositions, reply briefs and variousmotions to strike in response to the summary judgment motions.

On March 23, 2004,the District Court heard oral argument on certain of the summary judgmentmotions and motions to strike. On May 19, 2004, the District Court grantedthe Company’s motion for summary judgment on Harrah’s claims that the Companyhad infringed upon U.S. Patents Nos. 5,761,647 and 6,183,362, held by Harrah’srelating to its customer rewards and tracking program. In granting that motion,the District Court ruled that such patents are invalid as a matter of law dueto indefiniteness and lack of enabling disclosure of the claimed subject matter.A substantial portion of the patent infringement claim brought by Harrah’sregarding U.S. Patent No. 6,003,013 (the “013 Patent”) was also dismissedas a 

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resultof that summary judgment ruling. On August 23, 2004, the District Courtentered final judgment and declared invalid all claims of U.S. Patent Nos.5,761,647 and 6,183,362, and all but three claims of the ‘013 Patent. The finaljudgment also dismissed with prejudice all claims of the ‘013 Patent that werenot declared invalid, and dismissed without prejudice the Company’scounterclaims for declaratory judgment of noninfringement and invalidity.

On September 13,2004, Harrah’s filed a Notice of Appeal with the United States Court of Appealsfor the Federal Circuit. On October 14, 2004, the Company filed a Noticeof Cross Appeal with the Federal Circuit. On February 17, 2005, Harrah’sfiled its appellate brief with the Federal Circuit. While no assurances can bemade with respect to any litigation, the Company believes that the plaintiffs’claims are without merit and does not expect that the lawsuit will have amaterial adverse effect on its financial position or results of operations.

*Plattner Litigation*

On May 2, 2003, theCompany and one of its operating subsidiaries, Palace Station Hotel &Casino, Inc. (“Palace Station”), were named as defendants in a lawsuitseeking status as a class action brought by Dov Plattner in the Superior Courtof Los Angeles County, California (Case No. CB295056).

The lawsuit seeks torecover for alleged breach of contract, fraud, negligent misrepresentation,breach of covenant of good faith and fair dealing, promissory fraud, unjustenrichment and violations of sections 17200 and 17500, et. seq. of theCalifornia Business and Professions Code, all in connection with energy andtelephone surcharge fees imposed on Palace Station hotel guests. The plaintiffis requesting unspecified actual and punitive damages, as well as injunctiveand other relief.

On November 10, 2003,the defendants filed a response to the complaint denying all liability. On June 18,2004, the parties entered into a Settlement Agreement and Release (the “ProposedSettlement”). Pursuant to the Proposed Settlement and subject to Superior Courtapproval, the parties have agreed that the Company will (i) issue twopersonalized coupons to each Settlement Class Member (as defined in theProposed Settlement), one for $3.00 and one for $2.50, with each coupon to begood toward a discount of a quoted room rate for a single night’s stay at anyof the Station Hotels (as defined in the Proposed Settlement), and (ii) paythe plaintiff’s reasonable attorney’s fees and expenses in exchange for theplaintiff dismissing the lawsuit (including all claims held by the members ofthe settlement class and the general public) with prejudice. The ProposedSettlement stipulates that the Company denies any liability with respect to theplaintiff’s claims. On October 22, 2004, the Superior Court approved theProposed Settlement and dismissed the lawsuit with prejudice, except for theclaims of eight class members that opted out of the settlement class.

*Castillo Litigation*

On May 14, 2003, theCompany (as a nominal defendant only) and all of its executive officers anddirectors were named as defendants in a derivative action lawsuit, which alsoseeks status as a class action, brought by Bernard Castillo in the DistrictCourt of Clark County, Nevada (Case No. A467663).

The lawsuit alleges that (1) thedirector defendants breached their fiduciary duties by failing to make certaindisclosures in the Company’s 2002 Proxy Statement regarding the sale by theCompany of its subsidiary, Southwest Gaming Services, Inc. (“SGSI”), andregarding a proposal seeking shareholder approval of an amendment to theCompany’s stock option plan; (2) the director defendants breached theirfiduciary duties in approving the sale of SGSI and in recommending approval ofthe option plan amendment; and (3) the purchasers of SGSI and the recipientsof certain benefits made possible by the option plan amendment were unjustlyenriched. The plaintiff is requesting unspecified actual damages, as well asinjunctive and other relief.

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On July 21, 2003, thedefendants filed a motion to dismiss or, in the alternative, motion to stay allof the plaintiff’s claims. On October 24, 2003, the District Court grantedthe motion to stay all of plaintiff’s claims pending the consideration of suchclaims by a special litigation committee to be formed by the Company inaccordance with the Court’s order granting such motion. On November 19,2003, the defendants filed their first amended answer to the complaint. On February 27,2004, the District Court entered another order extending the stay for another120 days pending the special litigation committee investigation.

On July 9, 2004, theparties entered into a Stipulation of Settlement (the “Proposed Settlement”).Pursuant to the Proposed Settlement and subject to District Court approval, theparties have agreed that the Company will (i) adopt new language in itsCorporate Governance Guidelines, which specifically relates to “interesteddirector transactions,” and (ii) pay the plaintiff’s attorneys’ fees andexpenses in exchange for the plaintiff dismissing the lawsuit (including allclaims held by the Company and the members of the certified class), withprejudice. The Proposed Settlement stipulates that the Company denies anyliability with respect to the plaintiff’s claims. On September 13, 2004,the District Court approved the Proposed Settlement and dismissed the lawsuitwith prejudice.

**ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

There were no matterssubmitted to a vote of security holders during the fourth quarter of 2004.

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**PART II**

**ITEM5.  MARKET FOR REGISTRANT’S COMMON EQUITYAND RELATED STOCKHOLDER MATTERS**

Ourcommon stock trades on the New York Stock Exchange under the symbol “STN”. Thefollowing table sets forth, for the periods indicated, the high and low saleprice per share of our common stock as reported on the New York Stock Exchange.
| ** **                             | ** ** | **High** | ** ** | **Low** | ** ** |
|----------------------------------------|------------|----------|------------|---------|------------|
| **Year Ending December 31, 2004** |       |     |       |    |       |
| First Quarter                          |       | $        | 44.17      |    | $          | 30.04 |   |
| Second Quarter                         |       | 50.94    |       | 41.35   |       |
| Third Quarter                          |       | 49.73    |       | 40.57   |       |
| Fourth Quarter                         |       | 59.12    |       | 46.15   |       |
| **Year Ending December 31, 2003** |       |     |       |    |       |
| First Quarter                          |       | $        | 21.67      |    | $          | 16.55 |   |
| Second Quarter                         |       | 25.87    |       | 20.49   |       |
| Third Quarter                          |       | 32.96    |       | 24.85   |       |
| Fourth Quarter                         |       | 33.50    |       | 27.80   |       |

 

As of February 28, 2005, there were 551 holdersof record of our common stock and the closing price of our common stock was$60.94.

During the year ended December 31, 2004, theCompany paid a quarterly cash dividend of $0.125 per share to shareholders ofrecord on February 12, 2004, $0.175 per share to shareholders of record inMay 14, 2004 and August 13, 2004 and $0.21 per share to shareholdersof record in November 12, 2004. The total amount paid in dividends for2004 was $44.3 million. During the year ended December 31, 2003, theCompany paid a quarterly cash dividend of $0.125 per share to shareholders ofrecord on August 14, 2003 and November 13, 2003 for a total of $14.9million. The payment of dividends in the future will be at the discretion ofour Board of Directors. Restrictions imposed by our debt instruments and otheragreements limit the payment of dividends (see “Management’s Discussion andAnalysis of Financial Condition and Results of Operations—Description ofCertain Indebtedness and Capital Stock”).

Thefollowing table lists all equity compensation plans that provide for the awardof our securities or the grant of options as of December 31, 2004:
| **Plan category**                                      | ** ** | ** ** | ** ** | **Number of securities  to be issued upon  exercise of  outstanding options** | ** ** | **Weighted-average exercise  price of outstanding  options** | ** ** | **Number of securities  remaining available for  future issuance under  equity compensation  plans** | ** ** |
|-------------------------------------------------------------|------------|------------|------------|------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity compensation  plans approved by shareholders         |       |       | 3,322,000  |                                                                                                             |       |                                                                        | $          | 11.59                                                                                                                                   |       |   |   | 417,874 |   |   |
| Equity compensation  plans not approved by shareholders (a) |       |       | 630,700    |                                                                                                             |       |                                                                        | $          | 13.92                                                                                                                                   |       |   |   | 39,002 |   |   |
| Total                                                       |       |       | 3,952,700  |                                                                                                             |       |                                                                        | $          | 11.96                                                                                                                                   |       |   |   | 456,876 |   |   |

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(a)           OnDecember 7, 1999, our Board of Directors approved the 1999 StockCompensation Program which includes the 1999 Compensatory Stock Option Planproviding for the majority of the grants of nonqualified stock options toemployees who are not officers or directors of the Company and the 1999 SharePlan which grants shares of the Company’s common stock to employees based ontheir length of service with the Company and restricted shares of common stockare granted. A maximum of 2,500,000 shares of common stock has been reservedfor issuance under the 1999 Stock Compensation Program.

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**ITEM6. SELECTED CONSOLIDATED FINANCIAL DATA**

Theselected consolidated financial data presented below as of and for our fiscalyears ended December 31, 2000, 2001, 2002, 2003 and 2004 have been derivedfrom our consolidated financial statements which, except for 2000 and 2001, arecontained elsewhere in this Annual Report on Form 10-K. The selectedconsolidated financial data set forth below are qualified in their entirety by,and should be read in conjunction with, “Management’s Discussion and Analysisof Financial Condition and Results of Operations” and the Consolidated FinancialStatements, the notes thereto and other financial and statistical informationincluded elsewhere in this Annual Report on Form 10-K.
| ** **                                                                          | ** ** | **For the years ended December 31,**                   | ** ** |
|-------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                                                                          | ** ** | **2004(a)**                                                                     | ** ** | **2003(b)** | ** ** | **2002** | ** ** | **2001(c)** | ** ** | **2000(d)** | ** ** |
| ** **                                                                          | ** ** | **(amounts in thousands, except per share data)** | ** ** |
| **Operating Results:**                                                              |       |                                                                            |       |   |   |   |   |   |   |   |   |
| Net revenues                                                                        |       | $                                                                               | 986,742    |   | $ | 858,089 |   | $ | 792,865 |   | $ | 836,857 |   | $ | 990,060 |   |
| Operating costs and  expenses, excluding the following items                        |       | 718,156                                                                         |       | 655,844 |   | 638,164 |   | 689,770 |   | 782,351 |   |
| Development expense (e)                                                             |       | 10,683                                                                          |       | 4,306 |   | — |   | — |   | — |   |
| Preopening expenses (f)                                                             |       | 848                                                                             |       | — |   | — |   | 6,413 |   | 3,858 |   |
| Impairment loss (g)                                                                 |       | —                                                                          |       | 18,868 |   | 8,791 |   | 4,001 |   | — |   |
| Litigation settlement (h)                                                           |       | —                                                                          |       | 38,000 |   | — |   | — |   | — |   |
| Gain on sale of  properties (i)                                                     |       | —                                                                          |       | — |   | — |   | (1,662 | ) | (41,731 | ) |
| Missouri/Nevada investigations  and  fines (j)                                      |       | —                                                                          |       | — |   | — |   | — |   | 4,388 |   |
| Operating income                                                                    |       | 257,055                                                                         |       | 141,071 |   | 145,910 |   | 138,335 |   | 241,194 |   |
| Earnings from joint  ventures                                                       |       | 26,524                                                                          |       | 20,604 |   | 11,293 |   | 2,504 |   | 1,618 |   |
| Operating income and  earnings from joint ventures                                  |       | 283,579                                                                         |       | 161,675 |   | 157,203 |   | 140,839 |   | 242,812 |   |
| Other expense                                                                       |       | (178,350                                                                        | )          | (93,498 | ) | (107,447 | ) | (110,376 | ) | (95,503 | ) |
| Income before income  taxes and cumulative effect of change in accounting principle |       | 105,229                                                                         |       | 68,177 |   | 49,756 |   | 30,463 |   | 147,309 |   |
| Income tax provision                                                                |       | (38,879                                                                         | )          | (23,834 | ) | (18,508 | ) | (11,094 | ) | (53,804 | ) |
| Cumulative effect of  change in accounting principle (k)                            |       | —                                                                          |       | — |   | (13,316 | ) | — |   | — |   |
| Net income applicable to  common stock                                              |       | $                                                                               | 66,350     |   | $ | 44,343 |   | $ | 17,932 |   | $ | 19,369 |   | $ | 93,505 |   |
| Basic earning per common  share                                                     |       | $                                                                               | 1.03       |   | $ | 0.76 |   | $ | 0.31 |   | $ | 0.34 |   | $ | 1.55 |   |
| Diluted earnings per  common share                                                  |       | $                                                                               | 1.00       |   | $ | 0.72 |   | $ | 0.30 |   | $ | 0.32 |   | $ | 1.48 |   |
| **Balance Sheet Data:**                                                             |       |                                                                            |       |   |   |   |   |   |   |   |   |
| Total assets                                                                        |       | $                                                                               | 2,045,584  |   | $ | 1,745,972 |   | $ | 1,598,347 |   | $ | 1,656,122 |   | $ | 1,440,428 |   |
| Long-term debt                                                                      |       | 1,338,213                                                                       |       | 1,168,957 |   | 1,165,722 |   | 1,237,090 |   | 989,625 |   |
| Stockholders’ equity                                                           |       | 488,921                                                                         |       | 339,939 |   | 270,678 |   | 248,904 |   | 288,887 |   |

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(a)    On August 2, 2004, we purchased Magic Star Casinoand Gold Rush Casino.

(b)   On January 27, 2003, we purchased Wildfire. Weopened Thunder Valley on June 9, 2003, which we manage on behalf of theUAIC (see Note 6 to the Consolidated Financial Statements in this AnnualReport on Form 10-K).

(c)    On January 4, 2001, we purchased Fiesta CasinoHotel and renamed the property Fiesta Rancho in December 2001. On January 30,2001, we purchased The Reserve Hotel & Casino and renamed the propertyFiesta Henderson in December 2001. On September 30, 2001, we sold ourslot route management services subsidiary, Southwest Gaming Services, Inc.On December 18, 2001, we opened Green Valley Ranch Station.

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(d)   On October 2, 2000, we purchased Santa Fe Hotel &Casino and renamed the property Santa Fe Station. On December 20, 2000, wesold the assets of Station Casino St. Charles and Station Casino Kansas City.

(e)    During the last half of 2003, we increased ourdevelopment resources in an effort to identify potential gaming opportunities,with an emphasis on expanding our management of Native American casinos and otherdevelopment opportunities. Development expenses include costs to develop newgaming opportunities, which include payroll, travel and legal expenses. Alsoincluded in development expense for 2004 is a $2.0 million non-reimbursablemilestone payment related to the Gun Lake project in Michigan. During 2003,$2.0 million of costs related to the Graton Rancheria project were expensedafter achieving certain milestones on the project and are also not reimbursable(see Note 10 to the Consolidated Financial Statements in this AnnualReport on Form 10-K).

(f)    Preopening expenses for the year ended December 31,2004 include costs incurred prior to the opening of Red Rock Station (see Note10). Preopening expenses for the year ended December 31, 2001 includecosts incurred prior to the acquisitions of Fiesta Rancho and Fiesta Hendersonand costs incurred prior to the opening of Green Valley Ranch Station.Preopening expenses for the year ended December 31, 2000 included costsincurred prior to the acquisitions of Santa Fe Station, Fiesta Rancho andFiesta Henderson, the expansion project at Texas Station and costs incurredprior to the opening of Green Valley Ranch Station.

(g)    During the year ended December 31, 2003, we recordedan impairment loss of approximately $18.9 million, of which approximately$17.5 million was related to the impairment of goodwill at Fiesta Ranchoas a result of reduced growth assumptions (see Note 7 to the ConsolidatedFinancial Statements in this Annual Report on Form 10-K). Inaddition, approximately $1.4 million of the impairment loss in 2003 wasprimarily related to the write off of our investment in the development of anew slot product (see Note 7 to the Consolidated Financial Statements inthis Annual Report on Form 10-K). During the year ended December 31,2002, we recorded an impairment loss of approximately $8.8 million, ofwhich approximately $3.9 million was related to the write-down of certainassets related to our investment in an Internet, intra-state gamingplatform and related technology and approximately $4.9 million, which wasrelated to the write-off of our option to invest in the Internet wageringbusiness with Kerzner Interactive (see Note 7 to the ConsolidatedFinancial Statements in this Annual Report on Form 10-K). During theyear ended December 31, 2001, we recorded an impairment loss ofapproximately $4.0 million related to a 34-acre parcel, near theintersection of Martin Luther King Jr. Drive and Craig Road in North Las Vegas.

(h)   On February 9, 2004, we entered into an agreementto settle a lawsuit that centered on allegations of improper conduct by ourformer Missouri legal counsel for $38 million.

(i)    During the year ended December 31, 2001, we soldSouthwest Gaming Services, Inc., a wholly owned subsidiary, to Blake L.Sartini, our former executive vice-president and chief operating officer, andrecorded a gain on the sale of approximately $1.7 million. During the yearended December 31, 2000, we sold substantially all of the assets of theMissouri Operations for approximately $488 million and recorded a gain onthe sale of approximately $41.7 million.

(j)     During the year ended December 31, 2000, werecorded approximately $4.4 million in costs related to litigation and finesstemming from investigatory proceedings in Missouri and Nevada.

(k)   The Financial Accounting Standards Board issuedStatement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwilland Other Intangible Assets”, in June 2001. SFAS No. 142 changed theaccounting for goodwill from an amortization method to an impairment-onlyapproach. Amortization of goodwill, including goodwill recorded in pastbusiness combinations, ceased upon the adoption of SFAS No. 142. Weimplemented SFAS No. 142 on January 1, 2002 and tested for impairmentin accordance with the provisions of SFAS No. 142 in the first quarter of2002. As a result of an independent third party appraisal, we recorded animpairment loss of $13.3 million, net of the applicable tax benefit, relatedto Fiesta Rancho, which is shown as a cumulative effect of a change inaccounting principle in our consolidated statements of operations.

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**ITEM7.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

The following discussionand analysis should be read in conjunction with “Selected ConsolidatedFinancial Data” and the financial statements and notes thereto includedelsewhere in this Annual Report on Form 10-K.

**Results ofOperations**

Thefollowing table highlights the results of our operations (dollars inthousands):
| ** **                             | ** ** | **Year ended  December 31,  2004** | ** ** | **Percent  change** | ** ** | **Year ended  December 31,  2003** | ** ** | **Percent  change** | ** ** | **Year ended  December 31,  2002** | ** ** |
|----------------------------------------|------------|----------------------------------------------|------------|---------------------|------------|----------------------------------------------|------------|---------------------|------------|----------------------------------------------|------------|
| **Net  revenues—total**           |       |                                         | $          | 986,742             |       |                                         | 15.0       | %                   |       | $                                            | 858,089    |   |   | 8.2 | % |   | $ | 792,865 |   |   |
| Major Las Vegas Operations (a)         |       |                                         | 868,248    |                |       | 11.2                                         | %          |                | 781,061    |                                         |       | 1.6 | % |   | 768,813 |   |   |
| Management fees (b)                    |       |                                         | 84,618     |                |       | 81.2                                         | %          |                | 46,711     |                                         |       | 862.5 | % |   | 4,853 |   |   |
| Other Operations and Corporate (c)     |       |                                         | 33,876     |                |       | 11.7                                         | %          |                | 30,317     |                                         |       | 57.9 | % |   | 19,199 |   |   |
| **Operating income (loss)—total** |       |                                         | $          | 257,055             |       |                                         | 82.2       | %                   |       | $                                            | 141,071    |   |   | (3.3 | )% |   | $ | 145,910 |   |   |
| Major Las Vegas Operations (a)         |       |                                         | 232,678    |                |       | 36.4                                         | %          |                | 170,566    |                                         |       | (7.9 | )% |   | 185,170 |   |   |
| Management fees (b)                    |       |                                         | 84,618     |                |       | 81.2                                         | %          |                | 46,711     |                                         |       | 862.5 | % |   | 4,853 |   |   |
| Other Operations and Corporate (c)     |       |                                         | (60,241    | )                   |       | 20.9                                         | %          |                | (76,206    | )                                            |       | (72.8 | )% |   | (44,113 | ) |   |
| **Cash  flows provided by (used in):** |       |                                         |       |                |       |                                         |       |                |       |                                         |       |   |   |   |   |   |   |
| Operating activities                   |       |                                         | $          | 261,596             |       |                                         | 33.2       | %                   |       | $                                            | 196,451    |   |   | 47.8 | % |   | $ | 132,898 |   |   |
| Investing activities                   |       |                                         | (337,114   | )                   |       | (82.9                                        | )%         |                | (184,317   | )                                            |       | (205.2 | )% |   | (60,393 | ) |   |
| Financing  activities                  |       |                                         | 81,663     |                |       | 987.5                                        | %          |                | (9,201     | )                                            |       | 88.4 | % |   | (79,283 | ) |   |

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(a)           Includesthe wholly owned properties of Palace Station, Boulder Station, Texas Station,Sunset Station, Santa Fe Station, Fiesta Rancho and Fiesta Henderson.

(b)          Includesmanagement fees from Thunder Valley (since June 9, 2003), Green ValleyRanch Station and Barley’s.

(c)           Includesthe wholly owned properties of Wild Wild West, Wildfire (since January 27,2003), Magic Star (since August 2, 2004), Gold Rush (since August 2,2004), and Corporate and Development expense.

*Net Revenues*

Consolidated net revenuesfor the year ended December 31, 2004 increased 15.0% to$986.7 million as compared to $858.1 million for the year ended December 31,2003. The increase in consolidated net revenues was due to an $81.9 millionincrease in casino revenues and an increase in management fees from ThunderValley, which includes a full year of operations. Net revenues increasedprimarily due to a strong Las Vegas local economy, continued population andemployment growth in the Las Vegas valley, no new competition in the local’smarket, as well as the continued success of our Jumbo brand products, includingJumbo Jackpot. Jumbo Jackpot, which we introduced in April 2003, is anexclusive progressive slot jackpot that allows customers using a Boarding Pass orAmigo Club card the opportunity to win between $50,000 and $150,000 just forplaying slot machines.

Consolidated net revenuesfor the year ended December 31, 2003 increased 8.2% to $858.1 millionas compared to $792.9 million for the year ended December 31, 2002.The increase in consolidated net revenues was primarily due to management anddevelopment fees from Thunder Valley, which opened on June 9, 2003.Overall population growth in the Las Vegas valley, as well as the introductionof Jumbo Jackpot in April 2003, were also contributing factors to theincrease in consolidated net revenues.

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*OperatingIncome/Operating Margin*

Inanalyzing year-to-year comparative operating results, managementtakes into consideration the effect of certain charges and credits on operatingincome. The following table identifies these charges and credits and theresulting operating income and operating margins, excluding such charges andcredits (dollars in thousands):
| ** **                                             | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                             | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| Operating income                                       |       | $                                           | 257,055    |   | $ | 141,071 |   | $ | 145,910 |   |
| *Operating margin*                                     |       | 26.1                                        | %          | 16.4 | % | 18.4 | % |
| Certain  charges/credits:                              |       |                                        |       |   |   |   |   |
| Thunder Valley development fee                         |       | —                                      |       | (4,595 | ) | — |   |
| Impairment loss                                        |       | —                                      |       | 18,868 |   | 8,791 |   |
| Litigation settlement                                  |       | —                                      |       | 38,000 |   | — |   |
| Preopening expenses                                    |       | 848                                         |       | — |   | — |   |
| Operating income,  excluding certain charges/credits   |       | $                                           | 257,903    |   | $ | 193,344 |   | $ | 154,701 |   |
| *Operating  margin, excluding certain charges/credits* |       | 26.1                                        | %          | 22.5 | % | 19.5 | % |

 

Consolidated operating income, excluding certaincharges/credits, increased 33.4% in the year ended December 31, 2004 ascompared to the year ended December 31, 2003. This increase is primarilydue to increased consolidated net revenues noted above. There is significantoperating leverage on incremental revenue due to a significant amount of fixedcosts. As a result, our consolidated operating margin, excluding certaincharges/credits, improved 3.6 percentage points in the year ended December 31,2004 as compared to the year ended December 31, 2003.

Consolidated operating income, excluding certaincharges/credits, increased 25.0% in the year ended December 31, 2003 ascompared to the year ended December 31, 2002. This increase is primarilydue to management fees from Thunder Valley, which opened on June 9, 2003. Asa result, our consolidated margin, excluding certain charges/credits, improved3.0 percentage points in the year ended December 31, 2003 as compared tothe year ended December 31, 2002.

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Thefollowing table highlights our various sources of revenues and expenses ascompared to prior years (dollars in thousands):
| ** **                                   | ** ** | **Year ended  December 31,  2004** | ** ** | **Percent  change** | ** ** | **Year ended  December 31,  2003** | ** ** | **Percent  change** | ** ** | **Year ended  December 31,  2002** | ** ** |
|----------------------------------------------|------------|----------------------------------------------|------------|---------------------|------------|----------------------------------------------|------------|---------------------|------------|----------------------------------------------|------------|
| Casino revenues                              |       |                                         | $          | 730,584             | * *   |                                         |       | 12.6                | %          |                                         |       | $ | 648,664 | * * |   | 1.7 | % |   | $ | 638,113 |   |   |
| Casino expenses                              |       |                                         | 273,816    | * *            |       |                                         | 3.2        | %                   |       |                                         | 265,203    | * * |   | 2.6 | % |   | 258,383 |   |   |
| *Margin*                                     | * *   | * *                                     | *62.5*     | *%*                 | * *   | * *                                     | * *   |                | * *   | * *                                     | *59.1*     | *%* |   |   |   |   | *59.5* | *%* |   |
| Food and beverage revenues                   |       |                                         | $          | 140,332             | * *   |                                         |       | 5.0                 | %          |                                         |       | $ | 133,676 | * * |   | (0.1 | )% |   | $ | 133,811 |   |   |
| Food and beverage  expenses                  |       |                                         | 100,548    | * *            |       |                                         | 14.5       | %                   |       |                                         | 87,783     | * * |   | 11.5 | % |   | 78,738 |   |   |
| *Margin*                                     | * *   | * *                                     | *28.4*     | *%*                 | * *   | * *                                     | * *   |                | * *   | * *                                     | *34.3*     | *%* |   |   |   |   | *41.2* | *%* |   |
| Room revenues                           |       |                                         | $          | 57,057              | * *   |                                         |       | 13.1                | %          |                                         |       | $ | 50,460 | * * |   | 3.9 | % |   | $ | 48,579 |   |   |
| Room expenses                           |       |                                         | 21,053     | * *            |       |                                         | 7.5        | %                   |       |                                         | 19,580     | * * |   | 3.1 | % |   | 19,000 |   |   |
| *Margin*                                     | * *   | * *                                     | *63.1*     | *%*                 | * *   | * *                                     | * *   |                | * *   | * *                                     | *61.2*     | *%* |   |   |   |   | *60.9* | *%* |   |
| Other revenues                               |       |                                         | $          | 42,008              | * *   |                                         |       | (8.6                | )%         |                                         |       | $ | 45,943 | * * |   | 12.6 | % |   | $ | 40,790 |   |   |
| Other expenses                               |       |                                         | 16,820     | * *            |       |                                         | 8.9        | %                   |       |                                         | 15,452     | * * |   | (5.1 | )% |   | 16,276 |   |   |
| Management fees                              |       |                                         | $          | 84,618              | * *   |                                         |       | 81.2                | %          |                                         |       | $ | 46,711 | * * |   | 862.5 | % |   | $ | 4,853 |   |   |
| Selling, general and administrative expenses |       |                                         | $          | 172,923             | * *   |                                         |       | 7.0                 | %          |                                         |       | $ | 161,643 | * * |   | 0.4 | % |   | $ | 161,038 |   |   |
| *Percent of net revenues*                    | * *   | * *                                     | *17.5*     | *%*                 | * *   | * *                                     | * *   |                | * *   | * *                                     | *18.8*     | *%* |   |   |   |   | *20.3* | *%* |   |
| Corporate expense                            |       |                                         | $          | 47,189              | * *   |                                         |       | 42.8                | %          |                                         |       | $ | 33,039 | * * |   | 3.4 | % |   | $ | 31,946 |   |   |
| *Percent of net revenues*                    |       |                                         | 4.8        | *%*                 |       |                                         |       |                |       |                                         | 3.9        | *%* |   |   |   |   | 4.0 | *%* |   |
| Earnings from  joint ventures                |       |                                         | $          | 26,524              | * *   |                                         |       | 28.7                | %          |                                         |       | $ | 20,604 | * * |   | 82.4 | % |   | $ | 11,293 |   |   |

 

*Casino.**  *Casinorevenues increased 12.6% for the year ended December 31, 2004 as comparedto the year ended December 31, 2003, due to the same factors affecting ourconsolidating net revenues noted above. Casino expenses increased 3.2% over thesame period due primarily to an increase in gaming taxes as a result of thehigher casino revenue. There is also significant operating leverage onincremental gaming revenue due to a significant amount of fixed costs in thecasino department and, as a result, the casino profit margin increased by3.4 percentage points for the year ended December 31, 2004 ascompared to the year ended December 31, 2003.

