**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

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**FORM 10-K**

| **(Mark One)**                                                        | ** ** | ** **                                                                                                 |
|-----------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------|
| x                                                                     | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**        |
| **for the fiscal year ended December 31, 2005**                  |
| **OR**                                                                |
| **o**                                                                 | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE****SECURITIES EXCHANGE ACT OF 1934** |
| **for the transition period from ______________ to  ______________.** |
| **Commission file number 000-21640**                                  |

 

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**STATION CASINOS, INC.**

(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, LasVegas, Nevada 89102**(Address ofprincipal 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 classCommon Stock, $0.01 Par Value | ** ** | **Name of each exchange on which registeredNew York Stock Exchange** |
|--------------------------------------------------|------------|----------------------------------------------------------------------|
| ** **                                       | ** ** | ** **                                                           |

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

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Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes x  No o

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o  No x

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to the Form 10-K. o

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated file. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act. (Check one):   Largeaccelerated filer x  Accelerated filer o  Non-accelerated filer o

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Act).  Yes   ̈ No x

The aggregate market value of the voting stock held bynon-affiliates (all persons other than executive officers or directors) of theregistrant as of June 30, 2005, based on the closing price per share of $66.40as reported on the New York Stock Exchange was $3,707,666,971.

As of February 28, 2006, the registrant has 66,593,447shares of common stock outstanding.

**DocumentsIncorporated by Reference**

Portions of the ProxyStatement for the Registrant’s 2006 Annual Meeting of Stockholders to be held May24, 2006 (which has not been made publicly available as of the date of thisfiling) 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-looking Statements**

When used in this reportand elsewhere by management from time to time, the words “believes”, “anticipates”,“expects” and similar expressions are intended to identify forward-lookingstatements with respect to our financial condition, results of operations andour business including our expansions, 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 six smaller casino properties (two of which are 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 Casino Resort Spa (“Red Rock”), which is scheduled to open on April 18,2006. Our growth strategy includes the master-planned expansions of ourexisting gaming facilities in Nevada, the development of gaming facilities oncertain real estate we own or are under contract to acquire in the Las Vegasvalley and Reno, Nevada, the evaluation and pursuit of additional acquisitionor development opportunities in Nevada and other gaming markets and the pursuitof additional management agreements with Native American 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 Resort Spa Casino (“GreenValley Ranch”), Barley’s Casino & Brewing Company (“Barley’s”) and TheGreens Gaming and Dining (“The Greens”). Each of our casinos caters primarilyto local Las Vegas area residents. We market the six “Station” casinos(including Green Valley Ranch) together under the Station Casinos’ brand andthe two “Fiesta” casinos under the Fiesta brand, offering convenience andchoices to residents throughout the Las Vegas valley with our strategically locatedproperties. In addition, we manage Thunder Valley Casino (“Thunder Valley”) inSacramento, California on behalf of the United Auburn Indian Community (“UAIC”).

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**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.

*Targeted CustomerBase*

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 in addition toconvention business at Green Valley Ranch and Red Rock. 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 of more than 150miles; however, the business model for local customers remains the same.

*Provide aHigh-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, live entertainmentvenues and child-care facilities. In addition, we believe the value offered byrestaurants at each of our casino properties is a major factor in attractinglocal gaming customers, as dining is a primary motivation for casino visits bymany locals. Through their restaurants, each of which has a distinct style ofcuisine, our casino properties offer generous portions of high-quality food atreasonable prices. In addition, our operating strategy focuses on slot andvideo poker machine play. Our target market consists of frequent gaming patronswho seek not only a friendly atmosphere and convenience, but also higher thanaverage payout rates. Because locals and repeat visitors demand variety andquality in their slot and video poker machine play, our casino properties offerthe latest in slot and video poker technology.