Casino revenues increased 1.7% for the year ended December 31,2003 as compared to the year ended December 31, 2002, due to the samefactors affecting the consolidated net revenues. The casino profit margindecreased slightly by 0.4 percentage points for the year ended December 31,2003 as compared to the year ended December 31, 2002, as casino expensesincreased 2.6% over the same periods due primarily to marketing expensesrelated to the introduction of Jumbo Jackpot.

*Foodand Beverage.**  *Foodand beverage revenues increased 5.0% for the year ended December 31, 2004as compared to the year ended December 31, 2003, due to selected menuprice increases, as well as restaurant enhancements at Santa Fe Station withthe addition of a Mexican restaurant in May 2003, the expansion of thecoffee shop in December 2003 and upgrade of the steakhouse in March 2004,in addition to an aggressive marketing program promoting the buffet. The averageguest check increased 4.5% for the year ended December 31, 2004 ascompared to the year ended December 31, 2003. Food covers remainedvirtually unchanged with a 0.4% increase for the year ended December 31,2004 as compared to the year ended December 31, 2003. Food and beverageexpenses increased 14.5% for the year ended December 31, 2004 as comparedto the year ended December 31, 2003, resulting in a decrease of the foodand beverage net operating margin of 5.9 percentage points for the same period.The increase in food and beverage 

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expense is related toincreased payroll and related costs primarily due to rising benefit costs andincreases in cost of selected food items.

Food and beverage revenues were essentially flat forthe year ended December 31, 2003 as compared to the year ended December 31,2002. Food covers increased 7.3% while the average guest check decreased 8.0%for the year ended December 31, 2003 as compared to the year ended December 31,2002. The decrease in the average guest check was a result of selected menuprice reductions, primarily in the buffet, which were implemented as part of anew marketing program. The lower prices, as well as an aggressive marketingcampaign promoting the buffet, drove additional volume resulting in an increasein food covers. As a result of the additional volume, food and beverageexpenses increased over the same period. Food and beverage costs also increaseddue to increases in selected food cost items and marketing costs promoting thebuffet.

*Room.**  *Room revenuesincreased 13.1% for the year ended December 31, 2004 as compared to theyear ended December 31, 2003. Room occupancy increased to 96% from94%, while the average daily room rate increased to $56 from $50 for the sameperiod, as a result of newly remodeled rooms at Santa Fe Station and SunsetStation and a continued increase in consumer demand for rooms in Las Vegasduring 2004.

Room revenues increased 3.9% for the year ended December 31,2003 as compared to the year ended December 31, 2002. Room occupancyincreased to 94% from 91%, while the average daily room rate remained constantat $50 for the year ended December 31, 2003 as compared to the year ended December 31,2002. The increase in occupancy percentage was primarily due to a general increasein consumer demand for rooms in Las Vegas during 2003.

*Other.**  *Otherrevenues primarily include income from the gift shops, bowling, entertainment,leased outlets and arcades. Other revenues decreased 8.6% for the year ended December 31,2004 as compared to the year ended December 31, 2003. The decrease inother revenues is primarily due to development fees received from ThunderValley for approximately $4.6 million during the year ended December 31,2003.

Other revenues increased 12.6% for the year ended December 31,2003 as compared to the year ended December 31, 2002 primarily due todevelopment fees received from Thunder Valley of approximately$4.6 million, net of certain expenses and approximately $1.5 millionin rental income from an industrial business center, located adjacent to WildWild West, which we purchased in the second quarter of 2003. The increase inother revenues was partially offset by insurance proceeds of approximately$1.6 million that we received in the first quarter of 2002.

*ManagementFees.**  *Wemanage Thunder Valley on behalf of the United Auburn Indian Community (“UAIC”)and receive a management fee equal to 24% of net income (as defined in themanagement agreement). In addition, we are the managing partner for both GreenValley Ranch Station and Barley’s and receive a management fee equal to 2% ofrevenues and approximately 5% of Earnings Before Interest, Taxes, Depreciationand Amortization (“EBITDA”) from Green Valley Ranch Station and 10% of EBITDAfrom Barley’s. For the year ended December 31, 2004, management feesincreased to approximately $84.6 million as compared to $46.7 millionfor the year ended December 31, 2003. The increase is due to managementfees from Thunder Valley, which includes a full year of operations, as well asimproved results at Green Valley Ranch Station.

For the year ended December 31, 2003, managementfees increased to approximately $46.7 million as compared to$4.9 million for the year ended December 31, 2002. The increase isdirectly related to the opening of Thunder Valley on June 9, 2003, as wellas increased earnings at Green Valley Ranch Station.

*Selling,General and Administrative (“SG&A”).**  *SG&A as a percentage of netrevenues decreased to 17.5% in the year ended December 31, 2004 ascompared to 18.8% in the year ended December 31, 2003. A large portion ofthese costs are fixed and, as a result, as revenues increased the percentage ofSG&A to 

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net revenues decreased.SG&A expenses increased by 7.0% to $172.9 million for the year ended December 31,2004, from $161.6 million for the year ended December 31, 2003. Theincrease is attributable to a $8.3 million increase in payroll and relatedexpenses, primarily related to benefits, a $1.1 million increase in accountingfees related to the new corporate governance rules mandated by theSarbanes-Oxley Act of 2002 and the net settlement of certain litigation and thepayment of a fine and investigative costs related to violations of NevadaGaming Commission Regulation 6A of $0.8 million.

SG&A as a percentage of net revenues decreased to18.8% in the year ended December 31, 2003 as compared to 20.3% in the yearended December 31, 2002. A large portion of these costs are fixed and, asa result, as revenues declined the percentage of SG&A to net revenuesincreased. SG&A expenses increased slightly by 0.4% to $161.6 millionfor the year ended December 31, 2003, from $161.0 million for theyear ended December 31, 2002.

*CorporateExpense.**  *Corporateexpenses increased to approximately $47.2 million for the year ended December 31,2004 as compared to approximately $33.0 million for the year ended December 31,2003. The increase is primarily due to increased investment in corporateinfrastructure to handle projected growth and a change in incentive compensationfrom a stock option based program to a program which includes cash andrestricted stock. In addition, employer payroll taxes on stock option exercisesincreased $2.8 million as compared to prior year. As a result, corporateexpense as a percentage of net revenues increased to 4.8% in the year ended December 31,2004 as compared to 3.9% in the year ended December 31, 2003.

Corporate expense as a percentage of net revenuesdecreased slightly to 3.9% in the year ended December 31, 2003 as comparedto 4.0% in the year ended December 31, 2002. Corporate expenses increasedto approximately $33.0 million for the year ended December 31, 2003as compared to approximately $31.9 million for the year ended December 31,2002. The increase is primarily due to additional employer taxes on stockoption exercises in 2003 of approximately $1.1 million.

*DevelopmentExpense.**  *Duringthe last half of 2003, we increased our development resources in an effort toidentify potential gaming opportunities, with an emphasis on expanding ourmanagement of Native American casinos and other development opportunities. Developmentexpense includes costs to develop new gaming opportunities, which includepayroll, travel and legal expenses. Development expenses for the years ended December 31,2004 and 2003 were $10.7 million and $4.3 million, respectively. Also includedin development expense for 2004 is a $2.0 million non-reimbuirsablemilestone payment related to the Gun Lake project in Michigan. During 2003,$2.0 million of costs related to the Graton Rancheria project were expensedafter achieving certain milestones on the project and are also not reimbursable(see “Future Development”).

*Depreciationand Amortization.**  *Depreciationand amortization increased 17.3% to approximately $85.8 million for theyear ended December 31, 2004 as compared to $73.1 million for theyear ended December 31, 2003. This increase was due primarily to theaddition of new ticket-in, ticket-out slot machines at a majority of the MajorLas Vegas properties and the addition of a new slot system at Fiesta Rancho andFiesta Henderson, as well as the addition of new restaurants at Santa FeStation and Fiesta Henderson during 2003.

Depreciation and amortization increased slightly by0.5% to approximately $73.1 million for the year ended December 31,2003 as compared to $72.8 million for the year ended December 31,2002. This increase was due primarily to capital spent in 2003 and the additionof new restaurants at Santa Fe Station and Fiesta Henderson during 2003, whichwas partially offset by a portion of the original equipment at Texas Stationand Sunset Station having been fully depreciated during 2002.

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*Preopening Expenses.**  *Preopening expenses for the yearended December 31, 2004 were approximately $0.8 million, whichinclude costs incurred prior to the opening of Red Rock (see “FutureDevelopment”).

*Impairment Loss.**  *We recorded an impairment loss ofapproximately $18.9 million and $8.8 million in the years ended December 31,2003 and 2002, respectively, to adjust the carrying value of our goodwill andother assets to their estimated fair value. The $18.9 million impairmentloss in 2003 related to the write off of approximately $17.5 million ingoodwill at Fiesta Rancho in accordance with SFAS No. 142 as a result ofreduced growth assumptions (see *Change inAccounting Principle)*. The remaining $1.4 million impairmentloss in 2003 was primarily related to the write off of our investment in a newslot product development. The impairment of this asset was based upon ourdecision to no longer pursue the development of certain slot products. As aresult, all of the development costs that we had incurred were written off, asthey were deemed to have no value.

During the year ended December 31,2002, approximately $3.9 million of the impairment loss related to thewrite-down of certain assets related to our investments in an Internet, intra-stategaming platform and related technology. In May 2002, the Nevada GamingCommission communicated that it had general concerns regarding the security andreliability of Internet gaming platforms. The impairment of these assets wasbased upon our decision to no longer pursue Nevada-based Internet gamingactivities as a result of the uncertainty of regulatory approval of these typesof activities. As a result, all of the hardware, software and internaldevelopment costs that we had incurred were written off in 2002, as they weredeemed to have no value. In addition, approximately $4.9 million of theimpairment loss was related to our option to invest in an Internet wageringbusiness. In February 2002, we announced that we intended to purchase a50% interest in Kerzner Interactive Limited (formerly SunOnline Limited) (“KerznerInteractive”), a wholly owned subsidiary of Kerzner International Limited(formerly Sun International Hotels Limited) (“Kerzner”). Kerzner Interactivewas to be the exclusive vehicle for both Kerzner and us to pursue the Internetwagering business. In July 2002, we converted our agreement to acquire a50% interest in Kerzner Interactive into an option to do so, and paid$4.5 million for such option. Kerzner decided to discontinue KerznerInteractive, as it targeted Internet wagering only from jurisdictions thatpermitted online gaming. As these jurisdictions became more restrictive intheir acceptance of Internet gaming, the market size was reduced andcompetition intensified, resulting in a substantial decrease in the probabilityof achieving profitability in the short-to-medium term. As a result, we havewritten-off the option payment and other costs related to this investment in2002.

*Litigation Settlement.**  *During the year ended December 31,2003, we recorded a $38.0 million litigation settlement as we entered into anagreement on February 9, 2004, to settle a lawsuit brought in December 2000by Fitzgeralds Sugar Creek, Inc., the City of Sugar Creek, Missouri andPhillip Griffith which was paid on February 24, 2004. The lawsuit centeredon allegations of improper conduct by our former Missouri legal counsel,Michael Lazaroff.

*Earnings From JointVentures.**  *Weown a 50% interest in Green Valley Ranch Station and Barley’s, and a 6.7%interest in the Palms Casino Resort. We recorded our share of the earnings fromthese joint ventures of $26.5 million, $20.6 million and$11.3 million for the years ended December 31, 2004, 2003 and 2002,respectively. The increase in earnings from joint ventures is primarily relatedto improved results at Green Valley Ranch Station.

*Interest Expense.**  *Interest expense, net ofcapitalized interest, decreased 17.2% to $76.9 million in the year ended December 31,2004 as compared to $92.9 million in the year ended December 31,2003. Gross interest expense decreased approximately $12.5 million due toa decrease in our weighted average cost of debt to 6.1% from 7.9% for the yearsended December 31, 2004 and 2003, respectively, while our long-term debtincreased by approximately $183.3 million over the same period. The decrease ingross interest expense is the result of replacing virtually all of our fixedrate debt with lower cost and longer term debt in the first quarter of 2004, aswell as, entering into new interest rate swaps in 2004. Capitalized 

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interest increasedapproximately $3.5 million for the year ended December 31, 2004primarily due to interest capitalized for the construction of Red Rock (see “FutureDevelopment”).

Interest expense, net ofcapitalized interest, decreased 4.0% to $92.9 million in the year ended December 31,2003 as compared to $96.8 million in the year ended December 31,2002. Gross interest expense decreased approximately $2.4 million due to adecrease in our weighted average cost of debt to 7.9% from 8.1% for the yearsended December 31, 2003 and 2002, respectively. Capitalized interestincreased approximately $1.4 million for the year ended December 31,2003 primarily due to interest capitalized for the construction of Red Rock.

*Interest and Other Expensefrom Joint Ventures.**  *Forthe years ended December 31, 2004, 2003 and 2002, we recorded$4.5 million, $7.2 million and $6.3 million, respectively, ininterest and other expense related to our unconsolidated joint ventures. Thedecrease in interest and other expense from joint ventures during the yearended December 31, 2004, is primarily due to the Company’s 50% share ofcapitalized interest recorded at Green Valley Ranch Station of approximately$1.5 million. The increase in interest and other expense from joint venturesduring the year ended December 31, 2003, is due to our 50% share of a losson early retirement of debt of approximately $0.8 million related to thewrite-off of debt issuance costs at Green Valley Ranch Station.

*Interest Income.**  *During the year ended December 31,2003, we recorded $4.8 million in interest income on our advances to theUAIC for development of Thunder Valley.

*Loss on Early Retirementof Debt.**  *Duringthe first quarter of 2004, we refinanced substantially all of our senior andsenior subordinated notes. In connection with the refinancing, we completedtender offers and consent solicitations for approximately $940.6 million of oursenior and senior subordinated notes outstanding. As a result, we recorded aloss on early retirement of debt of approximately $93.3 million during the yearended December 31, 2004 to reflect the write-off of the unamortized loancosts, unamortized discount, call premium, tender fee and consent paymentswhich were partially offset by the fair value of the interest rate swaps thatwere tied directly to the redeemed senior and senior subordinated notes (see “Descriptionof Certain Indebtedness and Capital Stock—*Senior and Senior Subordinated Notes*”).

During the year ended December 31,2002, we recorded a loss on early retirement of debt of approximately$5.8 million, of which approximately $1.4 million relates to thewrite-off of the unamortized loan costs on our previous revolving facility. Theremaining $4.4 million relates to the redemption of our $150 million 93¤4%senior subordinated notes on October 18, 2002. We recorded a charge ofapproximately $10.1 million to reflect the write-off of the unamortizeddebt discount, unamortized loan costs and the premium to redeem our$150 million 93¤4%senior subordinated notes, which was partially offset by approximately$5.7 million from the adjusted basis of the debt as a result of the fairvalue hedge termination that was tied directly to our $150 million 93¤4%senior subordinated notes.

*Change in AccountingPrinciple.**  *TheFASB issued SFAS No. 142, “Goodwill and Other Intangible Assets”, in June 2001.SFAS No. 142 changed the accounting for goodwill from an amortizationmethod to an impairment-only approach. Amortization of goodwill, includinggoodwill recorded in past business combinations, ceased upon the adoption ofSFAS No. 142. We implemented SFAS No. 142 on January 1, 2002 andtested for impairment in accordance with the provisions of SFAS No. 142 inthe first quarter of 2002. As a result of an independent third party appraisal,we recorded an impairment loss of $13.3 million, net of the applicable taxbenefit, during 2002 related to Fiesta Rancho, which is shown as a cumulativeeffect of a change in accounting principle in our consolidated statements ofoperations.

**Liquidity and Capital Resources**

The following liquidityand capital resources discussion contains certain forward-lookingstatements with respect to our business, financial condition, results ofoperations, dispositions, acquisitions, expansion 

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projectsand our subsidiaries, which involve risks and uncertainties that cannot bepredicted or quantified, and consequently, actual results may differ materiallyfrom those expressed or implied herein. Such risks and uncertainties include,but are not limited to, financial market risks, the ability to maintainexisting management, integration of acquisitions, competition within the gamingindustry, the cyclical nature of the hotel business and gaming business,economic conditions, regulatory matters and litigation and other risksdescribed in our filings with the Securities and Exchange Commission. Inaddition, construction projects such as Red Rock and the expansions at Santa FeStation and Sunset Station entail significant risks, including shortages ofmaterials or skilled labor, unforeseen regulatory problems, work stoppages,weather interference, floods and unanticipated cost increases. The anticipatedcosts and construction periods are based on budgets, conceptual designdocuments and construction schedule estimates. There can be no assurance thatthe budgeted costs or construction period will be met. All forward-lookingstatements are based on our current expectations and projections about futureevents.

During the year ended December 31,2004, we generated cash flows from operating activities of $261.6 million.In addition, we received approximately $55.0 million from the exercise ofstock options and approximately $28.1 million from the sale of land,property and equipment. At December 31, 2004, we had total availableborrowings of $1.0 billion under the Revolving Facility, which is reducedby borrowings of $51.5 million and various letters of credit totalingapproximately $11.5 million, leaving approximately $937.0 millionoutstanding as of December 31, 2004. We had $68.4 million in cash andcash equivalents as of December 31, 2004.

During the year ended December 31,2004, total capital expenditures were $305.2 million, of whichapproximately $80.9 million was related to the development of Red Rock (see “FutureDevelopment”), approximately $54.1 million was for the acceleratedreplacement of slot machines to take advantage of ticket-in, ticket-outtechnology, approximately $35.8 million was related to the expansion at SantaFe Station, approximately $19.8 million was for the purchase and enhancementsof Gold Rush and Magic Star which we acquired on August 2, 2004, approximately$12.0 million was for the purchase of land, approximately $9.6 million wasrelated to the construction of the ice skating arena at Fiesta Rancho,approximately $9.5 million was for the bowling center at Sunset Station,approximately $30.1 million was for maintenance capital expenditures andapproximately $53.4 million was for various other capital and projectexpenditures. In addition to capital expenditures, we purchased land held fordevelopment for approximately $76.9 million, we paid approximately $22.3million in reimbursable advances for our Native American development projects(see “Future Development”) and we paid approximately $44.3 million in commonstock dividends.

Our primary cashrequirements for 2005 are expected to include (i) approximately $425 millionfor the development and construction of Red Rock, (ii) approximately$56 million for the payment of common stock dividends, (iii) approximately$40 million for maintenance capital expenditures, (iv) approximately$35.5 million for the redemption of the remaining 83¤8%senior notes and 97¤8%senior subordinated notes, (v) approximately $72.5 million to purchase theland related to Wild Wild West, (vi) approximately $16.2 million forthe completion of the expansion at Santa Fe Station, (vii) approximately$17.5 million to complete the bowling center at Sunset Station, (viii) paymentsrelated to our existing and other potential Native American projects, (ix) principaland interest payments on indebtedness, (x) other strategic land purchasesthroughout the Las Vegas area and (xi) opportunistic repurchases of ourcommon stock.

We believe that cash flowsfrom operations, available borrowings under the Revolving Facility and existingcash balances will be adequate to satisfy our anticipated uses of capitalduring 2005. However, we are continually evaluating our financing needs. Ifmore attractive financing alternatives or expansion, development or acquisitionopportunities become available to us, we may amend our financing plans assumingsuch financing would be permitted under our existing debt agreements (see “Descriptionof Certain Indebtedness and Capital Stock”) and other applicable agreements.

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*Off Balance Sheet Arrangements*

As of December 31,2004, we have certain off-balance sheet arrangements that affect our financialcondition, liquidity and results of operations, which include a completionguaranty related to the expansion project at Green Valley Ranch Station (see “GreenValley Ranch Station Financing”) and interest rate swaps with a combinednotional amount of $250.0 million (see “Description of CertainIndebtedness and Capital Stock—Senior and Senior Subordinated Notes”).

Thefollowing table summarizes our contractual obligations and commitments (amountsin thousands):
| ** **           | ** ** | **Contractual obligations** | ** ** |
|----------------------|------------|----------------------------------|------------|
| ** **           | ** ** | **Long-term  debt (a)**     | ** ** | **Operating  leases (b)** | ** ** | **Other long-term  obligations (c)** | ** ** | **Total contractual  cash obligations** | ** ** |
| Payments due by year |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| 2005                 |       | $                                | 94,815     |   | $ | 11,199 |   |   | $ | 93,922 |   |   |   | $ | 199,936 |   |   |
| 2006                 |       | 76,357                           |       | 9,058 |   |   | 14,979 |   |   |   | 100,394 |   |   |
| 2007                 |       | 81,928                           |       | 8,948 |   |   | 9,994 |   |   |   | 100,870 |   |   |
| 2008                 |       | 76,748                           |       | 8,855 |   |   | 3,425 |   |   |   | 89,028 |   |   |
| 2009                 |       | 127,832                          |       | 8,841 |   |   | 438 |   |   |   | 137,111 |   |   |
| Thereafter           |       | 1,621,218                        |       | 449,719 |   |   | — |   |   |   | 2,070,937 |   |   |
| Total                |       | $                                | 2,078,898  |   | $ | 496,620 |   |   | $ | 122,758 |   |   |   | $ | 2,698,276 |   |   |

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(a)           Includes interestrelated to interest rate swaps estimated based on the notional amount and net interestspread as of December 31, 2004. Interest related to the Revolver is estimatedbased on the outstanding balance and interest rate as of December 31, 2004.See Note 9 to the Consolidated Financial Statements in this Annual Reporton Form 10-K.

(b)          SeeNote 10 to the Consolidated Financial Statements in this Annual Report on Form 10-K.

(c)           Otherlong-term obligations are comprised of employment contracts, slot conversionpurchases and the purchase of land related to Wild Wild West.

**Future Development**

*Red Rock*

In April 2004, wecommenced construction of Red Rock Resort Spa and Casino (“Red Rock”) locatedon Charleston Boulevard at the Interstate 215/Charleston interchange in theSummerlin master-planned community in Las Vegas, Nevada. The initial phase ofthe property is expected to be completed near the end of the first quarter of2006. We have also announced plans to accelerate the construction of a phase IIexpansion. Construction on phase II of Red Rock is expected to begin in thelatter part of 2005 and is expected to be completed by the end of 2006. The totalproject will now include over 2,800 slot machines, over 850 hotel rooms, 94,000square-feet of meeting and convention space, a 35,000 square-foot spa, ninefull service restaurants, a 16-screen movie theater complex, a night club andprivate pool club to be operated by Midnight Oil Company, both indoor andoutdoor entertainment venues and parking for almost 5,500 vehicles. As a resultof an increase in amenities, an upgrade in the quality of finishes throughoutthe project, general increases in construction cost and addition of thephase II expansion, the total cost of Red Rock is expected to beapproximately $800 million, of which approximately $151.3 million has beenspent as of December 31, 2004.

*Santa Fe StationExpansion*

In 2003, we began a $52million expansion at Santa Fe Station. The expansion includes more than 20,000square feet of additional casino space, 350 slot machines, a new 16-screenmovie theater complex, an upgrade of the property’s bowling center, a newentertainment venue and bar, a new Kid’s Quest facility and other amenities aswell as removal of the ice arena. The additional slots, upgrade of the bowlingcenter 

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and newentertainment venue were completed in December 2004. We believe theremaining items will be completed in the first quarter of 2005 with theexception of the movie theater complex, which will be completed in April 2005.Approximately $35.8 million has been spent on the expansion as of December 31,2004.

*Sunset StationExpansion*

We are currently expandingSunset Station to add a bowling center. The cost of the expansion is expectedto be approximately $27 million, of which approximately $9.5 million has beenspent as of December 31, 2004. We believe that the expansion will becompleted in April 2005.

*Fiesta Rancho Expansion*

We completed a 31,000square-foot expansion project at Fiesta Rancho in September 2004, which added anew ice arena to the property, complete with concession area, pro shop, lockerrooms and private social rooms. The cost of the expansion was approximately$9.6 million.

*Green Valley Ranch Station Expansion*

In the fourth quarter of2003, we began a $125 million expansion at Green Valley Ranch Station. Theexpansion includes 296 hotel rooms, 25,500 square feet of additional meetingspace and an expanded spa facility. Construction of the hotel rooms andadditional meeting space were completed in December 2004. Construction ofthe spa facility is expected to be completed in the first quarter of 2005. Inconnection with the expansion, Green Valley Ranch Station purchased the leasefrom the spa operator during 2004. Green Valley Ranch Station also terminatedthe lease of a restaurant at the property and paid the tenant an agreed uponsum during 2004. As a result, we have recorded a reduction in earnings fromjoint ventures in the year ended December 31, 2004 of approximately $3.6million, which represents our 50% share of the total loss.

*The Federated Indians of Graton Rancheria*

We have entered intoDevelopment and Management Agreements with the Federated Indians of the GratonRancheria (the “FIGR”), a federally recognized Native American tribe. Pursuantto those agreements, we will assist the FIGR in developing and operating agaming and entertainment project to be located in Sonoma County, California. TheFIGR selected us to assist it in designing, developing and financing theproject and, upon opening we will manage the facility on behalf of the FIGR. TheManagement Agreement has a term of seven years from the opening of the facilityand we will receive a management fee equal to 22% of the facility’s net income.We will also receive a development fee equal to 2% of the cost of the projectupon the opening of the facility.

In August 2003, weentered into an option to purchase 360 acres of land just west of the RohnertPark city limits in Sonoma County, California. The proposed site of the projectis bordered by Stony Point Road, Wilfred Avenue and Rohnert Park Expressway,approximately one-half mile from Highway 101 and approximately 43 miles from downtownSan Francisco. In October 2003, the FIGR entered into a Memorandum ofUnderstanding with the City of Rohnert Park. Development of the gaming andentertainment project is subject to certain governmental and regulatoryapprovals, including, but not limited to, negotiating a gaming compact with theState of California, the United States Department of the Interior (“DOI”)accepting the land into trust on behalf of the FIGR and approval of theManagement Agreement by the National Indian Gaming Commission (“NIGC”). Priorto obtaining third-party financing, we will contribute significant financial supportto the project. As of December 31, 2004, we had advanced approximately$22.4 million toward the development of this project, primarily to performdue diligence and secure real estate for the FIGR project, which is included inother assets, net on our consolidated balance sheets. Funds advanced by us areexpected to be repaid from the proceeds of the project financing or from theFIGR’s gaming revenues. In addition, we have agreed to pay approximately 

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$11.3 millionof payments upon achieving certain milestones, which will not be reimbursed. Asof December 31, 2004, approximately $2.0 million of these paymentshad been made and were expensed in development expense as incurred. The timingof this type of project is difficult to predict and is dependent upon thereceipt of the necessary governmental and regulatory approvals. There can be noassurances when or if these approvals will be obtained.

*Gun Lake Tribe*

On November 13, 2003,we agreed to purchase a 50% interest in MPM Enterprises, LLC, a Michiganlimited liability company (“MPM”). Concurrently with our agreement to purchasethat interest, MPM and the Match-E-Be-Nash-She-Wish Band of PottawatomiIndians, a federally recognized Native American tribe commonly referred to asthe Gun Lake Tribe (“Gun Lake”), entered into amended Development andManagement Agreements, pursuant to which MPM will assist Gun Lake in developingand operating a gaming and entertainment project to be located in AlleganCounty, Michigan. We have agreed to pay $6.0 million for our 50% interestin MPM, which is payable upon achieving certain milestones and is notreimbursable. As of December 31, 2004, approximately $2.0 million of thesepayments had been made and were expensed in development expense as incurred. Anadditional $12.0 million in total may be paid by us in years six and sevenof the amended Management Agreement, subject to certain contingencies. Underthe terms of the amended Development Agreement, we have agreed to arrangefinancing for the ongoing development costs and construction of the project. Asof December 31, 2004, we had advanced approximately $20.2 milliontoward the development of this project, primarily to secure real estate for theproject, and is included in other assets, net on our consolidated balancesheets. Funds advanced by us are expected to be repaid from the proceeds of theproject financing or from Gun Lake’s gaming revenues. The amended ManagementAgreement has a term of seven years from the opening of the facility andprovides for a management fee of 30% of the project’s net income to be paid toMPM. Pursuant to the terms of the MPM Operating Agreement, our portion of themanagement fee is 50% of the first $24 million of management fees earned,83% of the next $24 million of management fees and 93% of any managementfees in excess of $48 million.

The proposed project willbe located on approximately 145 acres on Highway 131 near 129thAvenue, approximately 25 miles north of Kalamazoo, Michigan. As currentlycontemplated, the project will include up to 2,500 slot machines, 75 tablegames, a buffet and specialty restaurants. Construction of the project includesthe conversion of an existing 192,000 square-foot building into the casino andentertainment facility. Development of the gaming and entertainment project andoperation of Class III gaming is subject to certain governmental andregulatory approvals, including, but not limited to, the signing of a gamingcompact by the Governor of the State of Michigan, the DOI accepting the landinto trust on behalf of Gun Lake and approval of the Management Agreement bythe NIGC. On February 27, 2004, the DOI issued a Finding Of No SignificantImpact with respect to the proposed project. Prior to obtaining third-partyfinancing, we will contribute significant financial support to the project. Thetiming of this type of project is difficult to predict and is dependent uponthe receipt of the necessary governmental and regulatory approvals. There canbe no assurances when or if these approvals will be obtained.

*Mechoopda Indian Tribe*

We have entered intoDevelopment and Management Agreements with the Mechoopda Indian Tribe of ChicoRancheria, California (the “MITCR”), a federally recognized Native Americantribe. Pursuant to those agreements, we will assist the MITCR in developing andoperating a gaming and entertainment facility to be located on approximately650 acres in Butte County, California, at the intersection of State Route 149and Highway 99, approximately 10 miles southeast of Chico, California and 80miles north of Sacramento, California. Under the terms of the DevelopmentAgreement, we have agreed to arrange the financing for the ongoing developmentcosts and construction of the facility. Funds advanced by us are expected to berepaid from the proceeds of the facility financing or from the MITCR’s gamingrevenues. 

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As of December 31,2004, we had advanced approximately $5.8 million toward the development of thisproject, primarily to secure real estate for future development, which isincluded in other assets, net on our consolidated balance sheets. In addition,we have agreed to pay approximately $2.2 million of payments upon achievingcertain milestones, which will not be reimbursed. As of December 31, 2004,$50,000 of these payments had been made and were expensed in developmentexpense as incurred. The Management Agreement has a term of seven years fromthe opening of the facility and provides for a management fee of 24% of thefacility’s net income. As currently contemplated, the facility will includeapproximately 700 slot machines, 12 table games and dining and entertainmentamenities. Development of the facility is subject to certain governmental andregulatory approvals, including but not limited to, negotiating a gamingcompact with the State of California, the DOI accepting land into trust onbehalf of the MITCR and approval of the Management Agreement by the NIGC. Priorto obtaining third-party financing, we will contribute significant financialsupport to the project. The timing of this type of project is difficult topredict and is dependent upon the receipt of the necessary governmental andregulatory approvals. There can be no assurances when or if these approvalswill be obtained.

*North Fork Rancheria of Mono Indian Tribe*

We have entered intoDevelopment and Management Agreements with the North Fork Rancheria of MonoIndians (the “Mono”), a federally recognized Native American tribe located nearFresno, California. Pursuant to those agreements, we will assist the Mono indeveloping and operating a gaming and entertainment facility to be located inMadera County, California. We have secured for the benefit of the Mono twoparcels of land located on Highway 99 north of the city of Madera. Under theterms of the Development Agreement, we have agreed to arrange the financing forthe ongoing development costs and construction of the facility. Funds advancedby us are expected to be repaid from the proceeds of the project financing orfrom the Mono’s gaming revenues. As of December 31, 2004, we hadadvanced approximately $1.5 million toward the development of thisproject, primarily to secure real estate for future development, which isincluded in other assets, net on our consolidated balance sheets. In addition,we have agreed to pay approximately $1.3 million of payments upon achievingcertain milestones, which will not be reimbursed. As of December 31, 2004,none of these payments have been made. The Management Agreement has a term ofseven years from the opening of the facility and provides for a management feeof 24% of the facility’s net income. As currently contemplated, the facilitywill include approximately 2,000 slot machines, 60 table games, dining, hoteland entertainment amenities. Development of the gaming and entertainmentproject is subject to certain governmental and regulatory approvals, including,but not limited to, negotiating a gaming compact with the State of California,the DOI accepting the land into trust on behalf of the Mono and approval of theManagement Agreement by the NIGC. Prior to obtaining third-party financing, thereceipt of such governmental and regulatory approvals, we will contributesignificant financial support to the project. The timing of this type ofproject is difficult to predict and is dependent upon the receipt of thenecessary governmental and regulatory approvals. There can be no assuranceswhen or if these approvals will be obtained.

*Land Acquisition*

We have acquired certainparcels of land in the Las Vegas valley and near Sacramento, California as partof future development activities. Our decision whether to proceed with any newgaming or development opportunity is dependent upon future economic andregulatory factors, the availability of financing and competitive and strategicconsiderations. As many of these considerations are beyond our control, noassurances can be made that we will be able to secure additional, acceptablefinancing in order to proceed with any particular project.

As of December 31, 2004,we had $167.7 million of land held for development that consists primarilyof five sites that are owned or leased, which comprise 198 acres in the LasVegas valley and 188 acres in the Sacramento area near Thunder Valley. TheDurango site, located at the intersection of Durango Road and 

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theSouthern Beltway/Interstate 215 in the southwest quadrant of Las Vegas,consists of 67 acres. We also own a 49-acre gaming-entitled parcelin southwest Las Vegas at the intersection of Flamingo Road and Interstate 215.During the year ended December 31, 2004, we purchased approximately 54acres of land in a gaming enterprise district on the southern end of Las VegasBoulevard at Cactus Avenue for approximately $33.9 million. In addition, welease and have an option to purchase 2.5 acres adjacent to this site. On October 1,2004, we purchased approximately 26 acres of real property and improvementsformerly known as the Castaways Hotel Casino and Bowling Center (the “Castaways”)in Las Vegas, Nevada, for $33.75 million. The Castaways closed on January 26,2004, shortly after its former owners filed for bankruptcy. We are currentlyevaluating the potential uses of the property, but do not believe it iscompetitive and do not intend to operate the facility in its current state.

We have also acquired orare under contract to acquire approximately 58 acres of land on which Wild WildWest is located and the surrounding area of which, approximately 27 acres havebeen acquired as of December 31, 2004. We have exercised our option topurchase the 19-acre parcel of leased land on which Wild Wild West islocated. Pursuant to the lease, the purchase will occur in July 2005 at apurchase price of approximately $36 million. No amounts related to thispurchase option have been recorded on the Company’s consolidated balance sheets.We currently lease this land for approximately $2.9 million per year. We havealso agreed to purchase an additional 12 acres of land and are expected toclose on these transactions in the first quarter of 2005.

**Regulation andTaxes**

We are subject toextensive regulation by the Nevada gaming authorities and will be subject toregulation, which may or may not be similar to that in Nevada, by any otherjurisdiction in which we may conduct gaming activities in the future, includingthe NIGC and tribal gaming agency of the UAIC. In June 2004, the UAICsuccessfully negotiated a new Tribal-State Gaming Compact (“Amended Compact”)with the State of California which has received approval by the DOI. TheAmended Compact allows an unlimited number of slot machines at Thunder Valleyand extends the term an additional 10 years to 2030. The Amended Compact alsoincludes a revenue sharing agreement with the State of California. ThunderValley has added approximately 800 slot machines and as a result, the UAIC willpay approximately $33.8 million annually to the State of California commencingin January 2005 and additional fees ranging from $11,000 to $13,200 permachine for any slot machines added above the 1,906 that were originally inoperation at Thunder Valley prior to the Amended Compact.

The gaming industryrepresents a significant source of tax revenue, particularly to the State ofNevada and its counties and municipalities. From time to time, various stateand federal legislators and officials have proposed changes in tax law, or inthe administration of such law, affecting the gaming industry. NevadaLegislature is currently in session and there has been no mention of significanttax proposals which would affect the gaming industry.

We believe that ourrecorded tax balances are adequate. However, it is not possible to determinewith certainty the likelihood of possible changes in tax law or in theadministration of such law, regulations or compact provisions. Such changes, ifadopted, could have a material adverse effect on our operating results. Werecently settled and finalized the Internal Revenue Service audits up throughand including the years ended December 31, 2002.

*Cash Transaction Reporting Violations*

In April 2003, webecame aware of violations of certain gaming regulations regarding thereporting of certain cash transactions. We self-reported these violations tothe Nevada State Gaming Control Board. On September 24, 2004, the NevadaGaming Commission approved the settlement agreement in which we paidapproximately $2.4 million in fines and investigative costs to the State ofNevada. We have hired additional staff at each property and have increased thelevel of internal audit review to prevent this type of violation in the future.

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**Descriptionof Certain Indebtedness and Capital Stock**

*Revolving Facility*

In December 2004, weincreased our availability under our revolving credit facility (the “RevolvingFacility”) to $1.0 billion and extended the maturity by two years to December 2009.The Revolving Facility contains no principal amortization. The Borrowers arethe major operating subsidiaries and the Revolving Facility is secured bysubstantially all of our assets. Borrowings under the Revolving Facility bearinterest at a margin above the Alternate Base Rate or the Eurodollar Rate (eachas defined in the Revolving Facility), as selected by us. The margin above suchrates, and the fee on the unfunded portions of the Revolving Facility, willvary quarterly based on our combined consolidated ratio of debt to AdjustedEBITDA (as defined in the Revolving Facility). As of December 31, 2004,the Borrowers’ margin above the Eurodollar Rate on borrowings under theRevolving Facility was 1.38%. The maximum margin for Eurodollar Rate borrowingsis 2.13%. The maximum margin for Alternate Base Rate borrowings is 0.88%. As ofDecember 31, 2004, the fee for the unfunded portion of the RevolvingFacility was 0.25%.

The Revolving Facility containscertain financial and other covenants. These include a maximum funded debt toAdjusted EBITDA ratio for the Borrowers combined of 2.50 to 1.00 for eachquarter and a minimum fixed charge coverage ratio for the preceding fourquarters for the Borrowers combined of 1.50 to 1.00 for each quarter. As of December 31,2004, the Borrowers’ funded debt to Adjusted EBITDA ratio was 0.21 to 1.00 andthe fixed charge coverage ratio was 2.31 to 1.00. In addition, the RevolvingFacility has financial and other covenants, which require that the maximumconsolidated funded debt to Adjusted EBITDA ratio can be no more than 5.50 to1.00 through December 31, 2005, which reduces to 5.25 to 1.00 on March 31,2006 through December 31, 2006, to 5.00 to 1.00 on March 31, 2007through December 31, 2007, to 4.75 to 1.00 on March 31, 2008 through December 31,2008 and to 4.50 to 1.00 on March 31, 2009. Other covenants limitprepayments of indebtedness or rent (including subordinated debt other thanre-financings meeting certain criteria), limitations on asset dispositions,limitations on dividends, limitations on indebtedness, limitations oninvestments and limitations on capital expenditures. As of December 31,2004, our consolidated funded debt to Adjusted EBITDA ratio was 3.58 to 1.00. Wehave pledged the stock of all of our major subsidiaries.

*Senior and Senior Subordinated Notes*

During the first quarterof 2004, we refinanced substantially all of our senior and senior subordinatednotes. We issued $1.25 billion in new senior and senior subordinated noteswhich consists of $450.0 million 6% senior notes due in April 2012, $450.0million 61¤2%senior subordinated notes due in February 2014 and $350.0 million 67¤8%senior subordinated notes due in March 2016. The proceeds from theseofferings were used to redeem or repurchase the $199.9 million 87¤8% seniorsubordinated notes due in December 2008, to repurchase $357.6 million ofthe 97¤8%senior subordinated notes due in July 2010, to repurchase $383.1 millionof the 83¤8%senior notes due in February 2008 and to reduce amounts outstanding underthe Revolving Facility. As a result of these redemptions, we recorded a loss onearly retirement of debt of approximately $93.3 million in the year ended December 31,2004 to reflect the write-off of the unamortized loan costs, unamortizeddiscount, call premium, tender fee and consent payments which were partiallyoffset by the fair value of the interest rate swaps that were tied directly tothe redeemed senior and senior subordinated notes.

On February 15, 2005,we redeemed the remaining $16.9 million of outstanding 83¤8%senior notes due 2008. As a result of the redemption, we will record a loss onearly retirement of debt of approximately $0.7 million in the first quarter of2005 to reflect the write-off of the unamortized loan costs and call premium.

The indentures (the “Indentures”)governing our senior subordinated notes (the “Notes”) contain certain customaryfinancial and other covenants, which limit our and our subsidiaries’ ability toincur additional debt. At December 31, 2004, our Consolidated CoverageRatio (as defined in the Indentures) was 4.07 to 1.00. The Indentures providethat we may not incur additional indebtedness, other than 

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specifiedtypes of indebtedness, unless the Consolidated Coverage Ratio is at least 2.00to 1.00. In the event our Consolidated Coverage Ratio is below 2.00 to 1.00,the covenant limits our ability to incur additional indebtedness for borrowingsunder the Revolving Facility not to exceed the greater of $200 million or1.5 times Operating Cash Flow (as defined) for the four most recent quarters,plus $15 million. The Indentures also give the holders of the Notes theright to require us to purchase the Notes at 101% of the principal amount of theNotes plus accrued interest thereon upon a Change of Control and Rating Decline(each as defined in the Indentures) of the Company. In addition, the indenturegoverning the Senior Notes contains a limitation on liens we can incur.

We have entered into variousinterest rate swaps with members of our bank group to manage interest expense.As of December 31, 2004, we have interest rate swaps with a combinednotional amount of $250.0 million that are tied directly to our 61¤2%senior subordinated notes and our 6% senior notes. The interest rate swapsconvert a portion of our fixed-rate debt to a floating-rate based upon threeand six-month LIBOR rates. At December 31, 2004, we paid a weightedaverage rate based on LIBOR, which approximates 3.75% and received a weightedaverage rate of 6.33%. The interest rate swaps terminate in April 2012 andFebruary 2014. The net effect of the interest rate swaps resulted in areduction in interest expense of $7.3 million, $3.6 million and $10.7million for the years ended December 31, 2004, 2003 and 2002,respectively.

The interest rate swaps weentered into qualify for the “shortcut” method allowed under SFAS No. 133,“Accounting for Derivative Instruments and Hedging Activities” (and as amendedby SFAS No. 133), which allows for an assumption of no ineffectiveness. Assuch, there is no income statement impact from changes in the fair value of thehedging instruments. Instead, the fair value of the instrument is recorded asan asset or liability on our balance sheet with an offsetting adjustment to thecarrying value of the related debt. In accordance with SFAS No. 133, werecorded a liability of $2.2 million and an asset of $3.9 million as of December 31,2004 and 2003, respectively, representing the fair value of the interest rateswaps and a corresponding decrease and increase in long-term debt, as theseinterest rate swaps are considered highly effective under the criteriaestablished by SFAS No. 133.

In March 2004, weterminated an interest rate swap with a notional amount of $50.0 million, whichwas due to terminate in 2008. The interest rate swap was terminated at itsmarket value and, as a result, we received approximately $3.6 million, which isincluded in the calculation of the net loss on the early retirement of debt asthe interest rate swap was tied directly to the redemption of the $400.0million 83¤8%senior notes.

In December 2002, weterminated an interest rate swap with a notional amount of $100 million,which was due to terminate in 2010. The interest rate swap was terminated atits market value and, as a result, we received approximately $9.5 million.This interest rate swap was tied directly to the $375 million 97¤8%senior subordinated notes. Approximately $357.6 million of the 97¤8% seniorsubordinated notes were redeemed in the first quarter of 2004 and, as a result,approximately $7.6 million of the remaining value of this fair value hedgetermination was included in the calculation of the net loss on the earlyretirement of debt.

On October 18, 2002, weredeemed our $150 million 93¤4% seniorsubordinated notes. The redemption was funded with proceeds from the RevolvingFacility. We recorded a charge of approximately $10.1 million during theyear ended December 31, 2002, to reflect the write-off of the unamortizeddebt discount, unamortized loan costs and the premium to redeem the$150 million 93¤4%senior subordinated notes. This charge was partially offset by approximately$5.7 million from the adjusted basis of the debt as a result of the fairvalue hedge termination that was tied directly to the $150 million 93¤4%senior subordinated notes, as discussed below. In addition, we recorded a losson early retirement of debt of approximately $1.4 million in 2002 toreflect the write-off of the unamortized loan costs on the previous revolvingfacility.

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In September 2002, weterminated an interest rate swap with a notional amount of $150 million,which was due to terminate in 2007. The interest rate swap was terminated atits market value and, as a result, we received approximately $5.8 million.This interest rate swap was tied directly to the $150 million 93¤4%senior subordinated notes. The mark-to-market adjustment was amortized as areduction of interest expense over the original contract life of the interestrate swap. When the $150 million 93¤4% seniorsubordinated notes were redeemed on October 18, 2002, the adjusted basisof the debt as a result of the fair value hedge termination of approximately$5.7 million was included in the calculation of the net loss on the earlyretirement of the related debt.

*Green Valley Ranch Station Financing*

Green Valley Ranch Stationis owned by a 50/50 joint venture between us and GCR Gaming. In December 2004,Green Valley Ranch Station entered into a new $250 million Second Amended andRestated Loan Agreement (the “Green Valley Facility”), which refinanced theexisting $250 million revolving credit facility and term loan. The Green ValleyFacility extends the maturity of the revolving portion to December 2009and the term loan portion to December 2011. The outstanding balance of theGreen Valley Ranch Station revolving credit facility as of December 31,2004, was approximately $200 million. In connection with the Green ValleyFacility, a completion guaranty is required to complete the expansion of theproperty. The completion guaranty is an obligation of both partners.

*Common Stock*

We are authorized to issueup to 135 million shares of our common stock, $0.01 par value per share,77,298,227 shares of which were issued and 10,185,343 shares of which were heldin treasury as of December 31, 2004. Each holder of our common stock isentitled to one vote for each share held of record on each matter submitted toa vote of stockholders. Holders of our common stock have no cumulative voting,conversion, redemption or preemptive rights or other rights to subscribe foradditional shares other than pursuant to the Rights Plan described below.Subject to any preferences that may be granted to the holders of our preferredstock, each holder of common stock is entitled to receive ratably, suchdividends as may be declared by our Board of Directors out of funds legallyavailable therefore, as well as any distributions to the stockholders and, inthe event of liquidation, dissolution or winding up of the Company, is entitledto share ratably in all of our assets that remain after payment of liabilities.

During the year ended December 31,2004, we paid a quarterly cash dividend of $0.125 per share to shareholders ofrecord on February 12, 2004, $0.175 per share to shareholders of record onMay 14, 2004 and August 13, 2004 and $0.21 per share to shareholdersof record on November 12, 2004. The total amount paid in dividends for2004 was $44.3 million. During the year ended December 31, 2003, we paid adividend of $0.125 per share to shareholders of record on August 14, 2003 and November 13, 2004for a total of $14.9 million.

*Preferred Stock*

We are authorized to issueup to 5 million shares of our preferred stock, $0.01 par value per shareof which none were issued. The Board of Directors, without further action bythe holders of our common stock, may issue shares of preferred stock in one ormore series and may fix or alter the rights, preferences, privileges andrestrictions, including the voting rights, redemption provisions (includingsinking fund provisions), dividend rights, dividend rates, liquidation rates,liquidation preferences, conversion rights and the description and number ofshares constituting any wholly unissued series of preferred stock. Except asdescribed above, our Board of Directors, without further stockholder approval,may issue shares of preferred stock with rights that could adversely affect therights of the holders of our common stock. The issuance of shares of preferredstock under certain circumstances could have the effect of delaying orpreventing a change of control of the Company or other corporate action.

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*Treasury Stock*

During the year ended December 31,2004, we repurchased approximately 64,000 shares of our common stock forapproximately $3.2 million. We are authorized to repurchase up toapproximately 19.5 million shares of our common stock. As of December 31,2004, we had acquired approximately 10.2 million shares at a cost ofapproximately $137.7 million.

*Rights Plan*

On October 6, 1997,we declared a dividend of one preferred share purchase right (a “Right”) foreach outstanding share of common stock. The dividend was paid on October 21,1997. Each Right entitles the registered holder to purchase from us oneone-hundredth of a share of Series A Preferred Stock, par value $0.01 pershare (“Preferred Shares”) at a price of $40.00 per one one-hundredth of aPreferred Share, subject to adjustment. The Rights are not exercisable untilthe earlier of 10 days following a public announcement that a person orgroup of affiliated or associated persons have acquired beneficial ownership of15% or more of our outstanding common stock (“Acquiring Person”) or 10 businessdays (or such later date as may be determined by action of the Board ofDirectors prior to such time as any person or group of affiliated personsbecomes an Acquiring Person) following the commencement of, or announcement ofan intention to make a tender offer or exchange offer, the consummation ofwhich would result in the beneficial ownership by a person or group of 15% ormore of our outstanding common stock.

The Rights will expire on October 21,2007. Acquiring Persons do not have the same rights to receive common stock asother holders upon exercise of the Rights. Because of the nature of thePreferred Shares’ dividend, liquidation and voting rights, the value of oneone-hundredth interest in a Preferred Share purchasable upon exercise of eachRight should approximate the value of one common share. In the event that anyperson or group of affiliated or associated persons becomes an AcquiringPerson, the proper provisions will be made so that each holder of a Right,other than Rights beneficially owned by the Acquiring Person (which willthereafter become void), will thereafter have the right to receive uponexercise that number of shares of common stock having a market value of twotimes the exercise price of the Right. In the event that the Company isacquired in a merger or other business combination transaction or 50% or moreof our consolidated assets or earning power are sold after a person or grouphas become an Acquiring Person, proper provision will be made so that eachholder of a Right will thereafter have the right to receive, upon exercisethereof, that number of shares of common stock of the acquiring company, whichat the time of such transaction will have a market value of two times theexercise price of the Right. Because of the characteristics of the Rights inconnection with a person or group of affiliated or associated persons becomingan Acquiring Person, the Rights may have the effect of making an acquisition ofthe Company more difficult and may discourage such an acquisition.

**Critical Accounting Policies**

*SignificantAccounting Policies and Estimates*

We prepare ourconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States. Certain of our accounting policies,including the determination of slot club program liability, the estimateduseful lives assigned to our assets, asset impairment, insurance reserves,purchase price allocations made in connection with our acquisitions and thecalculation of our income tax liabilities, require that we apply significantjudgment in defining the appropriate assumptions for calculating financialestimates. By their nature, these judgments are subject to an inherent degreeof uncertainty. Our judgments are based on our historical experience, terms ofexisting contracts, observance of trends in the gaming industry and informationavailable from other outside sources. There can be no assurance that actualresults will not differ from our estimates. To provide an understanding of themethodology we apply, our significant accounting policies and basis ofpresentation are discussed below, as well as where appropriate in thisdiscussion and analysis and in the notes to our consolidated financialstatements.

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*Slot Club Programs*

Our Boarding Pass andAmigo Club player rewards programs (the “Programs”) allow customers to redeempoints earned from their gaming activity at all Station and Fiesta propertiesfor complimentary food, beverage, rooms, entertainment and merchandise. At thetime redeemed, the retail value of complimentaries under the Programs arerecorded as revenue with a corresponding offsetting amount included inpromotional allowances. The cost associated with complimentary food, beverage,rooms, entertainment and merchandise redeemed under the Programs is recorded incasino costs and expenses. We also record a liability for the estimated cost ofthe outstanding points under the Programs.

*Self-Insurance Reserves*

We are self insured up tocertain stop loss amounts for workers’ compensation, major medical and generalliability costs. Insurance claims and reserves include accruals of estimatedsettlements for known claims, as well as accruals of estimates for claimsincurred but not reported. In estimating these accruals, we consider historicalloss experience and make judgments about the expected levels of costs perclaim. We believe our estimates of future liability are reasonable based uponour methodology; however, changes in health care costs, accident frequency and severityand other factors could materially affect the estimate for these liabilities.

*Derivative Instruments*

We enter into interestrate swaps from time to time in order to manage interest rate risks associatedwith our current and anticipated future borrowings. The interest rate swapsthat we have entered into qualify for the “shortcut” method allowed under SFAS No. 133,“Accounting for Derivative Instruments and Hedging Activities” (and as amendedby SFAS No. 138), which allows for an assumption of no ineffectiveness. Assuch, there is no income statement impact from changes in the fair value of thehedging instruments. Instead, the fair value of the instrument is recorded asan asset or liability on our balance sheet with an offsetting adjustment to thecarrying value of the related debt.

*Property and Equipment*

Property and equipment arestated at cost. Depreciation and amortization are computed using thestraight-line method over the estimated useful lives of the assets or the termsof the capitalized lease, whichever is less. Costs of major improvements arecapitalized, while costs of normal repairs and maintenance are charged toexpense as incurred.

We evaluate our propertyand equipment and other long-lived assets for impairment in accordance withSFAS No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets”. For assets to be disposed of, we recognize the asset to be sold at thelower of carrying value or fair market value less costs of disposal. Fairmarket value for assets to be disposed of is generally estimated based oncomparable asset sales, solicited offers or a discounted cash flow model. Forassets to be held and used, we review fixed assets for impairment wheneverindicators of impairment exist. If an indicator of impairment exists, wecompare the estimated future cash flows of the asset, on an undiscounted basis,to the carrying value of the asset. If the undiscounted cash flows exceed thecarrying value, no impairment is indicated. If the undiscounted cash flows donot exceed the carrying value, then impairment is measured based on fair valuecompared to carrying value, with fair value typically based on a discountedcash flow model. Our consolidated financial statements reflect all adjustmentsrequired by SFAS No. 144 as of December 31, 2004.

*Goodwill and Other Intangibles*

The FASB issued SFAS No. 142,“Goodwill and Other Intangible Assets”, in June 2001. SFAS No. 142changed the accounting for goodwill from an amortization method to animpairment-only approach. Amortization of goodwill, including goodwill recordedin past business combinations, ceased 

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upon theadoption of SFAS No. 142. We implemented SFAS No. 142 on January 1,2002 and tested for impairment in accordance with the provisions of SFAS No. 142in the first quarter of 2002 and annually perform such test. In order to testfor impairment of goodwill, we use the Income Approach, which focuses on theincome-producing capability of the respective property. The underlyingpremise of this approach is that the value of an asset can be measured by thepresent worth of the net economic benefit (cash receipts less cash outlays) tobe received over the life of the subject asset. The steps followed in applyingthis approach include estimating the expected after-tax cash flows attributableto the respective property and converting these after-tax cash flows to presentvalue through discounting. The discounting process uses a rate of return, whichaccounts for both the time value of money and investment risk factors. Thepresent value of the after-tax cash flows is then totaled to arrive at anindication of the fair value of the goodwill. If the fair value of the goodwillexceeds the carrying value, then impairment is measured based on the differencebetween the calculated fair value and the carrying value. Our consolidatedfinancial statements reflect all adjustments required by SFAS No. 142 asof December 31, 2004.

*Income Taxes*

We are subject to incometaxes in the United States of America and file a consolidated federalincome tax return. We account for income taxes according to SFAS No. 109, “Accountingfor Income Taxes”. SFAS No. 109 requires the recognition of deferred taxassets, net of applicable reserves, related to net operating loss carryforwardsand certain temporary differences. A valuation allowance is recognized if,based on the weight of available evidence, it is more likely than not that someportion or all of the deferred tax asset will not be recognized.

Our income tax returns aresubject to examination by the Internal Revenue Service and other taxauthorities. We regularly assess the potential outcomes of these examinationsin determining the adequacy of our provision for income taxes and our incometax liabilities. Inherent in our determination of any necessary reserves areassumptions based on past experiences and judgments about potential actions bytaxing authorities. Our estimate of the potential outcome for any uncertain taxissue is highly judgmental. We believe that we have adequately provided for anyreasonable and foreseeable outcome related to uncertain tax matters.