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 andPromotion*

We employ an innovative marketing strategy thatutilizes frequent high profile promotional programs in order to attractcustomers and establish a high level of name recognition. In addition toaggressive marketing through television, radio and newspaper advertising, wehave created and sponsored such promotions as “Paycheck Bonanza” and “GreatGiveaway”, a popular football season contest. These 

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promotions have become atradition in the locals’ market and have had a positive impact upon ourpatronage during their respective promotion periods.

In 1999, we introduced a unified Boarding Pass playerrewards program at our Station properties. The Boarding Pass program allowsguests to earn points based on their level of gaming activity. The Fiestaproperties offer a similar player rewards program called the Amigo Club.Members of the Boarding Pass and the Amigo Club can redeem points at any of ourproperties for meals in any of the restaurants, hotel rooms, movie passes, showtickets or merchandise from our gift shops. We believe that this “single card”,for which the technology was developed in-house, sets us apart from ourcompetition in the Las Vegas locals’ market.

We are heavily focused onusing cutting edge technology to drive customer traffic with products such asour Jumbo Brand products, which include “Jumbo Jackpot”, “Jumbo Penny”, “JumboBingo” and “Jumbo Poker”. Jumbo Jackpot, which was introduced in April 2003,is an exclusive progressive slot jackpot that allows customers using a BoardingPass or Amigo Card the opportunity to win between $100,000 and $150,000 justfor playing slot machines. Other products include “Xtra Play Cash” and “SportsConnection”, among others. We believe that these products create sustainablecompetitive advantages and distinguish us from our competitive set.

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**Properties**

Set forth below is certaininformation as of December 31, 2005, with the exception of Red Rock,concerning our properties, all of which we own and/or operate except asotherwise indicated. The properties are more fully described following thetable.

| ** **                      | ** ** | **   Hotel     Rooms** | ** ** | **Slots(1)** | ** ** | **Gaming  Tables(2)** | ** ** | **  Parking    Spaces(3)** | ** ** |
|---------------------------------|------------|------------------------------------------------------|------------|--------------|------------|-----------------------|------------|------------------------------------------------|------------|
| Casino Properties               |       |                                                 |       |         |       |                  |       |                                           |       |   |   |   |   |   |   |   |   |
| Palace Station                  |       |                                                 | 1,007      |         |       |                  | 1,845      |                                           |       |   | 55 |   |   |   | 2,600 |   |   |
| Boulder Station                 |       |                                                 | 300        |         |       |                  | 2,967      |                                           |       |   | 42 |   |   |   | 4,800 |   |   |
| Texas Station                   |       |                                                 | 200        |         |       |                  | 2,450      |                                           |       |   | 37 |   |   |   | 5,900 |   |   |
| Sunset Station                  |       |                                                 | 457        |         |       |                  | 2,556      |                                           |       |   | 52 |   |   |   | 5,500 |   |   |
| Santa Fe Station                |       |                                                 | 200        |         |       |                  | 2,591      |                                           |       |   | 39 |   |   |   | 2,500 |   |   |
| Red Rock (4)                    |       |                                                 | 415        |         |       |                  | 3,200      |                                           |       |   | 62 |   |   |   | 5,000 |   |   |
| Green Valley Ranch (50%  owned) |       |                                                 | 496        |         |       |                  | 2,330      |                                           |       |   | 54 |   |   |   | 2,800 |   |   |
| Fiesta Rancho                   |       |                                                 | 100        |         |       |                  | 1,627      |                                           |       |   | 13 |   |   |   | 2,700 |   |   |
| Fiesta Henderson                |       |                                                 | 224        |         |       |                  | 1,423      |                                           |       |   | 17 |   |   |   | 1,700 |   |   |
| Other Properties                |       |                                                 |       |         |       |                  |       |                                           |       |   |   |   |   |   |   |   |   |
| Wild Wild West                  |       |                                                 | 262        |         |       |                  | 238        |                                           |       |   | 6 |   |   |   | 600 |   |   |
| Wildfire                        |       |                                                 | —     |         |       |                  | 241        |                                           |       |   | — |   |   |   | 275 |   |   |
| Magic Star                      |       |                                                 | —     |         |       |                  | 154        |                                           |       |   | — |   |   |   | 250 |   |   |
| Gold Rush                       |       |                                                 | —     |         |       |                  | 159        |                                           |       |   | — |   |   |   | 150 |   |   |
| Barley’s (50% owned)       |       |                                                 | —     |         |       |                  | 199        |                                           |       |   | — |   |   |   | — |   |   |
| The Greens (50% owned)          |       |                                                 | —     |         |       |                  | 40         |                                           |       |   | — |   |   |   | — |   |   |
| Managed Properties              |       |                                                 |       |         |       |                  |       |                                           |       |   |   |   |   |   |   |   |   |
| Thunder Valley (5)              |       |                                                 | —     |         |       |                  | 2,722      |                                           |       |   | 100 |   |   |   | 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, also offer a keno lounge and bingo parlor. TheCasino Properties also offer a race and sports book and the Other Propertiesoffer a sports book with the exception of The Greens.

(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 and 1,000 for Fiesta Rancho. Additional covered parking spaces of1,500 for Green Valley Ranch and 2,900 for Santa Fe Station are currently underconstruction (see “Expansion Strategy”).

(4)          Red Rock is currentlyunder construction and is scheduled to open on April 18, 2006 (see “ExpansionStrategy”).

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

**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-century railroadstation theme with non-gaming amenities including eight full-servicerestaurants, several fast-food outlets, a 250-seat entertainment lounge,four 

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additional bars, twoswimming pools, an approximately 20,000-square-foot banquet andconvention center, a 24-hour gift shop and a non-gaming video arcade.

Palace Station’s eightfull-service restaurants have a total of approximately 1,200 seats. Theserestaurants offer a variety of high-quality food at reasonable prices,including the Grand Café (featuring American and Chinese fare), The GourmetFeast Buffet, The Broiler Steaks and Seafood, Pasta Palace (an Italianrestaurant), Guadalajara Bar & Grille (a Mexican restaurant), Jack’s IrishPub, a 17-seat Oyster Bar and Chang’s (gourmet Hong Kong cuisine). Inaddition to these restaurants, Palace Station offers various fast-food outletsand the Sound Trax Club, an entertainment 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 station themewith non-gaming amenities including five full-service restaurants, severalfast-food outlets, a 750-seat entertainment lounge, six additional bars,an 11-screen movie theater complex, a Kid’s Quest child-care facility, aswimming 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 Café (featuring American and Chinese fare), The Gourmet Feast Buffet,The Broiler Steaks and Seafood, Pasta Palace (an Italian restaurant) andGuadalajara Bar & Grille (a Mexican restaurant). In addition to theserestaurants, Boulder Station offers various fast-food outlets.

*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 a friendlyTexas atmosphere, highlighted by distinctive early Texas architecture withnon-gaming amenities including five full-service restaurants, several fast-foodoutlets, a Kid’s Quest child-care facility, a 300-seat entertainmentlounge, a 1,700-seat event center, eight additional bars, an 18-screenmovie theater complex, a swimming pool, a non-gaming video arcade, a gift shop,a 60-lane bowling center and approximately 40,000 square feet of meetingand banquet space.

Texas Station’s five full-service restaurants have atotal of approximately 1,200 seats. These restaurant facilities offer a varietyof high-quality food at reasonable prices, including the 24-hour TexasCafé, Austin’s Steakhouse, San Lorenzo (an Italian restaurant), Feast Aroundthe World Buffet (featuring seven different food stations) and Texas StarOyster Bar, which has 110 seats. In addition to the Texas Station-themedrestaurants, guests may also enjoy the unique features of several bars andlounges including Martini Ranch, Whiskey Bar, Garage Bar, A Bar, or ArmadilloHonky Tonk. Texas Station also offers a variety of fast-food outlets to enhancethe customers’ dining selection.