*Recently Issued Accounting Standards*

In December 2004, theFASB issued Statement of Financial Accounting Standards No. 123R (Revised2004), “Share-Based Payment” (“SFAS No. 123R”), which requires that thecompensation cost relating to share-based payment transactions be recognized infinancial statements based on alternative fair value models. The share-basedcompensation cost will be measured based on fair value models of the equity orliability instruments issued. We currently disclose pro forma compensationexpense quarterly and annually by calculating the stock option grants’ fairvalue using the Black-Scholes model and disclosing the impact on net income andnet income per share in a note to the consolidated financial statements. Uponadoption, pro forma disclosure will no longer be an alternative. SFAS No. 123Ralso requires the benefits of tax deductions in excess of recognizedcompensation cost to be reported as a financing cash flow rather than as anoperating cash flow as required under current literature. This requirement willreduce net operating cash flows and increase net financing cash flows inperiods after adoption. While we cannot estimate what those amounts will be inthe future, the amount of operating cash flows recognized for such deductionswere $62.6 million, $25.6 million and $3.2 million in 2004, 2003 and 2002,respectively. We will begin to apply SFAS No. 123R using an appropriatefair value model as of the interim reporting period ending September 30,2005. Based on stock options outstanding as of December 31, 2004, weestimate approximately $2.1 million in related expense to be recorded during2005.

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**ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

Market risk is the risk of loss arising from adversechanges in market rates and prices, such as interest rates, foreign currencyexchange rates and commodity prices. Our primary exposure to market risk isinterest rate risk associated with our long-term debt. We attempt to limit ourexposure to interest rate risk by managing the mix of our long-term fixed-rateborrowings and short-term borrowings under the Revolving Facility. Borrowings underthe Revolving Facility bear interest at a margin above the Alternate Base Rateor the Eurodollar Rate (each as defined in the Revolving Facility) as selectedby us. However, the amount of outstanding borrowings is expected to fluctuateand may be reduced from time to time. The Revolving Facility matures in December 2009.

Thefollowing table provides information about our long-term debt at December 31,2004 (see also “Description of Certain Indebtedness and Capital Stock”)(amounts in thousands):
| ** **                                                                     | ** ** | **Maturity  date** | ** ** | **Face  amount** | ** ** | **Carrying  value** | ** ** | **Estimated  fair value** | ** ** |
|--------------------------------------------------------------------------------|------------|--------------------|------------|------------------|------------|---------------------|------------|--------------------------------|------------|
| Revolving  Facility at a weighted average  interest rate of approximately 4.9% |       | December 2009 |       | $                | 1,000,000  |                | $          | 51,500                         |       | $ | 51,500 |   |
| 61¤2%  senior subordinated notes                                          |       | February 2014 |       | 450,000          |       | 450,000             |       | 464,625                        |       |
| 6% senior notes                                                                |       | April 2012    |       | 450,000          |       | 448,354             |       | 460,125                        |       |
| 67¤8%  senior subordinated notes                                          |       | March 2016    |       | 350,000          |       | 350,000             |       | 365,750                        |       |
| 97¤8%  senior subordinated notes                                          |       | July 2010     |       | 375,000          |       | 17,332              |       | 18,225                         |       |
| 83¤8%  senior notes                                                       |       | February 2008 |       | 400,000          |       | 16,894              |       | 17,401                         |       |
| Other debt,  interest at 6.0%                                                  |       | 2007-2008          |       | 6,103            |       | 6,060               |       | 6,060                          |       |
| Market value of  interest rate swaps                                           |       |               |       | (1,927           | )          | (1,927              | )          | (1,927                         | )          |
| Total                                                                          |       |               |       | $                | 3,029,176  |                | $          | 1,338,213                      |       | $ | 1,381,759 |   |

 

We are also exposed to market risk in the form of fluctuationsin interest rates and their potential impact upon our debt. This market risk ismanaged by utilizing derivative financial instruments in accordance withestablished policies and procedures. We evaluate our exposure to market risk bymonitoring interest rates in the marketplace, and do not utilize derivativefinancial instruments for trading purposes. Our derivative financialinstruments consist exclusively of interest rate swap agreements. Interestdifferentials resulting from these agreements are recorded on an accrual basisas an adjustment to interest expense. Interest rate swaps related to debt arematched with specific fixed-rate debt obligations.

Thefollowing table provides information about our financial instruments that aresensitive to changes in interest rates (amounts in thousands):
| ** **                                   | ** ** | **During the year ending December 31,** | ** ** |
|----------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                                   | ** ** | **2005**                                                         | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
| Long-term debt  (including current portion): |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed-rate                                   |       | $                                                                | 16,894     |   | $ | — |   | $ | 5,334 |   | $ | — |   | $ | — |   | $ | 1,265,687 |   | $ | 1,287,915 |   |
| Average interest rate                        |       | 8.38                                                             | %          | — |   | 6.00 | % | — |   | — |   | 6.50 | % | 6.52 | % |
| Variable-rate                                |       | $                                                                | 23         |   | $ | 25 |   | $ | 262 |   | $ | 415 |   | $ | 51,500 |   | $ | — |   | $ | 52,225 |   |
| Average interest rate                        |       | 6.00                                                             | %          | 6.00 | % | 6.00 | % | 6.00 | % | 4.93 | % | — |   | 4.94 | % |
| Interest rate swaps:                         |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Notional amount                              |       | $                                                                | —     |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 250,000 |   | $ | 250,000 |   |
| Average payable rate                         |       | —                                                           |       | — |   | — |   | — |   | — |   | 3.75 | % | 3.75 | % |
| Average  receivable rate                     |       | —                                                           |       | — |   | — |   | — |   | — |   | 6.33 | % | 6.33 | % |

 

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**ITEM 8. FINANCIAL STATEMENTS**

**INDEXTO CONSOLIDATED FINANCIAL STATEMENTS**
|                                                                                              | ** ** | **Page** | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------|------------|
| Reports of Independent Registered  Public Accounting Firm—Ernst & Young LLP    |       |     | 50         |   |   |
| Report of Independent Registered  Public Accounting Firm—Deloitte & Touche LLP |       |     | 52         |   |   |
| Consolidated Balance Sheets                                                                  |       |     | 53         |   |   |
| Consolidated  Statements of Operations                                                       |       |     | 54         |   |   |
| Consolidated  Statements of Stockholders’ Equity                                        |       |     | 55         |   |   |
| Consolidated  Statements of Cash Flows                                                       |       |     | 56         |   |   |
| Notes to Consolidated Financial Statements                                                   |       |     | 57         |   |   |

                                                

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**REPORT**OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of theStation Casinos, Inc.:

We have audited the accompanying consolidated balancesheets of Station Casinos, Inc. and its subsidiaries (the “Company”) as ofDecember 31, 2004 and 2003 and the related consolidated statements of operations,stockholders’ equity and cash flows for each of the two years in the periodended December 31, 2004. These financial statements are the responsibilityof the Company’s management. Our responsibility is to express an opinion onthese financial statements based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred toabove present fairly, in all material respects, the consolidated financialposition of the Company at December 31, 2004 and 2003, and theconsolidated results of their operations and their cash flows for each of thetwo years in the period ended December 31, 2004, in conformity withaccounting principles generally accepted in the United States.

We also have audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the effectiveness of the Company’s internal control overfinancial reporting as of December 31, 2004, based on criteria establishedin Internal Control—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission and our report dated February 18,2005 expressed an unqualified opinion thereon.
|                        | /s/ Ernst &  Young LLP |
|------------------------|---------------------------------|
| Las Vegas, Nevada      | ** **                      |
| February 18, 2005 | ** **                      |

 

50

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

The Board of Directors and Stockholders of Station Casinos, Inc.:

We have audited management’s assessment, included inthe accompanying Management’s Report on Internal Control Over FinancialReporting (see page 88), that Station Casino’s Inc. and its subsidiaries(the “Company”) maintained effective internal control over financial reportingas of December 31, 2004, based on criteria established in InternalControl—Integrated Framework issued by the Committee of Sponsoring Organizationsof the Treadway Commission (the COSO criteria). The Company’s management isresponsible for maintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal control over financialreporting. Our responsibility is to express an opinion on management’sassessment and an opinion on the effectiveness of the Company’s internalcontrol over financial reporting based on our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, evaluatingmanagement’s assessment, testing and evaluating the design and operatingeffectiveness of internal control, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinion.

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

In our opinion, management’s assessment that theCompany maintained effective internal control over financial reporting as of December 31,2004, is fairly stated, in all material respects, based on the COSO criteria. Also,in our opinion, the Company maintained, in all material respects, effectiveinternal control over financial reporting as of December 31, 2004, basedon the COSO criteria.

We also have audited, inaccordance with the standards of the Public Company Accounting Oversight Board,the consolidated balance sheets of the Company as of December 31, 2004 and2003, and the related consolidated statements of operations, stockholders’equity, and cash flows for each of the two years in the period ended December 31,2004 of the Company and our report dated February 18, 2005 expressed anunqualified opinion thereon.
|                   | /s/ Ernst & Young  LLP |
|-------------------|----------------------------|
| Las Vegas, Nevada | ** **                 |
| February 18, 2005 | ** **                 |

 

51

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**REPORT**OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders ofStation Casinos, Inc.:

We have audited the accompanying consolidatedstatements of operations, stockholders’ equity and cash flows of StationCasinos, Inc. and subsidiaries (the “Company”) (a Nevada corporation) forthe year ended December 31, 2002. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audit.

We conducted our audit in accordance with standards ofthe Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statementspresent fairly, in all material respects, the results of operations and cashflows of Station Casinos, Inc. and subsidiaries for the year ended December 31,2002 in conformity with accounting principles generally accepted in the UnitedStates of America.

As discussed in Note 1 tothe consolidated financial statements, in 2002, the Company changed its methodof accounting for goodwill and other intangible assets to conform to Statementof Financial Accounting Standards No. 142, “Goodwill and OtherIntangibles,” and recorded a cumulative effect of a change in accountingprinciple in the first quarter of 2002.
| Deloitte & Touche LLP |
|--------------------------------|
| Las Vegas, Nevada              |
| January 29, 2003          |

 

52

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**STATION CASINOS,INC.CONSOLIDATED BALANCE SHEETS(amounts in thousands, except share data)**
| ** **                                                                                             | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                             | ** ** | **2004**              | ** ** | **2003** | ** ** |
| ASSETS                                                                                                 |       |                  |       |   |   |
| Current assets:                                                                                        |       |                  |       |   |   |
| Cash and cash equivalents                                                                              |       | $                     | 68,417     |   | $ | 62,272 |   |
| Receivables, net                                                                                       |       | 21,452                |       | 28,224 |   |
| Inventories                                                                                            |       | 5,459                 |       | 5,110 |   |
| Prepaid gaming tax                                                                                     |       | 16,432                |       | 14,940 |   |
| Prepaid expenses                                                                                       |       | 7,761                 |       | 7,114 |   |
| Deferred income tax                                                                                    |       | —                |       | 16,804 |   |
| Total current assets                                                                                   |       | 119,521               |       | 134,464 |   |
| Property and equipment, net                                                                            |       | 1,367,957             |       | 1,158,299 |   |
| Goodwill and  other intangibles, net                                                                   |       | 155,775               |       | 148,717 |   |
| Land held for  development                                                                             |       | 167,729               |       | 119,197 |   |
| Investments in  joint ventures                                                                         |       | 106,598               |       | 86,425 |   |
| Other assets, net                                                                                      |       | 128,004               |       | 98,870 |   |
| Total assets                                                                                           |       | $                     | 2,045,584  |   | $ | 1,745,972 |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                              |       |                  |       |   |   |
| Current liabilities:                                                                                   |       |                  |       |   |   |
| Current portion of long-term debt                                                                      |       | $                     | 16,917     |   | $ | 22 |   |
| Accounts payable                                                                                       |       | 10,351                |       | 20,438 |   |
| Construction contracts payable                                                                         |       | 36,298                |       | — |   |
| Accrued expenses and other current liabilities                                                         |       | 112,450               |       | 121,856 |   |
| Total current liabilities                                                                              |       | 176,016               |       | 142,316 |   |
| Long-term debt, less current portion                                                                   |       | 1,321,296             |       | 1,168,935 |   |
| Deferred income  tax, net                                                                              |       | 20,094                |       | 65,285 |   |
| Other long-term  liabilities, net                                                                      |       | 39,257                |       | 29,497 |   |
| Total liabilities                                                                                      |       | 1,556,663             |       | 1,406,033 |   |
| Commitments and  contingencies                                                                         |       |                  |       |   |   |
| Stockholders’ equity:                                                                             |       |                  |       |   |   |
| Common stock, par value $0.01; authorized  135,000,000 shares; 77,298,227 and 70,912,227 shares issued |       | 561                   |       | 497 |   |
| Treasury stock, 10,185,343 and 10,121,677 shares, at  cost                                             |       | (137,714              | )          | (134,534 | ) |
| Additional paid-in capital                                                                             |       | 567,939               |       | 387,973 |   |
| Deferred compensation—restricted stock                                                            |       | (77,598               | )          | (27,003 | ) |
| Accumulated other comprehensive loss                                                                   |       | (611                  | )          | (1,334 | ) |
| Retained earnings                                                                                      |       | 136,344               |       | 114,340 |   |
| Total stockholders’ equity                                                                        |       | 488,921               |       | 339,939 |   |
| Total liabilities  and stockholders’ equity                                                       |       | $                     | 2,045,584  |   | $ | 1,745,972 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

53

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**STATION CASINOS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(amounts in thousands, except per share data)**
| ** **                                                                                            | ** ** | **For the years ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                                            | ** ** | **2004**                                                      | ** ** | **2003** | ** ** | **2002** | ** ** |
| Operating revenues:                                                                                   |       |                                                          |       |   |   |   |   |
| Casino                                                                                                |       | $                                                             | 730,584    |   | $ | 648,664 |   | $ | 638,113 |   |
| Food and beverage                                                                                     |       | 140,332                                                       |       | 133,676 |   | 133,811 |   |
| Room                                                                                                  |       | 57,057                                                        |       | 50,460 |   | 48,579 |   |
| Other                                                                                                 |       | 42,008                                                        |       | 45,943 |   | 40,790 |   |
| Management fees                                                                                       |       | 84,618                                                        |       | 46,711 |   | 4,853 |   |
| Gross revenues                                                                                        |       | 1,054,599                                                     |       | 925,454 |   | 866,146 |   |
| Promotional  allowances                                                                               |       | (67,857                                                       | )          | (67,365 | ) | (73,281 | ) |
| Net revenues                                                                                          |       | 986,742                                                       |       | 858,089 |   | 792,865 |   |
| Operating costs and expenses:                                                                         |       |                                                          |       |   |   |   |   |
| Casino                                                                                                |       | 273,816                                                       |       | 265,203 |   | 258,383 |   |
| Food and beverage                                                                                     |       | 100,548                                                       |       | 87,783 |   | 78,738 |   |
| Room                                                                                                  |       | 21,053                                                        |       | 19,580 |   | 19,000 |   |
| Other                                                                                                 |       | 16,820                                                        |       | 15,452 |   | 16,276 |   |
| Selling, general  and administrative                                                                  |       | 172,923                                                       |       | 161,643 |   | 161,038 |   |
| Corporate expense                                                                                     |       | 47,189                                                        |       | 33,039 |   | 31,946 |   |
| Development  expense                                                                                  |       | 10,683                                                        |       | 4,306 |   | — |   |
| Depreciation and  amortization                                                                        |       | 85,807                                                        |       | 73,144 |   | 72,783 |   |
| Preopening  expenses                                                                                  |       | 848                                                           |       | — |   | — |   |
| Impairment loss                                                                                       |       | —                                                        |       | 18,868 |   | 8,791 |   |
| Litigation  settlement                                                                                |       | —                                                        |       | 38,000 |   | — |   |
|                                                                                                  |       | 729,687                                                       |       | 717,018 |   | 646,955 |   |
| Operating income                                                                                      |       | 257,055                                                       |       | 141,071 |   | 145,910 |   |
| Earnings from  joint ventures                                                                         |       | 26,524                                                        |       | 20,604 |   | 11,293 |   |
| Operating income  and earnings from joint ventures                                                    |       | 283,579                                                       |       | 161,675 |   | 157,203 |   |
| Other income (expense):                                                                               |       |                                                          |       |   |   |   |   |
| Interest expense                                                                                      |       | (76,921                                                       | )          | (92,940 | ) | (96,795 | ) |
| Interest and other  expense from joint ventures                                                       |       | (4,485                                                        | )          | (7,233 | ) | (6,272 | ) |
| Interest income                                                                                       |       | 122                                                           |       | 4,873 |   | 106 |   |
| Loss on early  retirement of debt                                                                     |       | (93,265                                                       | )          | — |   | (5,808 | ) |
| Other                                                                                                 |       | (3,801                                                        | )          | 1,802 |   | 1,322 |   |
|                                                                                                  |       | (178,350                                                      | )          | (93,498 | ) | (107,447 | ) |
| Income before  income taxes and cumulative effect of change in accounting principle                   |       | 105,229                                                       |       | 68,177 |   | 49,756 |   |
| Income tax  provision                                                                                 |       | (38,879                                                       | )          | (23,834 | ) | (18,508 | ) |
| Income before  cumulative effect of change in accounting principle                                    |       | 66,350                                                        |       | 44,343 |   | 31,248 |   |
| Cumulative effect  of change in accounting principle, net of applicable income tax benefit of  $7,170 |       | —                                                        |       | — |   | (13,316 | ) |
| Net income                                                                                            |       | $                                                             | 66,350     |   | $ | 44,343 |   | $ | 17,932 |   |
| Basic and diluted  earnings per common share:                                                         |       |                                                          |       |   |   |   |   |
| Income before  cumulative effect of change in accounting principle:                                   |       |                                                          |       |   |   |   |   |
| Basic                                                                                                 |       | $                                                             | 1.03       |   | $ | 0.76 |   | $ | 0.54 |   |
| Diluted                                                                                               |       | $                                                             | 1.00       |   | $ | 0.72 |   | $ | 0.51 |   |
| Net income:                                                                                           |       |                                                          |       |   |   |   |   |
| Basic                                                                                                 |       | $                                                             | 1.03       |   | $ | 0.76 |   | $ | 0.31 |   |
| Diluted                                                                                               |       | $                                                             | 1.00       |   | $ | 0.72 |   | $ | 0.30 |   |
| Weighted average  common shares outstanding:                                                          |       |                                                          |       |   |   |   |   |
| Basic                                                                                                 |       | 64,362                                                        |       | 58,371 |   | 57,845 |   |
| Diluted                                                                                               |       | 66,264                                                        |       | 61,850 |   | 60,730 |   |
| Dividends paid per  common share                                                                      |       | $                                                             | 0.685      |   | $ | 0.250 |   | $ | — |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

54

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**STATION CASINOS,INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’EQUITY(amounts in thousands)**
| ** **                                                                                      | ** ** | ** ** | ** ** | ** **   | ** ** | ** **     | ** ** | **Deferred**      | ** ** | **Accumulated**   | ** ** | ** **   | ** ** | ** **             | ** ** |
|-------------------------------------------------------------------------------------------------|------------|------------|------------|--------------|------------|----------------|------------|-------------------|------------|-------------------|------------|--------------|------------|------------------------|------------|
| ** **                                                                                      | ** ** | ** ** | ** ** | ** **   | ** ** | **Additional** | ** ** | **compensation-** | ** ** | **other**         | ** ** | ** **   | ** ** | **Total**              | ** ** |
| ** **                                                                                      | ** ** | **Common** | ** ** | **Treasury** | ** ** | **paid-in**    | ** ** | **restricted**    | ** ** | **comprehensive** | ** ** | **Retained** | ** ** | **stockholders’** | ** ** |
| ** **                                                                                      | ** ** | **stock**  | ** ** | **stock**    | ** ** | **capital**    | ** ** | **stock**         | ** ** | **loss**          | ** ** | **earnings** | ** ** | **equity**             | ** ** |
| Balances, December 31, 2001                                                                |       |       | $          | 441          |       |           | $          | (99,248           | )          | $                 | 300,254    |         |       | $                      | (19,510    | ) |   |   | $ | — |   |   | $ | 66,967 |   |   | $ | 248,904 |   |   |
| Exercise of stock options                                                                       |       |       | 11         |         |       | —         |       | 12,322            |       |              | —     |         |       |                   | —     |   |   | — |   |   | 12,333 |   |   |
| Issuance of restricted stock                                                                    |       |       | 2          |         |       | —         |       | 3,693             |       |              | (3,695     | )            |       |                   | —     |   |   | — |   |   | — |   |   |
| Amortization of deferred compensation                                                           |       |       | —     |         |       | —         |       | —            |       |              | 2,973      |         |       |                   | —     |   |   | — |   |   | 2,973 |   |   |
| Purchase of treasury stock, at cost (743 shares)                                                |       |       | —     |         |       | (10,214        | )          | —            |       |              | —     |         |       |                   | —     |   |   | — |   |   | (10,214 | ) |   |
| Green Valley Ranch Station interest rate swap market valuation  adjustment, net of income taxes |       |       | —     |         |       | —         |       | —            |       |              | —     |         |       |                   | (1,695     | ) |   | — |   |   | (1,695 | ) |   |
| Other                                                                                           |       |       | —     |         |       | —         |       | 445               |       |              | —     |         |       |                   | —     |   |   | — |   |   | 445 |   |   |
| Net income                                                                                      |       |       | —     |         |       | —         |       | —            |       |              | —     |         |       |                   | —     |   |   | 17,932 |   |   | 17,932 |   |   |
| Balances, December 31, 2002                                                                |       |       | 454        |         |       | (109,462       | )          | 316,714           |       |              | (20,232    | )            |       |                   | (1,695     | ) |   | 84,899 |   |   | 270,678 |   |   |
| Exercise of stock options                                                                       |       |       | 39         |         |       | —         |       | 58,724            |       |              | —     |         |       |                   | —     |   |   | — |   |   | 58,763 |   |   |
| Issuance of restricted stock                                                                    |       |       | 4          |         |       | —         |       | 11,468            |       |              | (11,472    | )            |       |                   | —     |   |   | — |   |   | — |   |   |
| Amortization of deferred compensation                                                           |       |       | —     |         |       | —         |       | —            |       |              | 3,201      |         |       |                   | —     |   |   | — |   |   | 3,201 |   |   |
| Purchase of treasury stock, at cost (1,391 shares)                                              |       |       | —     |         |       | (25,072        | )          | —            |       |              | —     |         |       |                   | —     |   |   | — |   |   | (25,072 | ) |   |
| Green Valley Ranch Station interest rate swap market valuation  adjustment, net of income taxes |       |       | —     |         |       | —         |       | —            |       |              | —     |         |       |                   | 361        |   |   | — |   |   | 361 |   |   |
| Dividends paid                                                                                  |       |       | —     |         |       | —         |       | —            |       |              | —     |         |       |                   | —     |   |   | (14,902 | ) |   | (14,902 | ) |   |
| Other                                                                                           |       |       | —     |         |       | —         |       | 1,067             |       |              | 1,500      |         |       |                   | —     |   |   | — |   |   | 2,567 |   |   |
| Net income                                                                                      |       |       | —     |         |       | —         |       | —            |       |              | —     |         |       |                   | —     |   |   | 44,343 |   |   | 44,343 |   |   |
| Balances, December 31, 2003                                                                |       |       | 497        |         |       | (134,534       | )          | 387,973           |       |              | (27,003    | )            |       |                   | (1,334     | ) |   | 114,340 |   |   | 339,939 |   |   |
| Exercise of stock options                                                                       |       |       | 52         |         |       | —         |       | 117,584           |       |              | —     |         |       |                   | —     |   |   | — |   |   | 117,636 |   |   |
| Issuance of restricted stock,  net                                                              |       |       | 12         |         |       | —         |       | 61,759            |       |              | (61,771    | )            |       |                   | —     |   |   | — |   |   | — |   |   |
| Amortization of deferred compensation                                                           |       |       | —     |         |       | —         |       | —            |       |              | 9,676      |         |       |                   | —     |   |   | — |   |   | 9,676 |   |   |
| Purchase of treasury stock, at cost (64 shares)                                                 |       |       | —     |         |       | (3,180         | )          | —            |       |              | —     |         |       |                   | —     |   |   | — |   |   | (3,180 | ) |   |
| Green Valley Ranch Station interest rate swap market valuation  adjustment, net of income taxes |       |       | —     |         |       | —         |       | —            |       |              | —     |         |       |                   | 723        |   |   | — |   |   | 723 |   |   |
| Dividends paid                                                                                  |       |       | —     |         |       | —         |       | —            |       |              | —     |         |       |                   | —     |   |   | (44,346 | ) |   | (44,346 | ) |   |
| Other                                                                                           |       |       | —     |         |       | —         |       | 623               |       |              | 1,500      |         |       |                   | —     |   |   | — |   |   | 2,123 |   |   |
| Net income                                                                                      |       |       | —     |         |       | —         |       | —            |       |              | —     |         |       |                   | —     |   |   | 66,350 |   |   | 66,350 |   |   |
| Balances,  December 31, 2004                                                               |       |       | $          | 561          |       |           | $          | (137,714          | )          | $                 | 567,939    |         |       | $                      | (77,598    | ) |   |   | $ | (611 | ) |   | $ | 136,344 |   |   | $ | 488,921 |   |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

55

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**STATIONCASINOS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(amounts in thousands)**
| ** **                                                                                  | ** ** | **For the years ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                                  | ** ** | **2004**                                                      | ** ** | **2003** | ** ** | **2002** | ** ** |
| Cash flows from operating activities:                                                       |       |                                                          |       |   |   |   |   |
| Net income                                                                                  |       | $                                                             | 66,350     |   | $ | 44,343 |   | $ | 17,932 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities:          |       |                                                          |       |   |   |   |   |
| Depreciation and  amortization                                                              |       | 85,807                                                        |       | 73,144 |   | 72,783 |   |
| Tax benefit from  exercise of stock options                                                 |       | 62,643                                                        |       | 25,620 |   | 3,194 |   |
| Impairment loss                                                                             |       | —                                                        |       | 18,868 |   | 8,791 |   |
| Earnings from  joint ventures, net                                                          |       | (22,039                                                       | )          | (13,371 | ) | (5,021 | ) |
| Amortization of  debt discount and issuance costs                                           |       | 2,945                                                         |       | 3,156 |   | 4,082 |   |
| Loss on early  retirement of debt                                                           |       | 93,265                                                        |       | — |   | 5,808 |   |
| Cumulative effect  of change in accounting principle                                        |       | —                                                        |       | — |   | 20,486 |   |
| Changes in assets and liabilities:                                                          |       |                                                          |       |   |   |   |   |
| Receivables, net                                                                            |       | 6,772                                                         |       | (8,291 | ) | 2,432 |   |
| Inventories and  prepaid expenses                                                           |       | (2,488                                                        | )          | (3,264 | ) | 856 |   |
| Deferred income  tax                                                                        |       | (28,174                                                       | )          | (449 | ) | 12,739 |   |
| Accounts payable                                                                            |       | (10,087                                                       | )          | 11,904 |   | (18,156 | ) |
| Accrued expenses  and other current liabilities                                             |       | (9,619                                                        | )          | 41,713 |   | 3,992 |   |
| Other, net                                                                                  |       | 16,221                                                        |       | 3,078 |   | 2,980 |   |
| Total adjustments                                                                           |       | 195,246                                                       |       | 152,108 |   | 114,966 |   |
| Net cash provided  by operating activities                                                  |       | 261,596                                                       |       | 196,451 |   | 132,898 |   |
| Cash flows from investing activities:                                                       |       |                                                          |       |   |   |   |   |
| Capital expenditures                                                                        |       | (305,156                                                      | )          | (179,655 | ) | (20,138 | ) |
| Note receivable                                                                             |       | —                                                        |       | 34,487 |   | (24,086 | ) |
| Purchase of land  held for development                                                      |       | (76,879                                                       | )          | (19,117 | ) | (4,925 | ) |
| Proceeds from sale  of land, property and equipment                                         |       | 28,090                                                        |       | 6,670 |   | 13,123 |   |
| Investments in  joint ventures                                                              |       | —                                                        |       | 2,329 |   | (60 | ) |
| Accrued  construction contracts payable                                                     |       | 99,158                                                        |       | — |   | — |   |
| Payments on  construction contracts                                                         |       | (62,860                                                       | )          | — |   | (5,534 | ) |
| Other, net                                                                                  |       | (19,467                                                       | )          | (29,031 | ) | (18,773 | ) |
| Net cash used in  investing activities                                                      |       | (337,114                                                      | )          | (184,317 | ) | (60,393 | ) |
| Cash flows from financing activities:                                                       |       |                                                          |       |   |   |   |   |
| (Payments)  borrowings under bank facility with maturity dates less than three months,  net |       | (75,500                                                       | )          | 74,800 |   | (25,900 | ) |
| Borrowings under  bank facility, maturity dates greater than three months                   |       | —                                                        |       | 310,000 |   | 135,000 |   |
| Payments under  bank facility, maturity dates greater than three months                     |       | (50,000                                                       | )          | (385,000 | ) | (40,000 | ) |
| Principal payments  on notes payable, net                                                   |       | (22                                                           | )          | (122 | ) | (3,560 | ) |
| Purchase of  treasury stock                                                                 |       | (3,180                                                        | )          | (25,072 | ) | (10,214 | ) |
| Exercise of stock  options                                                                  |       | 54,993                                                        |       | 33,143 |   | 9,139 |   |
| Proceeds from  interest rate swap termination                                               |       | —                                                        |       | — |   | 15,303 |   |
| Redemption of  senior subordinated notes                                                    |       | (1,028,815                                                    | )          | — |   | (155,685 | ) |
| Proceeds from the  issuance of senior notes                                                 |       | 1,248,214                                                     |       | — |   | — |   |
| Payment of dividends                                                                        |       | (44,346                                                       | )          | (14,902 | ) | — |   |
| Debt issuance  costs                                                                        |       | (19,429                                                       | )          | (792 | ) | (3,665 | ) |
| Other, net                                                                                  |       | (252                                                          | )          | (1,256 | ) | 299 |   |
| Net cash provided  by (used in) financing activities                                        |       | 81,663                                                        |       | (9,201 | ) | (79,283 | ) |
| Cash and cash equivalents:                                                                  |       |                                                          |       |   |   |   |   |
| Increase  (decrease) in cash and cash equivalents                                           |       | 6,145                                                         |       | 2,933 |   | (6,778 | ) |
| Balance, beginning  of year                                                                 |       | 62,272                                                        |       | 59,339 |   | 66,117 |   |
| Balance, end of  year                                                                       |       | $                                                             | 68,417     |   | $ | 62,272 |   | $ | 59,339 |   |
| Supplemental cash flow disclosures:                                                         |       |                                                          |       |   |   |   |   |
| Cash paid for  interest, net of $6,968, $3,496 and $2,065 capitalized                       |       | $                                                             | 62,832     |   | $ | 91,629 |   | $ | 92,553 |   |
| Cash (received)  paid for income taxes, net                                                 |       | $                                                             | (2,558     | ) | $ | 1,329 |   | $ | (2,567 | ) |
| Supplemental disclosure of non-cash items:                                                  |       |                                                          |       |   |   |   |   |
| Investment in MPM                                                                           |       | $                                                             | —     |   | $ | 6,082 |   | $ | — |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

56

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**1.Summary of Significant Accounting Policies and Basis of Presentation**

*Basis ofPresentation and Organization*

Station Casinos, Inc.(the “Company”), a Nevada corporation, is a gaming and entertainment companythat currently owns and operates eight major hotel/casino properties (one ofwhich is 50% owned) and five smaller casino properties (one of which is 50%owned), in the Las Vegas metropolitan area, as well as manages a casino for aNative American tribe. The accompanying consolidated financial statementsinclude the accounts of the Company and its wholly owned subsidiaries, PalaceStation, Boulder Station, Texas Station, Sunset Station, Santa Fe Station,Fiesta Rancho, Fiesta Henderson, Wild Wild West, Wildfire, Magic Star and GoldRush. The Company also consolidates MPM Enterprises, LLC (“MPM”), in which itowns a 50% interest and is required to be consolidated. The Company also owns a50% interest in Barley’s and Green Valley Ranch Station and a 6.7% interest inthe Palms Casino Resort, which are accounted for under the equity method. TheCompany is the managing partner for both Barley’s and Green Valley RanchStation. In addition, the Company manages Thunder Valley Casino (“ThunderValley”) in Sacramento, California on behalf of the United Auburn IndianCommunity (“UAIC”) under a management and development contract, which expireson June 8, 2010. All significant intercompany accounts and transactionshave been eliminated.

*Acquisitions*

On August 2, 2004,the Company acquired Magic Star and Gold Rush casinos in Henderson, Nevada. TheCompany spent approximately $19.8 million for the acquisitions and enhancementsto the facilities. The acquisitions were accounted for using the purchasemethod of accounting. The purchase price was allocated based on estimated fairvalues at the date of acquisition. A total of approximately $8.2 million,representing the excess of acquisition cost over the estimated fair value ofthe tangible net assets was allocated to goodwill.

*Use of Estimates*

The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States requires management to make estimates and assumptions for itemssuch as slot club program liability, self-insurance reserves, bad debtreserves, estimated useful lives assigned to fixed assets, asset impairment,purchase price allocations made in connection with acquisitions and thecalculation of the income tax liabilities, that affect the reported amounts ofassets and liabilities and disclosure of contingent assets and liabilities atthe date of the financial statements and the reported amounts of revenues andexpenses during the reporting period. Actual results may differ from thoseestimates.

*Cash and CashEquivalents*

Cash and cash equivalentsincludes cash on hand at our properties, as well as investments purchased withan original maturity of 90 days or less.

*Inventories*

Inventories are stated atthe lower of cost or market; cost being determined on a first-in, first-outbasis.

57

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**1.Summary of Significant Accounting Policies and Basis of Presentation(Continued)**

*Property andEquipment*

Property and equipment are stated at cost.Depreciation and amortization are computed using the straight-line method overthe estimated useful lives of the assets or the terms of the capitalized lease,whichever is less. Costs of major improvements are capitalized, while costs ofnormal repairs and maintenance are charged to expense as incurred.

The Company evaluates itsproperty and equipment and other long-lived assets for impairment in accordancewith Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets.” For assets to be disposedof, the Company recognizes the asset to be sold at the lower of carrying valueor fair market value less costs of disposal. Fair market value for assets to bedisposed of is generally estimated based on comparable asset sales, solicitedoffers or a discounted cash flow model. For assets to be held and used, theCompany reviews fixed assets for impairment whenever indicators of impairmentexist. If an indicator of impairment exists, the Company compares the estimatedfuture cash flows of the asset, on an undiscounted basis, to the carrying valueof the asset. If the undiscounted cash flows exceed the carrying value, noimpairment is indicated. If the undiscounted cash flows do not exceed thecarrying value, then an impairment is measured based on fair value compared tocarrying value, with fair value typically based on a discounted cash flowmodel. The consolidated financial statements reflect all adjustments requiredby SFAS No. 144 as of December 31, 2004.

*Capitalization ofInterest*

The Company capitalizesinterest costs associated with debt incurred in connection with majorconstruction projects. Interest capitalization ceases once the project issubstantially complete or no longer undergoing construction activities toprepare it for its intended use. When no debt is specifically identified asbeing incurred in connection with such construction projects, the Companycapitalizes interest on amounts expended on the project at the Company’sweighted average cost of borrowed money. Interest capitalized was approximately$7.0 million, $3.5 million and $2.1 million for the years ended December 31,2004, 2003 and 2002, respectively.

*Goodwill and OtherIntangibles*

The Financial Accounting Standards Board (“FASB”)issued SFAS No. 142, “Goodwill and Other Intangible Assets”, in June 2001.SFAS No. 142 changed the accounting for goodwill from an amortizationmethod to an impairment-only approach. Amortization of goodwill, includinggoodwill recorded in past business combinations, ceased upon the adoption ofSFAS No. 142. The Company implemented SFAS No. 142 on January 1,2002 and tested for impairment in accordance with the provisions of SFAS No. 142in the first quarter of 2002 and will annually perform such test in the fourthquarter of each subsequent year. As a result of an independent third party appraisal,the Company recorded an impairment loss of $13.3 million, net of theapplicable tax benefit, during 2002 related to Fiesta Rancho, which is shown asa cumulative effect of a change in accounting principle in the Company’sconsolidated statements of operations. Fiesta Rancho was purchased in early2001, and there were no events or changes in circumstances (“triggering events”)during the course of 2001 that would have indicated the recoverability of thecarrying amount of the property should be assessed. As a result, there was norequirement to test for impairment under the provisions of SFAS No. 121,which was the primary literature regarding the

58

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**1.Summary of Significant Accounting Policies and Basis of Presentation(Continued)**

impairment of an assetprior to the adoption of SFAS No. 142. The Company tested for impairmentof goodwill in the fourth quarter of 2002 and determined that there was noimpairment. The Company tested for impairment of goodwill in the fourth quarterof 2003 and recorded an impairment loss of $17.5 million at Fiesta Ranchoas a result of reduced growth assumptions. The Company tested for impairment ofgoodwill in the fourth quarter of 2004 and determined there was no impairment.

Also, in connection with the acquisition of FiestaRancho, the Company acquired the customer list and is amortizing it over fiveyears. The customer list was valued at $5.0 million at the time of thepurchase and as of December 31, 2004, had a net book value ofapproximately $1.2 million.

*Debt Issuance Costs*

Debt issuance costsincurred in connection with the issuance of long-term debt are capitalized andamortized to interest expense over the expected terms of the related debtagreements and are included in other assets on the Company’s consolidatedbalance sheets.

*Preopening Expenses*

Preopening expenses havebeen expensed as incurred. The construction phase of a project typically coversa period of 12 to 24 months. The majority of preopening costs are incurredin the three months prior to opening. During the year ended December 31,2004, the Company incurred preopening expenses of $0.8 million related tothe development of Red Rock (see Note 10).

*Interest Rate Swaps*

From time to time, theCompany uses interest rate swaps and similar financial instruments to assist inmanaging interest incurred on its long-term debt. The difference betweenamounts received and paid under such agreements, as well as any costs or fees,is recorded as a reduction of, or addition to, interest expense as incurredover the life of the swap or similar financial instrument (see Note 9).

*Revenues andPromotional Allowances*

TheCompany recognizes as casino revenues the net win from gaming activities, whichis the difference between gaming wins and losses. All other revenues arerecognized as the service is provided. Revenues include the retail value offood, beverage, rooms, entertainment and merchandise provided on acomplimentary basis to customers. Such amounts are then deducted from revenuesas promotional allowances on the Company’s consolidated statements ofoperations. The estimated departmental costs of providing such promotionalallowances are included in casino costs and expenses and consist of thefollowing (amounts in thousands):
| ** **        | ** ** | **For the years ended December 31,** | ** ** |
|-------------------|------------|---------------------------------------------------------------|------------|
| ** **        | ** ** | **2004**                                                      | ** ** | **2003** | ** ** | **2002** | ** ** |
| Food and beverage |       | $                                                             | 59,391     |   | $ | 57,985 |   | $ | 59,781 |   |
| Room              |       | 3,489                                                         |       | 3,119 |   | 3,023 |   |
| Other             |       | 2,891                                                         |       | 3,057 |   | 2,899 |   |
| Total             |       | $                                                             | 65,771     |   | $ | 64,161 |   | $ | 65,703 |   |

 

59

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**1.Summary of Significant Accounting Policies and Basis of Presentation(Continued)**

The Company’s BoardingPass and Amigo Club player rewards programs (the “Programs”) allow customers toredeem points earned from their gaming activity at all Station and Fiestaproperties for complimentary food, beverage, rooms, entertainment andmerchandise. At the time redeemed, the retail value of complimentaries underthe Programs are recorded as revenue with a corresponding offsetting amountincluded in promotional allowances. The cost associated with complimentaryfood, beverage, rooms, entertainment and merchandise redeemed under thePrograms is recorded in casino costs and expenses. The Company also records aliability for the estimated cost of the outstanding points under the Programs.

*Related PartyTransactions*

The Company has enteredinto various related party transactions, which consist primarily of leasepayments related to ground leases at Boulder Station and Texas Station and thepurchase of Wildfire. The expenses related to these related party ground leasetransactions were approximately $5.7 million, $5.4 million and$5.1 million for the years ended December 31, 2004, 2003 and 2002,respectively. In addition, on January 27, 2003, the Company purchasedsubstantially all of the assets of Wildfire for $8.0 million from BauchmanGaming Ventures, LLC, a company owned by the two brothers-in-law of Scott MNielson, the Company’s Executive Vice President and Chief Development Officer.

*Earnings Applicableto Common Stock*

In accordance with the provisions of SFAS No. 128,“Earnings Per Share”, basic EPS is computed by dividing net income applicableto common stock by the weighted average common shares outstanding during theperiod. Diluted EPS reflects the additional dilution for all potentiallydilutive securities such as stock options.

Theweighted average number of common shares used in the calculation of basic anddiluted earnings per share consisted of the following (amounts in thousands):
| ** **                                                                                                             | ** ** | **For the years ended December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                                                             | ** ** | **    2004    **      | ** ** | **    2003    ** | ** ** | **   2002   ** | ** ** |
| Weighted average  common shares outstanding (used in calculation of basic earnings per  share)                    |       | 64,362                                                        |       | 58,371 |   | 57,845 |   |
| Potential  dilution from the assumed exercise of stock options                                                         |       | 1,902                                                         |       | 3,479 |   | 2,885 |   |
| Weighted average common  and common equivalent shares outstanding (used in calculation of diluted  earnings per share) |       | 66,264                                                        |       | 61,850 |   | 60,730 |   |

 

The number of antidilutivestock options as of December 31, 2004, 2003 and 2002 was 0, 28,000 and0.2 million, respectively.

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**1.Summary of Significant Accounting Policies and Basis of Presentation(Continued)**

*Stock-BasedEmployee Compensation*

The Company applies APBOpinion No. 25 and related interpretations in accounting for its stock-basedemployee compensation programs. Accordingly, compensation expense recognizedwas different than what would have been otherwise recognized under the fairvalue based method defined in SFAS No. 123, “Accounting for Stock-BasedCompensation”. Had compensation expense for the plans been determined inaccordance with SFAS No. 123, the effect on the Company’s net income andbasic and diluted earnings per common share would have been as follows (amountsin thousands, except per share data):
| ** **                                                | ** ** | **For the years ended December 31,** | ** ** |
|-----------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                | ** ** | **2004**                                                      | ** ** | **2003** | ** ** | **2002** | ** ** |
| Net income:                                               |       |                                                          |       |   |   |   |   |
| As reported                                               |       | $                                                             | 66,350     |   | $ | 44,343 |   | $ | 17,932 |   |
| Stock-based compensation expense reported in  net income  |       | 404                                                           |       | 694 |   | 289 |   |
| Stock-based compensation expense under fair  value method |       | (6,029                                                        | )          | (8,175 | ) | (7,022 | ) |
| Pro forma net income                                      |       | $                                                             | 60,725     |   | $ | 36,862 |   | $ | 11,199 |   |
| Earnings per  common share:                               |       |                                                          |       |   |   |   |   |
| Basic—as reported                                    |       | $                                                             | 1.03       |   | $ | 0.76 |   | $ | 0.31 |   |
| Basic—pro forma                                      |       | 0.94                                                          |       | 0.63 |   | 0.19 |   |
| Diluted—as reported                                  |       | $                                                             | 1.00       |   | $ | 0.72 |   | $ | 0.30 |   |
| Diluted—pro forma                                    |       | 0.92                                                          |       | 0.60 |   | 0.18 |   |

 

Thefair value of each option grant is estimated on the date of grant using theBlack-Scholes option-pricing method with the following assumptions:
| ** **                                      | ** ** | **For the years ended December 31,** | ** ** |
|-------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                      | ** ** | **    2004    **      | ** ** | **     2003     ** | ** ** | **     2002     ** | ** ** |
| Expected dividend  yield                        |       |                                                          | —     |   |   |   | 1.63 | % |   |   | — |   |   |
| Expected stock  price volatility                |       |                                                          | —     |   |   |   | 54.30 | % |   |   | 56.34 | % |   |
| Risk-free  interest rate                        |       |                                                          | —     |   |   |   | 2.97 | % |   |   | 3.82 | % |   |
| Expected average  life of options (years)       |       |                                                          | —     |   |   |   | 3.42 |   |   |   | 4.42 |   |   |
| Weighted average fair  value per option granted |       |                                                          | —     |   |   |   | $ | 7.53 |   |   |   | $ | 6.69 |   |   |
|                                                 |            |                                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

There were no stock optiongrants during 2004 therefore there is no fair value assumptions. Because theSFAS No. 123 method of accounting has not been applied to options grantedprior to April 1, 1995, the resulting pro forma net income may not berepresentative of that to be expected in future years.

*Operating Segments*

SFAS No. 131, “Disclosuresabout Segments of an Enterprise and Related Information”, requires separatefinancial information be disclosed for all operating segments of a business.The Company believes that it meets the “economic similarity” criteriaestablished by SFAS No. 131, and as a result, the Company aggregates allof its properties into one operating segment. All of our properties offer thesame products, cater to the same customer base, are all located in the greaterLas Vegas, Nevada area, have the same 

61

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**1.Summary of Significant Accounting Policies and Basis of Presentation (Continued)**

regulatoryand tax structure, share the same marketing techniques and are all directed bya centralized management structure.

*Recently IssuedAccounting Standards*

In December 2004, theFASB issued Statement of Financial Accounting Standards No. 123R (Revised2004), “Share-Based Payment” (“SFAS No. 123R”), which requires that thecompensation cost relating to share-based payment transactions be recognized infinancial statements based on alternative fair value models. The share-basedcompensation cost will be measured based on fair value models of the equity orliability instruments issued. The Company currently discloses pro formacompensation expense quarterly and annually by calculating the stock optiongrants’ fair value using the Black-Scholes model and disclosing the impact onnet income and net income per share in a note to the consolidated financial statements.Upon adoption, pro forma disclosure will no longer be an alternative. The tableabove reflects the estimated impact that such a change in accounting treatmentwould have had on our net income and net income per share if it had been ineffect during the years ended December 31, 2004, 2003 and 2002. SFAS No. 123Ralso requires the benefits of tax deductions in excess of recognized compensationcost to be reported as a financing cash flow rather than as an operating cashflow as required under current literature. This requirement will reduce netoperating cash flows and increase net financing cash flows in periods afteradoption. While the Company cannot estimate what those amounts will be in thefuture, the amount of operating cash flows recognized for such deductions were$62.6 million, $25.6 million and $3.2 million in 2004, 2003 and 2002,respectively. The Company will begin to apply SFAS No. 123R using anappropriate fair value model as of the interim reporting period ending September 30,2005. Based on stock options outstanding as of December 31, 2004, theCompany estimates approximately $2.1 million in expense to be recorded during2005.

*Reclassifications*

Certain amounts in the December 31,2003 and 2002 consolidated financial statements have been reclassified toconform to the December 31, 2004 presentation. These reclassifications hadno effect on the previously reported net income.

**2. Receivables**

Componentsof receivables are as follows (amounts in thousands):
| ** **                       | ** ** | **December 31,** | ** ** |
|----------------------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **2004**              | ** ** | **2003** | ** ** |
| Casino                           |       | $                     | 5,554      |   | $ | 7,166 |   |
| Hotel                            |       | 3,723                 |       | 2,428 |   |
| Management fees                  |       | 8,168                 |       | 6,301 |   |
| Income tax                       |       | 172                   |       | 7,181 |   |
| Other                            |       | 5,837                 |       | 8,034 |   |
|                             |       | 23,454                |       | 31,110 |   |
| Allowance for  doubtful accounts |       | (2,002                | )          | (2,886 | ) |
| Receivables, net                 |       | $                     | 21,452     |   | $ | 28,224 |   |

 

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**3. Property and Equipment**

Propertyand equipment consists of the following (amounts in thousands):
| ** **                                 | ** ** | ** **                           | ** ** | **December 31,** | ** ** |
|--------------------------------------------|------------|--------------------------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | **Estimated life (years)** | ** ** | **2004**              | ** ** | **2003** | ** ** |
| Land                                       |       |                                 | —     |                  |       | $ | 154,724 |   | $ | 140,043 |   |
| Buildings and  improvements                |       |                                 | 10-45      |                  |       | 946,243 |   | 901,347 |   |
| Furniture,  fixtures and equipment         |       |                                 | 3-7        |                  |       | 472,599 |   | 392,818 |   |
| Construction in  progress                  |       |                                 | —     |                  |       | 241,485 |   | 99,455 |   |
|                                       |       |                                 |       |                  |       | 1,815,051 |   | 1,533,663 |   |
| Accumulated  depreciation and amortization |       |                                 |       |                  |       | (447,094 | ) | (375,364 | ) |
| Property and equipment,  net               |       |                                 |       |                  |       | $ | 1,367,957 |   | $ | 1,158,299 |   |

 

At December 31, 2004and 2003, substantially all property and equipment of the Company is pledged ascollateral for long-term debt.

**4. Land Held for Development**

As of December 31, 2004, the Company had $167.7 millionof land held for development that consists primarily of five sites that areowned or leased, which comprise 198 acres in the Las Vegas valley and 188 acresin the Sacramento area near Thunder Valley. The Durango site, located at theintersection of Durango Road and the Southern Beltway/Interstate 215 in thesouthwest quadrant of Las Vegas, currently consists of 67 acres. The Companyalso owns a 49-acre gaming-entitled parcel in southwest Las Vegas at theintersection of Flamingo Road and Interstate 215. During the year ended December 31,2004, the Company purchased approximately 54 acres of land in a gamingenterprise district on the southern end of Las Vegas Boulevard at Cactus Avenuefor approximately $33.9 million. In addition, the Company leases and has anoption to purchase 2.5 acres adjacent to this site. On October 1, 2004,the Company purchased approximately 26 acres of real property and improvementsformerly known as the Castaways Hotel Casino and Bowling Center (the “Castaways”)in Las Vegas, Nevada, for $33.75 million. The Castaways closed on January 26,2004, shortly after its former owners filed for bankruptcy. The Company iscurrently evaluating the potential uses of the property, but does not believeit is competitive and does not intend to operate the facility in its currentstate.

In April 2004, the Company sold a 27-acre parcelof land, after removing the gaming entitlements, located at the intersection ofBoulder Highway and Nellis Boulevard for net proceeds of approximately $10.5million. In July 2004, the Company sold a 68-acre parcel of land, afterremoving the gaming entitlements, located at the intersection of BoulderHighway and Tropicana Avenue in eastern Las Vegas for net proceeds ofapproximately $15.2 million. As a result of the sale of these parcels of land,the Company recorded a loss of approximately $2.7 million for the year ended December 31,2004.

The Company also has acquired or is under contract toacquire approximately 58 acres of land on which Wild Wild West is located andthe surrounding area of which, approximately 27 acres have been acquired as of December 31,2004. The Company has exercised its option to purchase the 19-acre parcelof leased land on which Wild Wild West is located. Pursuant to the lease, thepurchase will occur in July 2005 at a purchase price of approximately$36 million. No amounts related to this purchase option have been

63

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**4. LandHeld for Development (Continued)**

recorded on the Company’sconsolidated balance sheets. The Company has also agreed to purchase anadditional 12 acres of land and is expected to close on these transactions inthe first quarter of 2005.

The Company has acquiredcertain parcels of land in the Las Vegas valley and near Sacramento, Californiaas part of its future development activities. The Company’s decision whether toproceed with any new gaming or development opportunity is dependent upon futureeconomic and regulatory factors, the availability of financing and competitiveand strategic considerations. As many of these considerations are beyond theCompany’s control, no assurances can be made that it will be able to secureadditional, acceptable financing in order to proceed with any particularproject.

**5. Investments in Joint Ventures**

TheCompany has investments in two 50% owned joint ventures, Green Valley RanchStation and Barley’s, and a 6.7% investment in a joint venture that owns thePalms Casino Resort in Las Vegas, Nevada, that are accounted for under theequity method. Under the equity method, original investments are recorded atcost and adjusted by the Company’s share of earnings, losses and distributionsof the joint ventures. The investment balance also includes interestcapitalized during the construction period, which is amortized against theearnings of the joint venture. Investments in joint ventures consist of thefollowing (amounts in thousands):
| ** **                          | ** ** | **December 31,** | ** ** |
|-------------------------------------|------------|-----------------------|------------|
| ** **                          | ** ** | **2004**              | ** ** | **2003** | ** ** |
| Green Valley  Ranch Station (50.0%) |       | $                     | 85,274     |   | $ | 66,484 |   |
| Barley’s (50.0%)               |       | 2,984                 |       | 2,899 |   |
| Palms Casino  Resort (6.7%)         |       | 18,340                |       | 17,042 |   |
| Investments in  joint ventures      |       | $                     | 106,598    |   | $ | 86,425 |   |

 

Summarizedbalance sheet information for the joint ventures is as follows (amounts inthousands):
| ** **                                    | ** ** | **December 31,** | ** ** |
|-----------------------------------------------|------------|-----------------------|------------|
| ** **                                    | ** ** | **2004**              | ** ** | **2003** | ** ** |
| Current assets                                |       | $                     | 72,451     |   | $ | 51,551 |   |
| Property and  equipment and other assets, net |       | 633,592               |       | 525,515 |   |
| Current  liabilities                          |       | 60,605                |       | 37,977 |   |
| Long-term  debt and other liabilities         |       | 243,430               |       | 196,399 |   |
| Stockholders’ equity                     |       | 402,008               |       | 342,690 |   |
|                                               |            |                       |            |  |  |  |  |

 

Summarizedresults of operations for the joint ventures are as follows (amounts inthousands):
| ** **                       | ** ** | **For the years ended December 31,** | ** ** |
|----------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                       | ** ** | **2004**                                                      | ** ** | **2003** | ** ** | **2002** | ** ** |
| Net revenues                     |       | $                                                             | 385,838    |   | $ | 327,190 |   | $ | 276,051 |   |
| Operating costs  and expenses    |       | 302,135                                                       |       | 263,481 |   | 236,817 |   |
| Operating income                 |       | 83,703                                                        |       | 63,709 |   | 39,234 |   |
| Interest and  other expense, net |       | 10,069                                                        |       | 12,734 |   | 19,450 |   |
| Net income                       |       | $                                                             | 73,634     |   | $ | 50,975 |   | $ | 19,784 |   |

 

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**5.Investments in Joint Ventures (Continued)**

The operating earningsfrom these joint ventures are shown as a separate line item on the Company’sconsolidated statements of operations after operating income. In addition,interest and other expense from these joint ventures is shown as a separatecomponent under other income (expense) in the Company’s consolidated statementsof operations. The following table identifies the total equity earnings fromjoint ventures (amounts in thousands):
| ** **                                      | ** ** | **For the years ended December 31,** | ** ** |
|-------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2004**                                                      | ** ** | **2003** | ** ** | **2002** | ** ** |
| Operating  earnings from joint ventures         |       | $                                                             | 26,524     |   | $ | 20,604 |   | $ | 11,293 |   |
| Interest and  other expense from joint ventures |       | (4,485                                                        | )          | (7,233 | ) | (6,272 | ) |
| Net earnings from  joint ventures               |       | $                                                             | 22,039     |   | $ | 13,371 |   | $ | 5,021 |   |

 

*Green Valley RanchStation*

Green Valley Ranch Stationis owned by a 50/50 joint venture between the Company and GCR Gaming. In December 2004,Green Valley Ranch Station entered into a new $250 million Second Amended andRestated Loan Agreement (the “Green Valley Facility”), which refinanced theexisting $250 million revolving credit facility and term loan. The Green ValleyFacility extends the maturity of the revolving portion to December 2009and the term loan portion to December 2011. The outstanding balance of theGreen Valley Ranch Station revolving credit facility as of December 31,2004, was approximately $200 million.

**6.Management Fees**

The Company managesThunder Valley for the UAIC and receives a management fee equal to 24% of netincome (as defined in the management agreement). The Company is also themanaging partner for both Green Valley Ranch Station and Barley’s and receivesa management fee equal to 2% of revenues and approximately 5% of EarningsBefore Interest, Taxes, Depreciation and Amortization (“EBITDA”) from GreenValley Ranch Station and 10% of EBITDA from Barley’s. The Company’s managementfees are included in net revenues on the Company’s consolidated statements ofoperations.