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*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 McCarran InternationalAirport and approximately seven miles southeast of Boulder Station. SunsetStation features a Spanish/Mediterranean-style theme with non-gamingamenities including eight full-service restaurants themed to capitalize on thefamiliarity of the restaurants at our other properties, a 520-seatentertainment lounge, a 4,000-seat outdoor amphitheater, seven additionalbars, a gift shop, a non-gaming video arcade, a 13-screen movie theatercomplex, a 72-lane bowling center, a Kid’s Quest child-care facility, anda 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 restaurantfacilities offer a variety of high-quality food at reasonable prices, includingthe 24-hour Sunset Café (featuring American fare), Sonoma CellarSteakhouse, Costa Del Sol (a seafood restaurant), Capri Italian Ristorante,Guadalajara Bar & Grille (a Mexican restaurant), The Feast Buffet, alive action buffet featuring Mexican, Italian, barbecue, American and Chinesecuisine, Hooter’s and a 65-seat Oyster Bar. Guests may also enjoy theGaudi Bar, a centerpiece of the casino featuring over 8,000 square feet ofstained glass. Sunset Station also offers a variety of fast-food outlets toenhance the customers’ dining selection.

*Santa Fe Station*

In October 2000, we purchased Santa Fe Stationwhich is strategically 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 three full-service restaurants, several fast-food outlets,a gift shop, a non-gaming video arcade, a swimming pool, a 460-seatentertainment lounge, five additional bars, a 60-lane bowling center, a16-screen movie theater complex, a Kid’s Quest child-care facility and10,000 square feet of meeting and banquet facilities. Santa Fe Station iscurrently being expanded. See “Expansion Strategy” for details of the expansionplan.

Santa Fe Station’s threefull-service restaurants have a total of approximately 850 seats, which includethe Grand Café, The Charcoal Room (a steakhouse) and Cabo Mexican Restaurant.Santa Fe Station also offers a variety of fast-food outlets to enhance thecustomers’ dining selection.

*Green Valley Ranch*

Green Valley Ranch, whichopened in December 2001, is strategically located at the intersection ofInterstate 215 and Green Valley Parkway in Henderson, Nevada. Green ValleyRanch is approximately five minutes from McCarran International Airport andseven minutes from the Las Vegas Strip. We jointly developed the project on 40acres of a 170-acre multi-use commercial development with GCR Gaming. Inaddition to our 50% ownership, we are also the managing partner of Green ValleyRanch and 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 wasdesigned to complement the Green Valley master-planned community. The AAAFour Diamond 496 room resort features a Mediterranean-style villa themewith non-gaming amenities including eight full-service restaurants, afast-food court with six quick-serve outlets, a 4,200-square-footnon-gaming arcade, a state-of-the-art spa with outdoor pools, a 10-screenmovie theater complex, a gift shop and approximately 45,500 square feet ofmeeting and convention space. Green Valley Ranch also offers “Whiskey Beach”,an 8-acre complex featuring private poolside cabanas, a contemporary 

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poolsidebar and grille, three acres of vineyards and an outdoor performance venue.Green Valley Ranch is currently being expanded. See “Expansion Strategy” for detailsof the expansion plan.

Green Valley Ranch’s eightfull-service restaurants include the Grand Café, China Spice (an Asianrestaurant), Sushi Sake, Il Fornaio (an Italian restaurant), Hank’s Fine Steaksand Martinis, Fado’s Irish Pub, The Original Pancake House and The Feast Aroundthe World, a live action buffet featuring Mexican, Italian, barbecue, Americanand Chinese cuisine. Green Valley Ranch also offers a variety of fast-foodoutlets to enhance the customers’ dining selection. Guests may also enjoy theDrop Bar, a centerpiece of the casino, and the Whiskey Bar, a 5,300-square-footnightclub.