*United AuburnIndian Community*

The Company has entered into a Development ServicesAgreement and a Management Agreement with the UAIC. The Company’s seven-yearManagement Agreement was approved by the National Indian Gaming Commission (“NIGC”)and expires in June 2010. Pursuant to those agreements, and in compliancewith a Memorandum of Understanding entered into by the UAIC and Placer County,California, the Company and the UAIC developed Thunder Valley, a gaming andentertainment facility on approximately 49 acres located approximately sevenmiles north of Interstate 80, in Placer County, California, near Sacramento,which opened on June 9, 2003. In June 2004, the UAIC successfullynegotiated a new Tribal-State Gaming Compact (“Amended Compact”) with the Stateof California, which has been approved by the United States Department of theInterior (the “DOI”). The Amended Compact allowsan unlimited number of slot machines at Thunder Valley and extends the term anadditional 10 years

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**6.Management Fees (Continued)**

to 2030. The AmendedCompact also includes a revenue sharing agreement with the State of California.The UAIC will pay approximately $33.8 million annually to the State ofCalifornia commencing in January 2005 and additional fees ranging from$11,000 to $13,200 per machine for any slot machines added above the 1,906machines that were in operation at Thunder Valley prior to the Amended Compact.

On September 17,2002, the DOI accepted the land into trust on behalf of the UAIC. Theacceptance of the land into trust followed the decision of the United StatesDistrict Court for the District of Washington, D.C., dismissing a lawsuit filedby the cities of Roseville and Rocklin, California, and Citizens for SaferCommunities, which challenged the DOI’s decision to accept the land into trust.Immediately following the District Court’s decision, the plaintiffs appealedthe decision to the United States Court of Appeals for the District ofColumbia. On November 14, 2003, the Court of Appeals affirmed thedismissal of the lawsuit by the District Court. On February 15, 2004,Citizens for Safer Communities filed a petition for writ of certiorari with theUnited States Supreme Court, seeking to appeal the decision of the Court ofAppeals. The remaining plaintiffs did not seek to appeal the decision. On April 5,2004, the United States Supreme Court denied Citizens for Safer Communities’petition for writ of certiorari.

**7. Asset Impairment**

The Company recorded an impairment loss ofapproximately $18.9 million and $8.8 million in the years ended December 31,2003 and 2002, respectively, to adjust the carrying value of its goodwill andother assets to their estimated fair value. The $18.9 million impairmentloss in 2003 related to the write off of approximately $17.5 million ingoodwill at Fiesta Rancho in accordance with SFAS No. 142 as a result ofreduced growth assumptions. The remaining $1.4 million impairment loss in2003 was primarily related to the write off of the Company’s investment in anew slot product development. The impairment of this asset was based upon adecision by the Company to no longer pursue the development of certain slotproducts. As a result, all of the development costs that the Company hadincurred were written off, as they were deemed to have no value.

During the year ended December 31, 2002,approximately $3.9 million of the impairment loss related to thewrite-down of certain assets related to the Company’s investments in anInternet, intra-state gaming platform and related technology. In May 2002,the Nevada Gaming Commission communicated that it had general concerns regardingthe security and reliability of Internet gaming platforms. The impairment ofthese assets was based upon a decision by the Company to no longer pursueNevada-based Internet gaming activities as a result of the uncertainty ofregulatory approval of these types of activities. As a result, all of thehardware, software and internal development costs that the Company had incurredwere written off in 2002, as they were deemed to have no value. In addition,approximately $4.9 million of the impairment loss was related to theCompany’s option to invest in an Internet wagering business. In February 2002,the Company announced that it intended to purchase a 50% interest in KerznerInteractive Limited (formerly SunOnline Limited) (“Kerzner Interactive”), awholly owned subsidiary of Kerzner International Limited (formerly SunInternational Hotels Limited) (“Kerzner”). Kerzner Interactive was to be theexclusive vehicle for both Kerzner and the Company to pursue the Internetwagering business. In July 2002, the Company converted its agreement toacquire a 50% interest in Kerzner Interactive into an option to do so, and paid$4.5 million for such option. Kerzner decided to discontinue KerznerInteractive, as it targeted Internet wagering only from jurisdictions that permittedonline gaming. As these jurisdictions became 

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**7. AssetImpairment (Continued)**

morerestrictive in their acceptance of Internet gaming, the market size was reducedand competition intensified, resulting in a substantial decrease in theprobability of achieving profitability in the short-to-medium term. As aresult, the Company wrote off the option payment and other costs related tothis investment in 2002.

**8. Accrued Expenses and Other Current Liabilities**

Accruedexpenses and other current liabilities consist of the following (amounts inthousands):
| ** **                                            | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------|------------|-----------------------|------------|
| ** **                                            | ** ** | **2004**              | ** ** | **2003** | ** ** |
| Accrued payroll  and related                          |       | $                     | 40,874     |   | $ | 24,774 |   |
| Accrued interest  payable                             |       | 27,524                |       | 14,655 |   |
| Accrued  progressives                                 |       | 5,096                 |       | 4,459 |   |
| Accrued group  insurance                              |       | 4,194                 |       | 2,921 |   |
| Litigation  settlement                                |       | —                |       | 38,000 |   |
| Other accrued  expenses and current liabilities       |       | 34,762                |       | 37,047 |   |
| Total accrued  expenses and other current liabilities |       | $                     | 112,450    |   | $ | 121,856 |   |

 

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**9. Long-term Debt**

Long-termdebt consists of the following (amounts in thousands):
| ** **                                                                                                                                                                                                                                            | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                            | ** ** | **2004**              | ** ** | **2003** | ** ** |
| Revolving credit  facility, $1.0 billion limit at December 31, 2004, due December 31,  2009, interest at a margin above the Alternate Base Rate or the  Eurodollar Rate (4.9% at December 31, 2004)                               |       | $                     | 51,500     |   | $ | 177,000 |   |
| 61¤2%  senior subordinated notes, interest payable semi-annually, principal due February 1,  2014, callable February 1, 2009                                                                                                      |       | 450,000               |       | — |   |
| 6% senior notes,  interest payable semi-annually, principal due April 1, 2012, callable  April 1, 2008, net of unamortized discount of $1.6 million at  December 31, 2004                                                              |       | 448,354               |       | — |   |
| 67¤8%  senior subordinated notes, interest payable semi-annually, principal due March 1,  2016, callable March 1, 2009                                                                                                            |       | 350,000               |       | — |   |
| 97¤8%  senior subordinated notes, interest payable semi-annually, principal  due July 1, 2010, callable July 1, 2005, net of unamortized  discount of $46 and $1.1 million at December 31, 2004 and 2003,  respectively |       | 17,332                |       | 373,886 |   |
| 83¤8%  senior notes, interest payable semi-annually, principal due  February 15, 2008, called February 15, 2005                                                                                                                   |       | 16,894                |       | 400,000 |   |
| 87¤8%  senior subordinated notes, interest payable semi-annually, principal  due December 1, 2008                                                                                                                                      |       | —                |       | 199,900 |   |
| Other long-term  debt, interest at 6.0% at December 31, 2004, maturity dates ranging from  2007 to 2008                                                                                                                                          |       | 6,060                 |       | 6,082 |   |
| Total long-term  debt                                                                                                                                                                                                                                 |       | 1,340,140             |       | 1,156,868 |   |
| Current portion of long-term  debt                                                                                                                                                                                                                    |       | (16,917               | )          | (22 | ) |
| Market value of interest  rate swaps                                                                                                                                                                                                                  |       | (1,927                | )          | 12,089 |   |
| Total long-term  debt, net                                                                                                                                                                                                                            |       | $                     | 1,321,296  |   | $ | 1,168,935 |   |

 

*Revolving Facility*

In December 2004, the Company increased itsavailability under its revolving credit facility (the “Revolving Facility”) to$1.0 billion and extended the maturity by two years to December 2009. TheRevolving Facility contains no principal amortization. The Borrowers are themajor operating subsidiaries and the Revolving Facility is secured bysubstantially all of the Company’s assets. Borrowings under the RevolvingFacility bear interest at a margin above the Alternate Base Rate or theEurodollar Rate (each as defined in the Revolving Facility), as selected by theCompany. The margin above such rates, and the fee on the unfunded portions ofthe Revolving Facility, will vary quarterly based on the Company’s combinedconsolidated ratio of debt to Adjusted EBITDA (as defined in the RevolvingFacility). As of December 31, 2004, the Borrowers’ margin above theEurodollar Rate on borrowings under the Revolving Facility was 1.38%. Themaximum margin for Eurodollar Rate borrowings is 2.13%. The maximum margin forAlternate Base Rate borrowings is 0.88%. As of December 31, 2004, the feefor the unfunded portion of the Revolving Facility was 0.25%.

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**9.Long-term Debt (Continued)**

The Revolving Facilitycontains certain financial and other covenants. These include a maximum fundeddebt to Adjusted EBITDA ratio for the Borrowers combined of 2.50 to 1.00 foreach quarter and a minimum fixed charge coverage ratio for the preceding fourquarters for the Borrowers combined of 1.50 to 1.00 for each quarter. As of December 31,2004, the Borrowers’ funded debt to Adjusted EBITDA ratio was 0.21 to 1.00 andthe fixed charge coverage ratio was 2.31 to 1.00. In addition, the RevolvingFacility has financial and other covenants, which require that the maximumconsolidated funded debt to Adjusted EBITDA ratio can be no more than 5.50 to1.00 through December 31, 2005, which reduces to 5.25 to 1.00 on March 31,2006 through December 31, 2006, to 5.00 to 1.00 on March 31, 2007through December 31, 2007, to 4.75 to 1.00 on March 31, 2008 through December 31,2008 and to 4.50 to 1.00 on March 31, 2009. Other covenants limitprepayments of indebtedness or rent (including subordinated debt other thanre-financings meeting certain criteria), limitations on asset dispositions,limitations on dividends, limitations on indebtedness, limitations oninvestments and limitations on capital expenditures. As of December 31,2004, the Company’s consolidated funded debt to Adjusted EBITDA ratio was 3.58to 1.00. The Company has pledged the stock of all of its major subsidiaries.

*Senior and SeniorSubordinated Notes*

During the first quarter of 2004, the Companyrefinanced substantially all of its senior and senior subordinated notes. TheCompany issued $1.25 billion in new senior and senior subordinated notes whichconsists of $450.0 million 6% senior notes due in April 2012, $450.0million 61¤2%senior subordinated notes due in February 2014 and $350.0 million 67¤8%senior subordinated notes due in March 2016. The proceeds from theseofferings were used to redeem or repurchase the $199.9 million 87¤8% seniorsubordinated notes due in December 2008, to repurchase $357.6 million ofthe 97¤8%senior subordinated notes due in July 2010, to repurchase $383.1 millionof the 83¤8%senior notes due in February 2008 and to reduce amounts outstanding underthe Revolving Facility. As a result of these redemptions, the Company recordeda loss on early retirement of debt of approximately $93.3 million in the yearended December 31, 2004 to reflect the write-off of the unamortized loancosts, unamortized discount, call premium, tender fee and consent paymentswhich were partially offset by the fair value of the interest rate swaps thatwere tied directly to the redeemed senior and senior subordinated notes.

On February 15, 2005, the Company redeemed theremaining $16.9 million of outstanding 83¤8% senior notesdue 2008. As a result of the redemption, the Company will record a loss onearly retirement of debt of approximately $0.7 million in the first quarter of2005 to reflect the write-off of the unamortized loan costs and call premium.

The indentures (the “Indentures”) governing theCompany’s senior subordinated notes (the “Notes”) contain certain customaryfinancial and other covenants, which limit the Company and its subsidiaries’ability to incur additional debt. At December 31, 2004, the Company’sConsolidated Coverage Ratio (as defined in the Indentures) was 4.07 to 1.00. TheIndentures provide that the Company may not incur additional indebtedness,other than specified types of indebtedness, unless the Consolidated CoverageRatio is at least 2.00 to 1.00. In the event the Company’s ConsolidatedCoverage Ratio is below 2.00 to 1.00, the covenant limits the Company’s abilityto incur additional indebtedness for borrowings under the Revolving Facilitynot 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. TheIndentures also give the holders of the Notes the right to require the Companyto purchase the Notes at 101% of the principal amount of the Notes plus

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**9.Long-term Debt (Continued)**

accrued interest thereonupon a Change of Control and Rating Decline (each as defined in the Indentures)of the Company. In addition, the indenture governing the Senior Notes containsa limitation on liens the Company can incur.

The Company has entered into various interest rateswaps with members of its bank group to manage interest expense. As of December 31, 2004,the Company has interest rate swaps with a combined notional amount of$250.0 million that are tied directly to the Company’s 61¤2%senior subordinated notes and the Company’s 6% senior notes. The interest rateswaps convert a portion of the Company’s fixed-rate debt to a floating-ratebased upon three and six-month LIBOR rates. At December 31, 2004, theCompany pays a weighted average rate based on LIBOR, which approximates 3.75%and receives a weighted average rate of 6.33%. The interest rate swapsterminate in April 2012 and February 2014. The net effect of theinterest rate swaps resulted in a reduction in interest expense of$7.3 million, $3.6 million and $10.7 million for the years ended December 31,2004, 2003 and 2002, respectively.

The interest rate swaps that the Company entered intoqualify for the “shortcut” method allowed under SFAS No. 133, “Accountingfor Derivative Instruments and Hedging Activities” (and as amended by SFAS No. 138),which allows for an assumption of no ineffectiveness. As such, there is noincome statement impact from changes in the fair value of the hedginginstruments. Instead, the fair value of the instrument is recorded as an assetor liability on the Company’s balance sheet with an offsetting adjustment tothe carrying value of the related debt. In accordance with SFAS No. 133,the Company recorded a liability of $2.2 million and an asset of$3.9 million as of December 31, 2004 and 2003, respectively,representing the fair value of the interest rate swaps and a correspondingdecrease and increase in long-term debt, as these interest rate swaps areconsidered highly effective under the criteria established by SFAS No. 133.

In March 2004, the Company terminated an interestrate swap with a notional amount of $50.0 million, which was due to terminatein 2008. The interest rate swap was terminated at its market value and, as aresult, the Company received approximately $3.6 million, which is included inthe calculation of the net loss on the early retirement of debt as the interestrate swap was tied directly to the redemption of the $400.0 million 83¤8%senior notes.

In December 2002, the Company terminated aninterest rate swap with a notional amount of $100 million, which was dueto terminate in 2010. The interest rate swap was terminated at its market valueand, as a result, the Company received approximately $9.5 million. Thisinterest rate swap was tied directly to the $375 million 97¤8%senior subordinated notes. Approximately $357.6 million of the 97¤8% seniorsubordinated notes were redeemed in the first quarter of 2004 and, as a result,approximately $7.6 million of the remaining value of this fair value hedgetermination was included in the calculation of the net loss on the earlyretirement of debt.

On October 18, 2002, the Company redeemed its$150 million 93¤4%senior subordinated notes. The redemption was funded with proceeds from theRevolving Facility. The Company recorded a charge of approximately$10.1 million during the year ended December 31, 2002, to reflect thewrite-off of the unamortized debt discount, unamortized loan costs and thepremium to redeem the $150 million 93¤4% seniorsubordinated notes. This charge was partially offset by approximately$5.7 million from the adjusted basis of the debt as a result of the fairvalue hedge termination that was tied directly to the $150 million 93¤4%senior subordinated notes, as discussed below. In addition, the Companyrecorded a loss on early

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**9.Long-term Debt (Continued)**

retirement of debt ofapproximately $1.4 million in 2002 to reflect the write-off of theunamortized loan costs on the previous revolving facility.

In September 2002, the Company terminated aninterest rate swap with a notional amount of $150 million, which was dueto terminate in 2007. The interest rate swap was terminated at its market valueand, as a result, the Company received approximately $5.8 million. Thisinterest rate swap was tied directly to the $150 million 93¤4%senior subordinated notes. The mark-to-market adjustment was amortized as areduction of interest expense over the original contract life of the interestrate swap. When the $150 million 93¤4% seniorsubordinated notes were redeemed on October 18, 2002, the adjusted basisof the debt as a result of the fair value hedge termination of approximately$5.7 million was included in the calculation of the net loss on the earlyretirement of the related debt.

The estimated fair value of the Company’s long-termdebt at December 31, 2004 was approximately $1.38 billion, comparedto its book value of approximately $1.34 billion. The estimated fair valueamounts were based on quoted market prices on or about December 31, 2004,for the Company’s debt securities that are publicly traded. For the RevolvingFacility, the fair value approximates the carrying amount of the debt due tothe short-term maturities of the individual components of the debt.

Scheduled maturities oflong-term debt are as follows (amounts in thousands):
| **Years ending December 31,** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|------------|------------|------------|------------|
| 2005                                         |       | $          | 16,917     |       |
| 2006                                         |       | 25         |       |
| 2007                                         |       | 5,596      |       |
| 2008                                         |       | 415        |       |
| 2009                                         |       | 51,500     |       |
| Thereafter                                   |       | 1,265,687  |       |
| Total                                        |       | $          | 1,340,140  |       |

 

**10. Commitments and Contingencies**

*Red Rock*

In April 2004, we commenced construction of Red RockResort Spa and Casino (“Red Rock”) located on Charleston Boulevard at theInterstate 215/Charleston interchange in the Summerlin master-planned communityin Las Vegas, Nevada. The initial phase of the property is expected to becompleted near the end of the first quarter of 2006. We have also announcedplans to accelerate the construction of a phase II expansion. Construction onphase II of Red Rock is expected to begin in the latter part of 2005 and isexpected to be completed by the end of 2006. The total project will now includeover 2,800 slot machines, over 850 hotel rooms, 94,000 square-feet of meetingand convention space, a 35,000 square-foot spa, nine full service restaurants,a 16-screen movie theater complex, a night club and private pool club to beoperated by Midnight Oil Company, both indoor and outdoor entertainment venuesand parking for almost 5,500 vehicles. As a result of an increase in amenities,an upgrade in the quality of finishes throughout the project, general increasesin construction cost and addition of the phase II expansion, the totalcost of Red Rock is expected to be approximately $800 million, of whichapproximately $151.3 million has been spent as of December 31, 2004.

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**10. Commitments and Contingencies**(Continued)

*Santa Fe StationExpansion*

In 2003, the Company begana $52 million expansion at Santa Fe Station. The expansion includes additionalcasino space, slot machines, a new movie theater complex, an upgrade of theproperty’s bowling center, a new entertainment venue and bar, a new Kid’s Questfacility and other amenities as well as removal of the ice arena. Theadditional slots, upgrade of the bowling center and new entertainment venuewere completed in December 2004. The Company believes the remaining itemswill be completed in the first quarter of 2005 with the exception of the movietheater complex, which will be completed in April 2005. Approximately$35.8 million has been spent on the expansion as of December 31, 2004.

*Sunset StationExpansion*

The Company is currentlyexpanding Sunset Station to add a bowling center. The cost of the expansion isexpected to be approximately $27 million, of which approximately $9.5 millionhas been spent as of December 31, 2004. The Company believes that theexpansion will be completed in April 2005.

*Boulder StationLease*

The Company entered into aground lease for 27 acres of land on which Boulder Station is located. TheCompany leases this land from KB Enterprises, a company owned by Frank J.Fertitta, Jr. and Victoria K. Fertitta (the “Related Lessor”), theparents of Frank J. Fertitta III, Chairman of the Board and ChiefExecutive Officer of the Company and Lorenzo J. Fertitta, Vice Chairman and Presidentof the Company. The lease has a maximum term of 65 years, ending in June 2058.The lease provides for monthly payments of $183,333 through June 2008. In July 2008,and every ten years thereafter, the rent will be adjusted by a cost of livingfactor. In July 2013, and every ten years thereafter, the rent will beadjusted to the product of the fair market value of the land and the greater of(i) the then prevailing annual rate of return for comparably situatedproperty or (ii) 8% per year. In no event will the rent for any period beless than the immediately preceding period. Pursuant to the ground lease, theCompany has an option, exercisable at five-year intervals with the next optionin June 2008, to purchase the land at fair market value. The Company’sleasehold interest in the property is subject to a lien to secure borrowingsunder the Revolving Facility.

*Texas Station Lease*

The Company entered into aground lease for 47 acres of land on which Texas Station is located. TheCompany leases this land from Texas Gambling Hall & Hotel, Inc.,a company owned by the Related Lessor. The lease has a maximum term of65 years, ending in July 2060. The lease provides for monthly rentalpayments of $287,500 through June 2005. In July 2005, and every tenyears thereafter, the rent will be adjusted by a cost of living factor. In July 2010,and every ten years thereafter, the rent will be adjusted to the product of thefair market value of the land and the greater of (i) the then prevailingannual rate of return being realized for owners of comparable land in ClarkCounty or (ii) 8% per year. In no event will the rent for any period beless than the immediately preceding period. Pursuant to the ground lease, theCompany has an option, exercisable at five-year intervals with the next optionin May 2005, to purchase the land at fair market value. The Company’sleasehold interest in the property is subject to a lien to secure borrowingsunder the Revolving Facility.

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**10.Commitments and Contingencies (Continued)**

*Wild Wild WestLease*

The Company exercised itsoption to purchase the 19-acre parcel of land on which Wild Wild West islocated in 2003. Pursuant to the lease, the purchase will take place in July 2005for approximately $36 million. No amounts related to this purchase optionhave been recorded on the Company’s consolidated balance sheets at December 31,2004 and 2003. The Company currently leases this land for approximately $2.9million per year.

*Operating Leases*

TheCompany leases several parcels of land, buildings and equipment used in itsoperations. Leases on various parcels ranging from 2.5 acres to 47 acres haveterms expiring between June 2005 and August 2103. Future minimumlease payments required under these operating leases and other noncancelableoperating leases are as follows (amounts in thousands):
| **Years ending December 31,** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|------------|------------|------------|------------|
| 2005                                         |       | $          | 11,199     |       |
| 2006                                         |       | 9,058      |       |
| 2007                                         |       | 8,948      |       |
| 2008                                         |       | 8,855      |       |
| 2009                                         |       | 8,841      |       |
| Thereafter                                   |       | 449,719    |       |
| Total                                        |       | $          | 496,620    |       |

 

Rent expense totaledapproximately $14.9 million, $13.6 million and $12.7 million for theyears ended December 31, 2004, 2003 and 2002, respectively.

*Green Valley RanchStation*

In the fourth quarter of2003, the Company began a $125 million expansion at Green Valley RanchStation. The expansion includes hotel rooms, additional meeting space and anexpanded spa facility. Construction of the hotel rooms and additional meetingspace was completed in December 2004. Construction of the spa facility isexpected to be completed in the first quarter of 2005. In connection with theexpansion, Green Valley Ranch Station purchased the lease from the spa operatorduring 2004. Green Valley Ranch Station also terminated the lease of arestaurant at the property and paid the tenant an agreed upon sum during 2004.As a result the Company has recorded a reduction in earnings from jointventures of approximately $3.6 million as of December 31, 2004, whichrepresents its 50% share of the total loss. In accordance with the terms of thecurrent loan, a completion guaranty is required to complete the expansion. Thecompletion guaranty is a joint obligation of both partners.

*The FederatedIndians of Graton Rancheria*

The Company has entered into Development andManagement Agreements with the Federated Indians of the Graton Rancheria (the “FIGR”),a federally recognized Native American tribe. Pursuant to those agreements, theCompany will assist the FIGR in developing and operating a gaming andentertainment project to be located in Sonoma County, California. The FIGRselected the Company to 

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**10.Commitments and Contingencies (Continued)**

assist it in designing,developing and financing the project and, upon opening, the Company will managethe facility on behalf of the FIGR. The Management Agreement has a term ofseven years from the opening of the facility and the Company will receive amanagement fee equal to 22% of the facility’s net income. The Company will alsoreceive a development fee equal to 2% of the cost of the project upon theopening of the facility.

In August 2003, theCompany entered into an option to purchase 360 acres of land just west of theRohnert Park city limits in Sonoma County, California. The proposed site of theproject is bordered by Stony Point Road, Wilfred Avenue and Rohnert ParkExpressway, approximately one-half mile from Highway 101 and approximately 43miles from downtown San Francisco. In October 2003, the FIGR entered intoa Memorandum of Understanding with the City of Rohnert Park. Development of thegaming and entertainment project is subject to certain governmental andregulatory approvals, including, but not limited to, negotiating a gamingcompact with the State of California, the United States Department of theInterior (“DOI”) accepting the land into trust on behalf of the FIGR andapproval of the Management Agreement by the National Indian Gaming Commission (“NIGC”).Prior to obtaining third-party financing, the Company will contributesignificant financial support to the project. As of December 31, 2004,the Company had advanced approximately $22.4 million toward thedevelopment of this project, primarily to perform due diligence and secure realestate for the FIGR project, which is included in other assets, net on theCompany’s consolidated balance sheets. Funds advanced by the Company areexpected to be repaid with the proceeds of the project financing or from theFIGR’s gaming revenues. In addition, the Company has agreed to payapproximately $11.3 million of payments upon achieving certain milestones,which will not be reimbursed. As of December 31, 2004, approximately$2.0 million of these payments had been made and were expensed in developmentexpense as incurred. The timing of this type of project is difficult to predictand is dependent upon the receipt of the necessary governmental and regulatoryapprovals. There can be no assurances when or if these approvals will beobtained.

*Gun Lake Tribe*

On November 13, 2003, the Company agreed topurchase a 50% interest in MPM Enterprises, LLC, a Michigan limited liabilitycompany (“MPM”). Concurrently with the Company’s agreement to purchase thatinterest, MPM and the Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians, afederally recognized Native American tribe commonly referred to as the Gun LakeTribe (“Gun Lake”), entered into amended Development and Management Agreements,pursuant to which MPM will assist Gun Lake in developing and operating a gamingand entertainment project to be located in Allegan County, Michigan. TheCompany has agreed to pay $6.0 million for its 50% interest in MPM, whichis payable upon achieving certain milestones and is not reimbursable. As of December 31, 2004,approximately $2.0 million of these payments had been made and wereexpensed in development expense as incurred. An additional $12.0 millionin total may be paid by the Company in years six and seven of the amendedManagement Agreement, subject to certain contingencies. Under the terms of theamended Development Agreement, the Company has agreed to arrange financing forthe ongoing development costs and construction of the project. As of December 31, 2004,the Company had advanced approximately $20.2 million toward thedevelopment of this project, primarily to secure real estate for the project, whichis included in other assets, net on the Company’s consolidated balance sheets.Funds advanced by the Company are expected 

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**10.Commitments and Contingencies (Continued)**

to be repaid from theproceeds of the project financing or from Gun Lake’s gaming revenues. Theamended Management Agreement has a term of seven years from the opening of thefacility and provides for a management fee of 30% of the project’s net incometo be paid to MPM. Pursuant to the terms of the MPM Operating Agreement, theCompany’s portion of the management fee is 50% of the first $24 million ofmanagement fees earned, 83% of the next $24 million of management fees and93% of any management fees in excess of $48 million.

The proposed project willbe located on approximately 145 acres on Highway 131 near 129thAvenue, approximately 25 miles north of Kalamazoo, Michigan. As currentlycontemplated, the project will include up to 2,500 slot machines, 75 tablegames, a buffet and specialty restaurants. Construction of the project includesthe conversion of an existing 192,000 square-foot building into the casino andentertainment facility. Development of the gaming and entertainment project andoperation of Class III gaming is subject to certain governmental andregulatory approvals, including, but not limited to, the signing of a gamingcompact by the Governor of the State of Michigan, the DOI accepting the landinto trust on behalf of Gun Lake and approval of the Management Agreement bythe NIGC. On February 27, 2004, the DOI issued a Finding Of No SignificantImpact with respect to the proposed project. Prior to obtaining third-partyfinancing, the Company will contribute significant financial support to theproject. The timing of this type of project is difficult to predict and isdependent upon the receipt of the necessary governmental and regulatoryapprovals. There can be no assurances when or if these approvals will beobtained.

*Mechoopda IndianTribe*

The Company has entered into Development andManagement Agreements with the Mechoopda Indian Tribe of Chico Rancheria,California (the “MITCR”), a federally recognized Native American tribe.Pursuant to those agreements, the Company will assist the MITCR in developingand operating a gaming and entertainment facility to be located onapproximately 650 acres in Butte County, California, at the intersection ofState Route 149 and Highway 99, approximately 10 miles southeast of Chico,California and 80 miles north of Sacramento, California. Under the terms of theDevelopment Agreement, the Company has agreed to arrange the financing for theongoing development costs and construction of the facility. Funds advanced bythe Company are expected to be repaid from the proceeds of the facilityfinancing or from the MITCR’s gaming revenues. As of December 31, 2004,the Company had advanced approximately $5.8 million toward the development ofthis project, primarily to secure real estate for future development, which isincluded in other assets, net on the Company’s consolidated balance sheets. Inaddition, the Company has agreed to pay approximately $2.2 million of paymentsupon achieving certain milestones, which will not be reimbursed. As of December 31,2004, $50,000 of these payments had been made and were expensed in developmentexpense as incurred. The Management Agreement has a term of seven years fromthe opening of the facility and provides for a management fee of 24% of thefacility’s net income. As currently contemplated, the facility will includeapproximately 700 slot machines, 12 table games and dining and entertainmentamenities. Development of the facility is subject to certain governmental andregulatory approvals, including, but not limited to, negotiating a gamingcompact with the State of California, the DOI accepting land into trust onbehalf of the MITCR and approval of the Management Agreement by the NIGC. Priorto obtaining third-party financing, the receipt of such governmental orregulatory approvals, the Company will contribute significant financial supportto the project. The timing of this type of project is difficult to predict andis dependent upon the receipt of the 

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**10.Commitments and Contingencies (Continued)**

necessarygovernmental and regulatory approvals. There can be no assurances when or ifthese approvals will be obtained.

*North Fork Rancheriaof Mono Indian Tribe*

The Company has enteredinto Development and Management Agreements with the North Fork Rancheria ofMono Indians (the “Mono”), a federally recognized Native American tribe locatednear Fresno, California. Pursuant to those agreements, the Company will assistthe Mono in developing and operating a gaming and entertainment facility to belocated in Madera County, California. The Company has secured for the benefitof the Mono two parcels of land located on Highway 99 north of the city ofMadera. Under the terms of the Development Agreement, the Company has agreed toarrange the financing for the ongoing development costs and construction of thefacility. Funds advanced by the Company are expected to be repaid from theproceeds of the project financing or from the Mono’s gaming revenues. As of December 31, 2004,the Company had advanced approximately $1.5 million toward the developmentof this project, primarily to secure real estate for future development, whichis included in other assets, net on the Company’s consolidated balance sheets.In addition, the Company has agreed to pay approximately $1.3 million ofpayments upon achieving certain milestones, which will not be reimbursed. As ofDecember 31, 2004, none of these payments had been made. The ManagementAgreement has a term of seven years from the opening of the facility andprovides for a management fee of 24% of the facility’s net income. As currentlycontemplated, the facility will include approximately 2,000 slot machines, 60table games, dining, hotel and entertainment amenities. Development of thegaming and entertainment project is subject to certain governmental andregulatory approvals, including, but not limited to, negotiating a gamingcompact with the State of California, the DOI accepting the land into trust onbehalf of the Mono and approval of the Management Agreement by the NIGC. Noassurances can be given as to when, or if, the necessary governmental andregulatory approvals will be received. Prior to obtaining third-partyfinancing, the Company will contribute significant financial support to theproject. The timing of this type of project is difficult to predict, and isdependant upon the receipt of the necessary governmental and regulatoryapprovals. There can be no assurances when or if these approvals will be obtained.

**11.Other**

*Cash TransactionReporting Violations*

In April 2003, theCompany became aware of violations of certain gaming regulations regarding thereporting of certain cash transactions. The Company self-reported these violationsto the Nevada State Gaming Control Board. The Company, along with the NevadaState Gaming Control Board, has investigated the violations. On September 24,2004, the Nevada Gaming Commission approved the settlement agreement in whichwe paid approximately $2.4 million in fines and investigative costs to theState of Nevada. The Company has hired additional staff at each of itsproperties and has increased the level of internal audit review to prevent thistype of violation in the future.

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**12. Stockholders’ Equity**

*Common Stock*

The Company is authorized to issue up to135 million shares of its common stock, $0.01 par value per share,77,298,227 shares of which were issued and 10,185,343 shares of which were heldin treasury as of December 31, 2004. Each holder of the common stock isentitled to one vote for each share held of record on each matter submitted toa vote of stockholders. Holders of the common stock have no cumulative voting,conversion, redemption or preemptive rights or other rights to subscribe foradditional shares other than pursuant to the Rights Plan described below.Subject to any preferences that may be granted to the holders of the Company’spreferred stock, each holder of common stock is entitled to receive ratably, suchdividends as may be declared by the Board of Directors out of funds legallyavailable therefore, as well as any distributions to the stockholders and, inthe event of liquidation, dissolution or winding up of the Company, is entitledto share ratably in all assets of the Company remaining after payment ofliabilities.

During the year ended December 31,2004, the Company paid a quarterly cash dividend of $0.125 per share toshareholders of record on February 12, 2004, $0.175 per share toshareholders of record on May 14, 2004 and August 13, 2004 and $0.21per share to shareholders of record on November 12, 2004. The total amountpaid in dividends for 2004 was $44.3 million. During the year ended December 31,2003, the Company paid a quarterly cash dividend of $0.125 per share toshareholders of record on August 14, 2003 and November 13, 2003 for atotal of $14.9 million.

*Preferred Stock*

The Company is authorizedto issue up to 5 million shares of its preferred stock, $0.01 par valueper share of which none were issued. The Board of Directors, without furtheraction by the holders of common stock, may issue shares of preferred stock inone or more series and may fix or alter the rights, preferences, privileges andrestrictions, including the voting rights, redemption provisions (includingsinking fund provisions), dividend rights, dividend rates, liquidation rates,liquidation preferences, conversion rights and the description and number ofshares constituting any wholly unissued series of preferred stock. Except asdescribed above, the Board of Directors, without further stockholder approval,may issue shares of preferred stock with rights that could adversely affect therights of the holders of common stock. The issuance of shares of preferredstock under certain circumstances could have the effect of delaying orpreventing a change of control of the Company or other corporate action.

*Treasury Stock*

During the year ended December 31,2004, the Company repurchased approximately 64,000 shares of its common stockfor approximately $3.2 million. The Company is authorized to repurchase upto approximately 19.5 million shares of its common stock. As of December 31,2004, the Company had acquired approximately 10.2 million shares at a costof approximately $137.7 million.

*Other ComprehensiveIncome*

SFAS No. 130, “Reporting Comprehensive Income”,requires companies to disclose other comprehensive income and the components ofsuch income. Comprehensive income is the total of net income and all othernon-stockholder changes in equity. For the years ended December 31, 2004,2003 and 2002, the Company recorded its 50% interest in the mark-to-marketvaluation of the interest rate swaps at 

77

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**12.Stockholders’ Equity (Continued)**

Green Valley Ranch Station as other comprehensiveincome (loss). Comprehensive income was computed as follows (amounts inthousands):
| ** **                                                        | ** ** | **For the years ended December 31,** | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                        | ** ** | **2004**                                                      | ** ** | **2003** | ** ** | **2002** | ** ** |
| Net income                                                        |       | $                                                             | 66,350     |   | $ | 44,343 |   | $ | 17,932 |   |
| Mark-to-market  valuation of interest rate swaps, net of tax |       | 723                                                           |       | 361 |   | (1,695 | ) |
| Comprehensive  income                                             |       | $                                                             | 67,073     |   | $ | 44,704 |   | $ | 16,237 |   |

 

*Rights Plan*

On October 6, 1997, the Company declared adividend of one preferred share purchase right (a “Right”) for each outstandingshare of common stock. The dividend was paid on October 21, 1997. EachRight entitles the registered holder to purchase from the Company oneone-hundredth of a share of Series A Preferred Stock, par value $0.01 pershare (“Preferred Shares”) of the Company at a price of $40.00 per oneone-hundredth of a Preferred Share, subject to adjustment. The Rights are notexercisable until the earlier of 10 days following a public announcementthat a person or group of affiliated or associated persons have acquired beneficialownership 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 theBoard of Directors prior to such time as any person or group of affiliatedpersons becomes an Acquiring Person) following the commencement of, orannouncement of an intention to make, a tender offer or exchange offer, theconsummation of which would result in the beneficial ownership by a person orgroup 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 asother holders upon exercise of the Rights. Because of the nature of thePreferred Shares’ dividend, liquidation and voting rights, the value of oneone-hundredth interest in a Preferred Share purchasable upon exercise of eachRight should approximate the value of one common share. In the event that anyperson or group of affiliated or associated persons becomes an AcquiringPerson, the proper provisions will be made so that each holder of a Right,other than Rights beneficially owned by the Acquiring Person (which willthereafter become void), will thereafter have the right to receive uponexercise that number of shares of common stock having a market value of twotimes the exercise price of the Right. In the event that the Company isacquired in a merger or other business combination transaction or 50% or moreof its consolidated assets or earning power are sold after a person or grouphas become an Acquiring Person, proper provision will be made so that eachholder of a Right will thereafter have the right to receive, upon exercisethereof, that number of shares of common stock of the acquiring company, whichat the time of such transaction will have a market value of two times theexercise price of the Right. Because of the characteristics of the Rights inconnection with a person or group of affiliated or associated persons becomingan Acquiring Person, the Rights may have the effect of making an acquisition ofthe Company more difficult and may discourage such an acquisition.

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**13.Benefit Plans**

*Stock CompensationPrograms*

The Company has adopted a Stock Compensation Programwhich includes (i) an Incentive Stock Option Plan for the grant of incentivestock options, (ii) a Compensatory Stock Option Plan providing for thegrant of nonqualified stock options, (iii) a Restricted Shares Planproviding for the grant of restricted shares of common stock and (iv) aNonemployee Director Stock Option Plan, providing for the grant of nonqualifiedstock options. The Company has also adopted the 1999 Stock Compensation Program(combined with the Stock Compensation Program “the Programs”), which includes (i) the1999 Compensatory Stock Option Plan providing for the majority of the grants ofnonqualified stock options to employees who are not officers or directors ofthe Company and (ii) the 1999 Share Plan which grants shares of theCompany’s common stock to employees based on their length of service with theCompany and restricted shares of common stock are granted. Officers, keyemployees, directors (whether employee or non-employee) and independentcontractors or consultants of the Company and its subsidiaries are eligible toparticipate in the Programs. However, only employees of the Company and itssubsidiaries are eligible to receive incentive stock options.

A maximum of 18,710,500 shares of common stock hasbeen reserved for issuance under the Programs. Options are granted at thecurrent market price at the date of grant. The plan provides for a variety ofvesting schedules, including immediate, 20% per year for five years, 10% peryear for 10 years, and a cliff vest at the vesting date, to be determinedat the time of grant. Generally, all options expire 10 years from the dateof grant.

ThePrograms will terminate 10 years from the date of adoption or extension,unless terminated earlier by the Board of Directors, and no options orrestricted shares may be granted under the Programs after such date. Summarizedinformation for the Programs is as follows:
| ** **                            | ** ** | **For the years ended December 31,** | ** ** |
|---------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                            | ** ** | **2004**                                                      | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                            | ** ** | **Options**                                                   | ** ** | **Weighted  average  exercise  price** | ** ** | **Options** | ** ** | **Weighted  average  exercise  price** | ** ** | **Options** | ** ** | **Weighted  average  exercise  price** | ** ** |
| Outstanding at  beginning of the year |       | 9,619,816                                                     |       |   | $ | 11.25 |   |   | 13,533,544 |   |   | $ | 10.59 |   |   | 14,637,783 |   |   | $ | 10.22 |   |   |
| Granted                               |       | —                                                        |       |   | — |   |   | 169,500 |   |   | $ | 19.98 |   |   | 1,649,500 |   |   | $ | 13.70 |   |   |
| Exercised                             |       | (5,203,316                                                    | )          |   | $ | 10.57 |   |   | (3,838,986 | ) |   | $ | 8.63 |   |   | (1,079,667 | ) |   | $ | 8.46 |   |   |
| Canceled                              |       | (463,800                                                      | )          |   | $ | 12.72 |   |   | (244,242 | ) |   | $ | 13.15 |   |   | (1,674,072 | ) |   | $ | 13.07 |   |   |
| Outstanding at end of the year        |       | 3,952,700                                                     |       |   | $ | 11.96 |   |   | 9,619,816 |   |   | $ | 11.25 |   |   | 13,533,544 |   |   | $ | 10.59 |   |   |
| Exercisable at end of year            |       | 1,972,850                                                     |       |   | $ | 11.82 |   |   | 5,383,469 |   |   | $ | 10.36 |   |   | 7,133,595 |   |   | $ | 9.05 |   |   |
| Options available  for grant          |       | 456,876                                                       |       |   |   |   |   | 1,182,455 |   |   |   |   |   | 1,497,825 |   |   |   |   |   |

 

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**13.Benefit Plans (Continued)**

The following tablesummarizes information about the options outstanding at December 31, 2004:
| ** **                               | ** ** | **Options outstanding**                             | ** ** | **Options exercisable**                            | ** ** |
|------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| **Range of  exercise  prices**      | ** ** | **Number  outstanding  at  December 31, 2004** | ** ** | **Weighted  average  remaining  contractual life** | ** ** | **Weighted  average  exercise  price** | ** ** | **Number  exercisable  at  December 31, 2004** | ** ** | **Weighted  average  exercise  price** | ** ** |
| $  3.29—$  8.00 |       |                                                     | 247,400    |                                                    |       |   | 4.10 |   |   |   | $ | 5.72 |   |   |   | 205,600 |   |   |   | $ | 5.32 |   |   |
| $  8.01—$16.00            |       |                                                     | 3,486,450  |                                                    |       |   | 6.40 |   |   |   | $ | 11.98 |   |   |   | 1,707,500 |   |   |   | $ | 12.39 |   |   |
| $16.01—$24.00                       |       |                                                     | 196,350    |                                                    |       |   | 7.50 |   |   |   | $ | 17.62 |   |   |   | 57,250 |   |   |   | $ | 17.31 |   |   |
| $24.01—$31.65                       |       |                                                     | 22,500     |                                                    |       |   | 8.70 |   |   |   | $ | 29.51 |   |   |   | 2,500 |   |   |   | $ | 31.23 |   |   |
|                                     |       |                                                     | 3,952,700  |                                                    |       |   | 6.32 |   |   |   | $ | 11.96 |   |   |   | 1,972,850 |   |   |   | $ | 11.82 |   |   |

 

Restricted stockgrants of 1,420,413, 383,468, and 50,000 shares were issued under the Programsduring the years ended December 31, 2004, 2003 and 2002, respectively. Theeffect of these grants is to increase the issued and outstanding shares of theCompany’s common stock and decrease the number of shares available for grant inthe plan. Deferred compensation is recorded for the restricted stock grantsequal to the market value of the Company’s common stock on the date of grant.The deferred compensation is amortized over the period the restricted stockvests and is recorded as compensation expense in the accompanying consolidatedstatements of operations.

Thefair value on the grant date of the restricted shares and the amount ofcompensation expense recognized in connection with the restricted shares is asfollows (amounts in thousands):
| ** **                | ** ** | **For the years ended December 31,** | ** ** |
|---------------------------|------------|---------------------------------------------------------------|------------|
| ** **                | ** ** | **2004**                                                      | ** ** | **2003** | ** ** | **2002** | ** ** |
| Fair value on  grant date |       | $                                                             | 65,924     |   | $ | 11,472 |   | $ | 695 |   |
| Compensation expense      |       | 9,676                                                         |       | 3,201 |   | 2,973 |   |
|                           |            |                                                               |            |  |  |  |  |  |  |  |

 

*401(k) Plan*

The Company has a definedcontribution 401(k) plan, which covers all employees who meet certain ageand length of service requirements and allows an employer contribution up to50% of the first 4% of each participating employee’s compensation. Planparticipants can elect to defer before tax compensation through payrolldeductions. These deferrals are regulated under Section 401(k) of theInternal Revenue Code. The Company’s matching contribution was approximately$2.0 million, $1.8 million and $1.7 million for the years ended December 31,2004, 2003 and 2002, respectively.

**14. Executive Compensation Plans**

The Company has employmentagreements with certain of its executive officers. These contracts provide for,among other things, an annual base salary, supplemental long-term disabilityand supplemental life insurance benefits in excess of the Company’s normalcoverage for employees. In addition, the Company has adopted a SupplementalExecutive Retirement Plan for its Chief Executive Officer and President and aSupplemental Management Retirement Plan for certain key executives as selectedby the Governance and Compensation Committee of the Company’s Board ofDirectors. Other executive plans include a Deferred Compensation Plan and aLong-Term Stay-On Performance Incentive Plan.

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**15.Income Taxes**

TheCompany files a consolidated federal income tax return. The provision forincome taxes for financial reporting purposes consists of the following(amounts in thousands):
| ** **                                       | ** ** | **For the years ended December 31,** | ** ** |
|--------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                       | ** ** | **2004**                                                      | ** ** | **2003** | ** ** | **2002** | ** ** |
| Income tax  provision from continuing operations |       | $                                                             | (38,879    | ) | $ | (23,834 | ) | $ | (18,508 | ) |
| Tax benefit from  change in accounting principle |       | —                                                        |       | — |   | 7,170 |   |
| Total income  taxes                              |       | $                                                             | (38,879    | ) | $ | (23,834 | ) | $ | (11,338 | ) |

 

Theprovision for income taxes attributable to net income consists of the following(amounts in thousands):
| ** **          | ** ** | **For the years ended December 31,** | ** ** |
|---------------------|------------|---------------------------------------------------------------|------------|
| ** **          | ** ** | **2004**                                                      | ** ** | **2003** | ** ** | **2002** | ** ** |
| Current             |       | $                                                             | (10,187    | ) | $ | (27,416 | ) | $ | (2,852 | ) |
| Deferred            |       | (28,692                                                       | )          | 3,582 |   | (15,656 | ) |
| Total income  taxes |       | $                                                             | (38,879    | ) | $ | (23,834 | ) | $ | (18,508 | ) |

 

Theincome tax provision differs from that computed at the federal statutorycorporate tax rate as follows:
| ** **                                                                   | ** ** | **For the years ended  December 31,** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2004**                                                  | ** ** | **2003** | ** ** | **2002** | ** ** |
| Federal statutory  rate                                                      |       | 35.0                                                      | %          | 35.0 | % | 35.0 | % |
| Lobbying and  political                                                      |       | 0.4                                                       |       | 0.2 |   | 0.7 |   |
| Fines &  penalties                                                  |       | 0.6                                                       |       | — |   | — |   |
| Meals and  entertainment                                                     |       | 0.1                                                       |       | 0.1 |   | 0.6 |   |
| Credits earned,  net                                                         |       | (0.6                                                      | )          | (0.9 | ) | (1.7 | ) |
| Nondeductible  officers compensation                                         |       | 2.4                                                       |       | 2.6 |   | 2.8 |   |
| Reduction in  liability based on conclusion of an IRS examination  |       | (1.1                                                      | )          | (2.2 | ) | — |   |
| Other, net                                                                   |       | 0.1                                                       |       | 0.2 |   | 1.3 |   |
| Effective tax  rate                                                          |       | 36.9                                                      | %          | 35.0 | % | 38.7 | % |

 

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**15. Income Taxes(Continued)**

The tax effects ofsignificant temporary differences representing net deferred tax assets andliabilities are as follows (amounts in thousands):
| ** **                                               | ** ** | **December 31,**                | ** ** |
|----------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                               | ** ** | **2004**                             | ** ** | **2003** | ** ** |
| Deferred tax  assets:                                    |       |                                 |       |   |   |
| Accrued vacation, bonuses and group insurance            |       | $     4,986 |       | $     3,880 |   |
| Preopening and other costs, net of amortization          |       | 4,991                                |       | 4,434 |   |
| Net operating loss carryover                             |       | 53,256                               |       | — |   |
| Accrued benefits                                         |       | 13,739                               |       | 11,614 |   |
| FICA credits                                             |       | 2,846                                |       | 1,179 |   |
| Minimum tax credit carryover                             |       | 20,838                               |       | 19,999 |   |
| Other deferred tax assets                                |       | 5,294                                |       | 18,253 |   |
| Total deferred tax assets                                |       | $ 105,950                       |       | $  59,359 |   |
| Deferred tax  liabilities:                               |       |                                 |       |   |   |
| Prepaid expenses and other                               |       | $ (10,463                       | )          | $   (5,329 | ) |
| Temporary differences related to property and  equipment |       | (110,309                             | )          | (100,027 | ) |
| Amortization                                             |       | (5,485                               | )          | (1,150 | ) |
| Other                                                    |       | —                               |       | (1,334 | ) |
| Total deferred tax liabilities                           |       | $ (126,257                      | )          | $ (107,840 | ) |
| Net                                                      |       | $ (20,307                       | )          | $ (48,481 | ) |

 

The excess of the tentative minimum tax over theregular federal income tax is a tax credit, which can be carried forwardindefinitely to reduce future regular federal income tax liabilities. TheCompany did not record a valuation allowance at December 31, 2004 or 2003relating to recorded tax benefits because all benefits are more likely than notto be realized.

During 2004 and 2003, the Internal Revenue Service (“IRS”)completed their audits through and including December 31, 2002. Based onthe favorable conclusion of their audits, the Company recorded a reduction inits tax contingency reserve of approximately $1.1 million and $1.5 millionin the years ended December 31, 2004 and 2003, respectively.

As of December 31, 2004, the Company has a taxnet operating loss carryover of approximately $152 million that expires in 2024.SFAS No. 109 requires that the tax benefit of a net operating loss berecorded as an asset. Management believes that the realization of this deferredtax asset is more likely than not based on expectations of future taxableincome.

As of December 31,2004, the Company has a capital loss carryover of approximately $85 thousandthat is available to offset capital gains. SFAS No. 109 requires that thetax benefit of a capital loss be recorded as an asset. Management believes thatthe realization of this deferred tax asset is more likely than not based on thecharacterization of taxable income.

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**16.Legal Matters**

The Company and itssubsidiaries are defendants in various lawsuits relating to routine mattersincidental to their business. As with all litigation, no assurance can beprovided as to the outcome of the following matters and litigation inherentlyinvolves significant costs. Following is a summary of key litigation impactingthe Company.

*Poulos/AhearnLitigation*

On April 26, 1994, a suit seeking status as aclass action lawsuit was filed by plaintiff, William H. Poulos, et al., asclass representative, in the United States District Court for the MiddleDistrict of Florida (the “Florida District Court”), naming 41 manufacturers,distributors and casino operators of video poker and electronic slot machines,including Station Casinos. On May 10, 1994, a lawsuit allegingsubstantially identical claims was filed by another plaintiff, William Ahearn,et al., as class representative, in the Florida District Court against 48manufacturers, distributors and casino operators of video poker and electronicslot machines, including the Company and most of the other major hotel/casinocompanies. The lawsuits allege that the defendants have engaged in a course offraudulent and misleading conduct intended to induce persons to play such gamesbased on a false belief concerning how the gaming machines operate, as well asthe extent to which there is an opportunity to win. The two lawsuits have beenconsolidated into a single action, and have been transferred to the UnitedStates District Court for the District of Nevada (the “Nevada District Court”).On September 26, 1995, a lawsuit alleging substantially identical claimswas filed by plaintiff, Larry Schreier, et al., as class representative, in theNevada District Court, naming 45 manufacturers, distributors, and casinooperators of video poker and electronic slot machines, including the Company.Motions to dismiss the Poulos/Ahearn and Schreier cases were filed bydefendants. 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 dismissthe Amended Complaint. In December 1996, the Nevada District Court consolidatedthe Poulos/Ahearn, the Schreier, and a third case not involving the Company andordered all pending motions be deemed withdrawn without prejudice, includingDefendants’ Motions to Dismiss the Amended Complaints. The plaintiffs filed aConsolidated Amended Complaint on February 13, 1997. On or about December 19,1997, the Nevada District Court issued formal opinions granting in part anddenying in part the defendants’ motion to dismiss. In so doing, the NevadaDistrict Court ordered plaintiffs to file an amended complaint in accordancewith the Court’s orders in January of 1998. Accordingly, plaintiffsamended their complaint and filed it with the Nevada District Court in February 1998.The Company and all other defendants continue to deny the allegations containedin the amended complaint filed on behalf of plaintiffs. The plaintiffs areseeking compensatory, special, consequential, incidental, and punitive damagesin unspecified amounts.

On June 25, 2002, the Nevada District Courtdenied plaintiffs’ motion for class certification. On July 11, 2002,plaintiffs filed a petition for permission to appeal such class certificationruling with the United States Court of Appeals for the Ninth Circuit. On August 15,2002, the Ninth Circuit granted the plaintiffs’ petition for permission toappeal such class certification ruling. On January 15, 2004, the Court ofAppeals heard oral argument on this matter. On August 10, 2004, the NinthCircuit affirmed the District Court’s order denying the plaintiff’s motion forclass certification. Accordingly, the matter is scheduled to move forward onbehalf of the three named plaintiffs only. While no assurances can be made withrespect 

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**16. LegalMatters (Continued)**

to anylitigation, the Company believes that the plaintiffs’ claims are without meritand does not expect that the lawsuits will have a material adverse effect onthe Company’s financial position or results of operations.

*Harrah’s Litigation*

On July 13, 2001, the Company and five of itsmajor operating subsidiaries were named as defendants in a lawsuit brought byHarrah’s Entertainment, Inc. and Harrah’s Operating Company, Inc. inthe United States District Court for the District of Nevada(CV-S-01-0825-PMP-RJJ). The plaintiffs allege that the Company and itssubsidiaries are liable for unspecified actual and punitive damages, and theyseek injunctive and other relief, based on allegations that the Company’s “BoardingPass Rewards Program” infringes on various patents held by the plaintiffs.

On October 4, 2001, the Company and thesubsidiaries filed their answer and counterclaim seeking declaratory judgmentthat Harrah’s patents (1) are not infringed by the Company’s and thesubsidiaries’ actions, (2) are invalid under federal patent law and (3) arerendered unenforceable due to Harrah’s inequitable conduct. On March 27,2002, Harrah’s filed an amended complaint, which added an additional defendant,Green Valley Ranch Gaming, LLC, which is an affiliate of the Company. On April 22,2002, the Company and its subsidiaries and affiliate filed their amended answerand counterclaim denying infringement by Green Valley Ranch Gaming, LLC, andalleging Harrah’s committed further acts of inequitable conduct.

On January 17, 2003, the Company filed motionsfor summary judgment or partial summary judgment on several issues: (1) aMotion for Summary Judgment of Patent Unenforceability Due To InequitableConduct, (2) a Motion for Summary Judgment of Patent Invalidity Under 35U.S.C. ss 102 and 103 (lack of novelty and obviousness), (3) a Motion forPartial Summary Judgment of Patent Invalidity Under 35 U.S.C. s 112(indefiniteness, lack of written description and failure to disclose bestmode), (4) a Motion for Partial Summary Judgment of Non-Infringement ofU.S. Patent No. 6,003,013, and (5) a Motion for Partial SummaryJudgment of Non-Infringement of U.S. Patent No. 6,183,362. That same day,Harrah’s filed motions for partial summary judgment on several issues: (1) aMotion for Partial Summary Judgment of Infringement of Claims 15-18 of U.S.Patent No. 5,761,647, (2) a Motion for Partial Summary Judgment ofInfringement of Claims 1-2 and 49 of U.S. Patent No. 6,003,013, (3) aMotion for Partial Summary Judgment on Defendants’ Invalidity Defenses, and (4) aMotion for Partial Summary Judgment That Certain Third Party Systems Are NotPrior Art. During February and March of 2003, the parties filedoppositions, reply briefs and various motions to strike in response to thesummary judgment motions.

On March 23, 2004, the District Court heard oralargument on certain of the summary judgment motions and motions to strike. On May 19,2004, the District Court granted the Company’s motion for summary judgment onHarrah’s claims that the Company had infringed upon U.S. Patents Nos. 5,761,647and 6,183,362, held by Harrah’s relating to its customer rewards and trackingprogram. In granting that motion, the District Court ruled that such patentsare invalid as a matter of law due to indefiniteness and lack of enablingdisclosure of the claimed subject matter. A substantial portion of the patentinfringement claim brought by Harrah’s regarding U.S. Patent No. 6,003,013(the “013 Patent”) was also dismissed as a result of that summary judgmentruling. On August 23, 2004, the District Court entered final judgment anddeclared invalid all claims of U.S. Patent Nos. 5,761,647 and 6,183,362, andall but three claims of the ‘013 Patent. The final judgment also dismissed withprejudice all claims of the ‘013 Patent that were not 

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**16. LegalMatters (Continued)**

declared invalid, anddismissed without prejudice the Company’s counterclaims for declaratoryjudgment of noninfringement and invalidity.

On September 13,2004, Harrah’s filed a Notice of Appeal with the United States Court of Appealsfor the Federal Circuit. On October 14, 2004, the Company filed a Noticeof Cross Appeal with the Federal Circuit. On February 17, 2005, Harrah’sfiled its appellate brief with the Federal Circuit. While no assurances can bemade with respect to any litigation, the Company believes that the plaintiffs’claims are without merit and does not expect that the lawsuit will have amaterial adverse effect on its financial position or results of operations.

*Plattner Litigation*

On May 2, 2003, the Company and one of itsoperating subsidiaries, Palace Station Hotel & Casino, Inc. (“PalaceStation”), were named as defendants in a lawsuit seeking status as a classaction brought by Dov Plattner in the Superior Court of Los Angeles County,California (Case No. CB295056).

The lawsuit seeks to recover for alleged breach ofcontract, fraud, negligent misrepresentation, breach of covenant of good faithand fair dealing, promissory fraud, unjust enrichment and violations ofsections 17200 and 17500, et. seq. of the California Business and ProfessionsCode, all in connection with energy and telephone surcharge fees imposed onPalace Station hotel guests. The plaintiff is requesting unspecified actual andpunitive damages, as well as injunctive and other relief.

On November 10, 2003,the defendants filed a response to the complaint denying all liability. On June 18,2004, the parties entered into a Settlement Agreement and Release (the “ProposedSettlement”). Pursuant to the Proposed Settlement and subject to Superior Courtapproval, the parties have agreed that the Company will (i) issue twopersonalized coupons to each Settlement Class Member (as defined in theProposed Settlement), one for $3.00 and one for $2.50, with each coupon to begood toward a discount of a quoted room rate for a single night’s stay at anyof the Station Hotels (as defined in the Proposed Settlement), and (ii) paythe plaintiff’s reasonable attorneys’ fees and expenses in exchange for theplaintiff dismissing the lawsuit (including all claims held by the members ofthe settlement class and the general public) with prejudice. The ProposedSettlement stipulates that the Company denies any liability with respect to theplaintiff’s claims. On October 22, 2004, the Superior Court approved theProposed Settlement and dismissed the lawsuit with prejudice, except for theclaims of eight class members that opted out of the settlement class.

*Castillo Litigation*

On May 14, 2003, the Company (as a nominaldefendant only) and all of its executive officers and directors were named asdefendants in a derivative action lawsuit, which also seeks status as a classaction, brought by Bernard Castillo in the District Court of Clark County,Nevada (Case No. A467663).

The lawsuit alleges that (1) the directordefendants breached their fiduciary duties by failing to make certaindisclosures in the Company’s 2002 Proxy Statement regarding the sale by theCompany of its subsidiary, Southwest Gaming Services, Inc. (“SGSI”), andregarding a proposal seeking shareholder approval of an amendment to theCompany’s stock option plan; (2) the director defendants breached theirfiduciary duties in approving the sale of SGSI and in recommending approval ofthe option plan amendment; and (3) the purchasers of SGSI and therecipients of certain benefits made possible by the 

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**16. LegalMatters (Continued)**

option plan amendment wereunjustly enriched. The plaintiff is requesting unspecified actual damages, aswell as injunctive and other relief.

On July 21, 2003, the defendants filed a motionto dismiss or, in the alternative, motion to stay all of the plaintiff’sclaims. On October 24, 2003, the District Court granted the motion to stayall of plaintiff’s claims pending the consideration of such claims by a speciallitigation committee to be formed by the Company in accordance with the Court’sorder granting such motion. On November 19, 2003, the defendants filedtheir first amended answer to the complaint. On February 27, 2004, theDistrict Court entered another order extending the stay for another 120 dayspending the special litigation committee investigation.

On July 9, 2004, theparties entered into a Stipulation of Settlement (the “Proposed Settlement”).Pursuant to the Proposed Settlement and subject to District Court approval, theparties have agreed that the Company will (i) adopt new language in itsCorporate Governance Guidelines, which specifically relates to “interested directortransactions,” and (ii) pay the plaintiff’s attorneys’ fees and expensesin exchange for the plaintiff dismissing the lawsuit (including all claims heldby the Company and the members of the certified class), with prejudice. TheProposed Settlement stipulates that the Company denies any liability withrespect to the plaintiff’s claims. On September 13, 2004, the DistrictCourt approved the Proposed Settlement and dismissed the lawsuit withprejudice.

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**STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**17.Quarterly Financial Information (Unaudited)**
| ** **                             | ** ** | **Net  revenues**                                                                  | ** ** | **  Operating    income** | ** ** | **Income (loss)  before  income  taxes and  change in  accounting  principle** | ** ** | **Net  income  (loss)  applicable  to  common  stock** | ** **                 | **  Diluted    earnings  (loss)  per  common  share** | ** ** |
|----------------------------------------|------------|------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|----------------------------|---------------------------------------------------------------------------|------------|
| ** **                             | ** ** | **(amounts in thousands, except per share amounts)** | ** ** |
| **Year  ended December 31, 2004** |       |                                                                               |       |                                          |       |                                                                                          |       |                                                   |                       |                                                                      |       |   |   |   |   |   |   |
| First quarter (a)                      |       | $238,965                                                                           |       |                                          | $63,651    |                                                                                          |       |                                                   | $ (46,497             | )                                                                         |       | $ (29,758 | ) |   | $ (0.48 | ) |   |
| Second quarter  (b)                    |       | 240,177                                                                            |       |                                          | 62,328     |                                                                                          |       |                                                   | 45,328                     |                                                                      |       | 29,010 |   |   | 0.43 |   |   |
| Third quarter (c)                      |       | 242,862                                                                            |       |                                          | 58,608     |                                                                                          |       |                                                   | 45,670                     |                                                                      |       | 29,086 |   |   | 0.43 |   |   |
| Fourth quarter  (d)                    |       | 264,738                                                                            |       |                                          | 72,468     |                                                                                          |       |                                                   | 60,728                     |                                                                      |       | 38,012 |   |   | 0.55 |   |   |
| **Year  ended December 31, 2003** |       |                                                                               |       |                                          |       |                                                                                          |       |                                                   |                       |                                                                      |       |   |   |   |   |   |   |
| First quarter (e)                      |       | $199,561                                                                           |       |                                          | $40,550    |                                                                                          |       |                                                   | $    19,938 |                                                                      |       | $    12,561 |   |   | $    0.21 |   |   |
| Second quarter  (f)                    |       | 210,005                                                                            |       |                                          | 48,002     |                                                                                          |       |                                                   | 32,743                     |                                                                      |       | 20,628 |   |   | 0.33 |   |   |
| Third quarter (g)                      |       | 218,670                                                                            |       |                                          | 49,880     |                                                                                          |       |                                                   | 31,431                     |                                                                      |       | 19,802 |   |   | 0.32 |   |   |
| Fourth quarter (h)                     |       | 229,853                                                                            |       |                                          | 2,639      |                                                                                          |       |                                                   | (15,935                    | )                                                                         |       | (8,648 | ) |   | (0.14 | ) |   |

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(a)           Includes developmentexpense of approximately $4.0 million and loss on early retirement of debt ofapproximately $93.3 million.

(b)          Includes developmentexpense of approximately $2.2 million and preopening expense of approximately$0.3 million.

(c)           Includes developmentexpense of approximately $2.1 million and preopening expense of approximately$0.3 million.

(d)          Includes developmentexpenses of approximately $2.4 million and preopening expense of approximately$0.3 million.

(e)           Includes an impairmentloss of approximately $1.4 million primarily related to the write off ofan investment in the development of a new slot product (see Note 7).

(f)             Includes developmentfees of approximately $3.6 million from Thunder Valley.

(g)           Includes developmentfees of approximately $0.8 million from Thunder Valley. Also includesdevelopment expenses of approximately $2.9 million.

(h)          Includesdevelopment fees of approximately $0.2 million from Thunder Valley,development expenses of approximately $1.4 million, a goodwill impairmentloss of approximately $17.5 million at Fiesta Rancho (see *Goodwill and Other Intangibles* inNote 1) and a litigation settlement of $38.0 million.

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**ITEM 9**.      CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

**ITEM 9A. CONTROLS AND PROCEDURES**

As of the end of theperiod covered by this Annual Report on Form 10-K, an evaluation wascarried out by the Company’s management, with the participation of its ChiefExecutive Officer and Chief Financial Officer, of the effectiveness of theCompany’s disclosure controls and procedures (as defined in Rule 13a-15(e) underthe Securities Exchange Act of 1934). Based upon the evaluation, the ChiefExecutive Officer and Chief Financial Officer concluded that the disclosurecontrols and procedures were effective as of the end of the period covered bythis report. No changes were made to the Company’s internal control overfinancial reporting (as defined in Rule 13a-15(f) under theSecurities Exchange Act of 1934) during the last fiscal quarter that materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

*Management’s Reporton Internal Control Over Financial Reporting*

The management of the Company is responsible forestablishing and maintaining adequate internal control over financial reporting.The Company’s internal control system was designed to provide reasonableassurance to the Company’s management and board of directors regarding thepreparation and fair presentation of published financial statements.

All internal control systems, no matter how welldesigned, have inherent limitations, including the possibility of human errorand the circumvention or overriding of controls. Accordingly, even effectiveinternal controls can provide only reasonable assurances with respect tofinancial statement preparation. Further because of changes in conditions, theeffectiveness of internal controls may vary over time.

Management assessed the effectiveness of the company’sinternal control over financial reporting as of December 31, 2004. Inmaking this assessment, it used the criteria set forth by the Committee ofSponsoring Organizations of the Treadway Commission (COSO) in *Internal Control—Integrated Framework*. Based on ourassessment we believe that, as of December 31, 2004, the Company’sinternal control over financial reporting is effective based on those criteria.

The Company’s independentauditors have issued an audit report on our assessment of the company’sinternal control over financial reporting. This report appears on page 51.

**ITEM 9B. OTHER INFORMATION**

None

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**PART III**

**ITEM10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT**

There is incorporated byreference the information appearing in the section entitled “Directors andExecutive Officers” in the Registrant’s definitive Proxy Statement to be madepublicly available with the Securities and Exchange Commission.

**ITEM 11. EXECUTIVE COMPENSATION**

There is incorporated byreference the information appearing in the section entitled “ExecutiveCompensation” in the Registrant’s definitive Proxy Statement to be madepublicly available with the Securities and Exchange Commission.

**ITEM12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

There is incorporated byreference the information appearing in the section entitled “Security Ownershipof Certain Beneficial Owners and Management” in the Registrant’s definitiveProxy Statement to be made publicly available with the Securities and ExchangeCommission.

**ITEM13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

There is incorporated byreference the information appearing in the sections entitled “CertainRelationships and Related Transactions” in the Registrant’s definitive ProxyStatement to be made publicly available with the Securities and ExchangeCommission.

**ITEM14. PRINCIPAL ACCOUNTING FEES AND SERVICES**

There is incorporated by reference the informationappearing in the section entitled “Fees Paid to Independent Auditors” in theRegistrant’s definitive Proxy Statement to be made publicly available with theSecurities and Exchange Commission.

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**PART IV**

**ITEM15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K**

(a)           1.Financial Statements (including related notes to Consolidated FinancialStatements) filed in Part II of this report are listed below:

Reports of Independent Registered Public AccountingFirm—Ernst & Young LLP

Report of Independent Registered Public AccountingFirm—Deloitte & Touche LLP

Consolidated Balance Sheets as of December 31,2004 and 2003

Years Ended December 31, 2004, 2003 and 2002

Consolidated Statements of Operations

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes toConsolidated Financial Statements

2.                None

3.                Exhibits
| Exhibit Number | ** ** | **Description**                                                                                                                                                                                                                                                     |
|----------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1            |       | Amended and Restated  Articles of Incorporation of the Registrant. (Incorporated herein by  reference to Registration Statement No. 33-76156)                                                                                                                  |
| 3.2            |       | Restated Bylaws of the  Registrant. (Incorporated herein by reference to Registration Statement  No. 33-76156)                                                                                                                                                 |
| 4.1            |       | Form of Senior  Notes of the Registrant (March 2004 Issue). (Included in  Exhibit 4.2 which is incorporated herein by reference to Registration  Statement No. 333-113986)                                                                      |
| 4.2            |       | Indenture dated as of  March 17, 2004 between the Registrant and Law Debenture Trust Company of  New York as Trustee. (Incorporated herein by reference to Registration  Statement No. 333-113986)                                                        |
| 4.3            |       | Form of  Subordinated Notes of the Registrant (January 2004 Issue). (Included in  Exhibit 4.4 which is incorporated herein by reference to the Company’s  Annual Report on Form 10-K for the period ended December 31, 2003)          |
| 4.4            |       | Indenture dated as of  January 29, 2004 between the Registrant and Law Debenture Trust Company  of New York as Trustee. (Incorporated herein by reference to the Company’s  Annual Report on Form 10-K for the period ended December 31, 2003)  |
| 4.5            |       | Form of  Subordinated Notes of the Registrant (February 2004 Issue). (Included in  Exhibit 4.6 which is incorporated herein by reference to the Company’s  Annual Report of Form 10-K for the period ended December 31, 2003)         |
| 4.6            |       | Indenture dated as of  February 27, 2004 between the Registrant and Law Debenture Trust Company  of New York as Trustee. (Incorporated herein by reference to the Company’s  Annual Report on Form 10-K for the period ended December 31, 2003) |
| 4.7            |       | Form of Subordinated  Note of the Registrant (2000 issue). (Incorporated herein by reference to the  Company’s Registration Statement on Form S-4 dated  October 30, 2000)                                                                      |
| 4.8            |       | Indenture dated as of  July 7, 2000 between the Registrant and First Union National Bank as Trustee.  (Incorporated herein by reference to the Company’s Registration Statement on  Form S-4 dated October 30, 2000)                            |

90

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| 4.9  |   | First Supplemental  Indenture dated as of February 27, 2004 between the Registrant and  Wachovia Bank, National Association (as successor to First Union National  Bank), with respect to the Indenture dated as of July 7, 2000.  (Incorporated herein by reference to Registration Statement  No. 333-113986)   |
|------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.10 |   | Amended and Restated  Loan Agreement dated as of December 21, 2004. (Incorporated herein by  reference to the Company’s Form 8-K dated December 23, 2004)                                                                                                                                                    |
| 4.11 |   | Rights Agreement dated  October 6, 1997 between the Company and Continental Stock Transfer and  Trust Company, as Rights Agent. (Incorporated herein by reference to the  Company’s Form 8-K dated October 9, 1997)                                                                                          |
| 4.12 |   | Amendment to Rights  Agreement, dated as of January 16, 1998, between Station  Casinos, Inc. and Continental Stock Transfer & Trust Company,  as Rights Agent. (Incorporated herein by reference to the Company’s  Form 8-K dated January 27, 1998)                                            |
| 4.13 |   | Amendment No. 2 to  Rights Agreement, dated as of December 1, 1998, between Station  Casinos, Inc. and Continental Stock Transfer & Trust Company,  as Rights Agent. (Incorporated herein by reference to the Company’s  Form 8-K dated November 6, 1998)                                 |
| 4.14 |   | Amended and Restated  Loan Agreement, dated as of December 17, 2004, among Green Valley Ranch  Gaming, LLC, Bank of America, N.A., as Administrative Agent, Banc of America  Securities LLC and Wells Fargo Bank, N.A. (Incorporated herein by reference  to the Company’s Form 8-K dated December 23, 2004) |
| 4.15 |   | Completion Guaranty by  Station Casinos, Inc., GCR Gaming, LLC, and GV Ranch Station, Inc.,  a wholly owned subsidiary of the Registrant, and Bank of America, N.A., as  Administrative Agent, dated as of December 17, 2004.                                                                                     |
| 10.1 |   | Ground Lease between  Boulder Station, Inc. and KB Enterprises dated as of June 1, 1993.  (Incorporated herein by reference to the Company’s Quarterly Report on  Form 10-Q for the period ended June 30, 1993)                                                                                         |
| 10.2 |   | Option to Lease or  Purchase dated as of June 1, 1993 between Boulder Station, Inc. and  KB Enterprises. (Incorporated herein by reference to the Company’s Quarterly  Report on Form 10-Q for the period ended June 30, 1993)                                                                          |
| 10.3 |   | Option to Acquire  Interest Under Purchase Contract dated as of June 1, 1993 between  Boulder Station, Inc. and KB Enterprises. (Incorporated herein by  reference to the Company’s Quarterly Report on Form 10-Q for the  period ended June 30, 1993)                                                  |
| 10.4 |   | First Amendment to  Ground Lease and Sublease, dated as of June 30, 1995, by and between KB  Enterprises, as landlord and Boulder Station, Inc. (Incorporated herein  by reference to the Company’s Form 8-K dated July 5, 1995)                                                                        |
| 10.5 |   | Rent Agreement to the  First Amendment to Ground Lease and Sublease, dated as of March 30,  2003, by and between KB Enterprises, as landlord and Boulder  Station, Inc. (Incorporated herein by reference to the Company’s  Quarterly Report on Form 10-Q dated March 31, 2003)                         |
| 10.6 |   | Ground Lease between  Registrant and Texas Gambling Hall & Hotel, Inc. dated as of  June 1, 1995. (Incorporated herein by reference to the Company’s  Form 8-K dated July 5, 1995)                                                                                                             |
| 10.7 |   | First Amendment to  Ground Lease dated as of June 30, 1995 between Registrant and Texas  Gambling Hall & Hotel, Inc. (Incorporated herein by reference  to the Company’s Form 8-K dated July 5, 1995)                                                                                          |
| 10.8 |   | Rent Agreement to the  First Amendment to Ground Lease, dated as of May 12, 2000 between  Registrant and Texas Gambling Hall & Hotel, Inc. (Incorporated  herein by reference to the Company’s Quarterly Report on Form 10-Q  for the period ended March 31, 2003)                             |

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| 10.9  |   | Assignment,  Assumption and Consent Agreement (Ground Lease) dated as of July 6, 1995  between Registrant and Texas Station, Inc. (Incorporated herein by  reference to the Company’s Form 8-K dated July 5, 1995)                                        |
|-------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.10 |   | Executive Employment  Agreement between Frank J. Fertitta III and the Registrant dated as of  May 20, 2003. (Incorporated herein by reference to the Company’s  Quarterly Report on Form 10-Q for the period ended June 30,  2003)                             |
| 10.11 |   | First Amendment to  Executive Employment Agreement between Frank J. Fertitta III and the  Registrant dated as of February 4, 2005. (Incorporated herein by  reference to the Company’s Form 8-K dated February 7, 2005)                                        |
| 10.12 |   | Executive Employment  Agreement between Glenn C. Christenson and the Registrant dated as of  May 20, 2003. (Incorporated herein by reference to the Company’s Quarterly  Report on Form 10-Q for the period ended June 30, 2003)                               |
| 10.13 |   | Executive Employment  Agreement between Scott M Nielson and the Registrant dated as of May 20,  2003. (Incorporated herein by reference to the Company’s Quarterly Report on  Form 10-Q for the period ended June 30, 2003)                                    |
| 10.14 |   | First Amendment to  Executive Employment Agreement between Scott M Nielson and the  Registrant dated as of July 13, 2004.                                                                                                                                                     |
| 10.15 |   | Executive Employment  Agreement between Lorenzo J. Fertitta and the Registrant dated as of  May 20, 2003. (Incorporated herein by reference to the Company’s  Quarterly Report on Form 10-Q for the period ended June 30,  2003)                               |
| 10.16 |   | First Amendment to  Executive Employment Agreement between Lorenzo J. Fertitta and the Registrant  dated as of February 4, 2005. (Incorporated herein by reference to the  Company’s Form 8-K dated February 7, 2005)                                          |
| 10.17 |   | Executive Employment  Agreement between William W. Warner and the Registrant dated as of  May 20, 2003. (Incorporated herein by reference to the Company’s  Quarterly Report on Form 10-Q for the period ended June 30, 2003)                                  |
| 10.18 |   | Executive Employment  Agreement between Richard J. Haskins and the Registrant dated as of  July 13, 2004. (Incorporated herein by reference to the Company’s  Quarterly Report on Form 10-Q for the period ended June 30, 2004)                                |
| 10.19 |   | Amended and Restated  Stock Compensation Program of the Registrant dated as of May 24, 1999.  (Incorporated herein by reference to the Company’s Form S-8 filed  as of June 17, 1999)                                                                          |
| 10.20 |   | 1999 Stock Compensation  Program of the Registrant dated as of December 7, 1999. (Incorporated  herein by reference to the Company’s Form S-8 filed as of  June 30, 2000)                                                                                      |
| 10.21 |   | Supplemental Executive  Retirement Plan of the Registrant dated as of November 30, 1994. (Incorporated  herein by reference to the Company’s Quarterly Report on Form 10-Q  for the period ended December 31, 1994)                                            |
| 10.22 |   | First Amendment  to the Supplemental Executive Retirement Plan of the Registrant dated as of  February 4, 2005. (Incorporated herein by reference to the Company’s  Form 8-K dated February 7, 2005)                                                           |
| 10.23 |   | Supplemental Management  Retirement Plan of the Registrant dated as of November 30, 1994.  (Incorporated herein by reference to the Company’s Quarterly Report on  Form 10-Q for the period ended December 31, 1994)                                           |
| 10.24 |   | Long-Term Stay-On  Performance Incentive Payment Agreement between the Registrant and Lorenzo J.  Fertitta dated as of March 15, 2002. (Incorporated herein by reference  to the Company’s Annual Report on Form 10-K for the period ended  December 31, 2001) |
| 10.25 |   | Long-Term Stay-On  Performance Incentive Payment Agreement between the Registrant and William W.  Warner dated April 1, 2002. (Incorporated herein by reference to the  Company’s Annual Report on Form 10-K for the period ended  December 31, 2003)          |

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| 10.26 |   | Long-Term  Stay-On Performance Incentive Payment Agreement between the Registrant  and Richard J. Haskins dated as of April 1, 2004. (Incorporated herein  by reference to the Company’s Quarterly Report on Form 10-Q for  the period ended June 30, 2004)                                                                                                          |
|-------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.27 |   | Amended and Restated  Deferred Compensation Plan of the Registrant dated as of September 12,  2001. (Incorporated herein by reference to the Company’s Quarterly Report on  Form 10-Q for the period ended September 30, 2001)                                                                                                                                       |
| 10.28 |   | First Amendment to the  Amended and Restated Deferred Compensation Plan dated as of December 4,  2002. (Incorporated herein by reference to the Company’s Annual Report on  Form 10-K for the period ended December 31, 2002)                                                                                                                                        |
| 10.29 |   | Special Long-Term  Disability Plan of the Registrant dated as of November 30, 1994.  (Incorporated herein by reference to the Company’s Quarterly Report on  Form 10-Q for the period ended December 31, 1994)                                                                                                                                                       |
| 10.30 |   | Form of  Indemnification Agreement for Directors and Executive Officers. (Incorporated  herein by reference to the Company’s Registration Statement No. 33-59302)                                                                                                                                                                                                         |
| 10.31 |   | Form of  Indemnification Agreement between the Registrant and Frank Fertitta, Jr.  (Incorporated herein by reference to the Company’s Registration Statement  No. 33-59302)                                                                                                                                                                                          |
| 10.32 |   | Operating Agreement  dated March 10, 2000, among Green Valley Ranch Gaming, LLC, GCR Gaming,  LLC and GV Ranch Station, Inc., a wholly owned subsidiary of the  Registrant. (Incorporated herein by reference to the Company’s Annual Report  on Form 10-K for the period ended December 31, 1999)                                                              |
| 10.33 |   | First Amendment to  Operating Agreement dated March 10, 2000, among Green Valley Ranch  Gaming, LLC, GCR Gaming, LLC and GV Ranch Station, Inc., a wholly owned  subsidiary of the Registrant, dated as of September 17, 2001.  (Incorporated herein by reference to the Company’s Quarterly Report on  Form 10-Q for the period ended September 30, 2001) |
| 10.34 |   | Second Amendment  to Operating Agreement dated December 19, 2003, among Green Valley Ranch  Gaming, LLC, GCR Gaming, LLC and GV Ranch Station, Inc., a wholly owned  subsidiary of the Registrant. (Incorporated herein by reference to the  Company’s Annual Report on Form 10-K for the period ended  December 31, 2003)                                      |
| 10.35 |   | Third Amendment  to Operating Agreement dated December 17, 2004, among Green Valley Ranch  Gaming, LLC, GCR Gaming, LLC and GV Ranch Station, Inc., a wholly owned  subsidiary of the Registrant.                                                                                                                                                                              |
| 10.36 |   | Second Amended and  Restated Management Agreement between the Registrant and the United Auburn  Indian Community dated as of November 1, 2002. (Incorporated herein by  reference to the Company’s Annual Report on Form 10-K for the  period ended December 31, 2002)                                                                                               |
| 21.1  |   | Subsidiaries of the  Registrant                                                                                                                                                                                                                                                                                                                                                          |
| 23.1  |   | Consent of  Ernst & Young LLP                                                                                                                                                                                                                                                                                                                                                   |
| 23.2  |   | Consent of  Deloitte & Touche LLP                                                                                                                                                                                                                                                                                                                                               |
| 31.1  |   | Certification pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                           |
| 31.2  |   | Certification pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                           |
| 32.1  |   | Certification pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                           |
| 32.2  |   | Certification pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                           |

 

(b)          Reports on Form 8K

On October 1, 2004, the Company filed a CurrentReport on Form 8-K dated October 1, 2004, reporting items listed underItem 2.01.

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On October 19, 2004, the Company filed a CurrentReport on Form 8-K dated October 19, 2004, reporting items listedunder Item 2.02.

On October 21, 2004, the Company filed a Currentreport on Form 8-K dated October 21, 2004, reporting items listedunder Item 8.01.

On November 8, 2004, the Company filed a Currentreport on Form 8-K dated November 8, 2004, reporting items listedunder Item 8.01.

On December 3, 2004, the Company filed a Currentreport on Form 8-K dated December 1, 2004, reporting items listedunder Item 5.02.

On December 23, 2004, the Company filed a Currentreport on Form 8-K dated December 23, 2004, reporting items listedunder Item 2.03.

On January 14, 2005, the Company filed a Currentreport on Form 8-K dated January 14, 2005, reporting items listedunder Item 8.01.

On January 24, 2005, the Company filed a Currentreport on Form 8-K dated January 24, 2005, reporting items listedunder Item 2.02.

On February 7, 2005, the Company filed a Currentreport on Form 8-K dated February 7, 2005, reporting items listedunder Item 1.01.

On February 8, 2005, the Company filed a Currentreport on Form 8-K dated February 4, 2005, reporting items listedunder Item 8.01.

On February 17, 2005, the Company filed a Currentreport on Form 8-K dated February 16, 2005, reporting items listedunder Item 8.01.

(c)           None

(d)          None

94

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.
|                             | STATION CASINOS, INC. |
|-----------------------------|-----------------------|
| Dated: March 15,  2005 | By:                   | /s/  FRANK J. FERTITTA III |
| * *                    |                  | Frank J. Fertitta  III*Chairman of the Board and Chief Executive  Officer (Principal Executive Officer)* |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the Registrant and inthe capacities and on the dates indicated.
|                                    | **Signature** | ** **                                 | ** ** | ** **     | **Title** | ** ** | ** ** | ** ** | **Date** | ** ** |
|------------------------------------|---------------|--------------------------------------------|------------|----------------|-----------|------------|------------|------------|----------|------------|
| /s/  FRANK J. FERTITTA III         |          | Chairman of the Board  and Chief Executive |       | March 15, 2005 |
| Frank J. Fertitta  III             |          | Officer (Principal  Executive Officer)     |       |           |
| /s/  LORENZO J. FERTITTA           |          | Vice Chairman, President  and Director     |       | March 15, 2005 |
| Lorenzo J.  Fertitta               |          |                                       |       |           |
|                               |          | Executive Vice  President, Chief Financial |       | March 15, 2005 |
| /s/ GLENN C. CHRISTENSON           |          | Officer, Chief Administrative  Officer and |       |           |
| Glenn C.  Christenson              |          | Treasurer  (Principal Financial and        |       |           |
|                               |          | Accounting  Officer)                       |       |           |
| /s/  LOWELL H. LEBERMANN, JR. |          | Director                                   |       | March 15, 2005 |
| Lowell H.  Lebermann, Jr.     |          |                                       |       |           |
| /s/  JAMES E. NAVE                 |          | Director                                   |       | March 15, 2005 |
| James E. Nave                      |          |                                       |       |           |
| /s/  LEE S. ISGUR                  |          | Director                                   |       | March 15, 2005 |
| Lee S. Isgur                       |          |                                       |       |           |
| /s/  ROBERT E. LEWIS               |          | Director                                   |       | March 15, 2005 |
| Robert E. Lewis                    |          |                                       |       |           |

 

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