*Fiesta Rancho*

Fiesta Rancho waspurchased in January 2001 and is strategically located on approximately 25acres at the intersection of Lake Mead Boulevard and Rancho Road in North LasVegas across from Texas Station. Fiesta Rancho features a Southwestern themewith non-gaming amenities including four full-service restaurants, severalfast-food outlets, a gift shop, a non-gaming video arcade, a swimming pool, a700-seat entertainment lounge, a regulation-size ice skating rink andfour additional bars.

Fiesta Rancho’s fourfull-service restaurants have a total of over 1,000 seats, and include the 24-hourBaja Beach Café (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*

Fiesta Henderson waspurchased in January 2001 and is strategically located on approximately 46acres at the intersection of Interstate 215 and Interstate 515. The propertyfeatures four full-service restaurants, a gift shop, a swimming pool, threebars and lounges and meeting space.

Fiesta Henderson’s four full-servicerestaurants have a total of approximately 1,100 seats, and include the 24-hourBaja Beach Café (featuring American and Chinese fare), Fuego Steakhouse, Amigo’sMexican Cantina and 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.

*Barley’s &The Greens*

Barley’s, which opened in January 1996, is acasino and brew pub located in Henderson, Nevada. We are the managing partnerand own a 50% interest in Barley’s. Barley’s non-gaming amenities include afull-service restaurant, a pizza kitchen and a bar.

In November 2005, wepurchased a 50% interest in The Greens, a restaurant and lounge, located inHenderson, Nevada. We are also the managing partner. The Greens non-gamingamenities include a full-service restaurant and bar.

*Wildfire*

In January 2003, wepurchased Wildfire located on Rancho Road across from Texas Station. Wildfire’snon-gaming amenities include a lounge, outdoor patio and a full-servicerestaurant.

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*Magic Star &Gold Rush*

In August 2004, wepurchased Magic Star and Gold Rush. Magic Star is located on Boulder Highway inHenderson, Nevada. Gold Rush is located at the intersection of Interstate 515and Sunset Road, adjacent to Sunset Station in Henderson, Nevada. Bothproperties offer non-gaming amenities which include a full service restaurantand 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 2,722 Class IIIslot machines, 100 table games, including a private VIP gaming area, three specialtyrestaurants, a 500-seat buffet, a food court, a center pit bar andparking 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-Planned Development***

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 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 recentlycompleted phase II master-planned expansions at Green Valley Ranch and Santa FeStation and currently have phase III master-plan expansions underway at GreenValley Ranch and Santa Fe Station and a phase II master-plan expansion underwayat Fiesta Henderson.

In October 2005, we began a $110 million phaseIII master-planned expansion at Green Valley Ranch which is expected to includea 1,500-space parking garage, additional slot machines, a new race andsports 

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book, a new poker room, a500-seat entertainment lounge, 14,000 square feet of convention space andtwo new restaurants. Construction of this project is expected to be completedin phases from the fourth quarter of 2006 through early 2007.

In October 2005, we began a $130 million phaseIII master-planned expansion at Santa Fe Station which is expected to include a2,900-space parking garage, a 500-seat buffet, 400 additional slotmachines, remodeled and expanded race and sports book, a 15,000-square-footmeeting and banquet facility and a new center bar. The entire project willinclude approximately 125,000 square feet of additional space. Construction ofthis project is expected to be completed in phases beginning in the thirdquarter of 2006 through the fourth quarter of 2006.

In October 2005, webegan a $70 million phase II master-planned expansion at Fiesta Henderson whichis expected to include a 1,500-space parking garage, 350 additional slotmachines, a remodeled and expanded race and sports book and a 12-screenmovie theater complex. Construction of this project is expected to be completedin the third quarter of 2006 with the exception of the movie theater complexwhich is expected to be completed in the summer of 2007.

***Development and Acquisition Opportunities***

We have acquired severalparcels of land in the Las Vegas valley, Sacramento area near Thunder Valleyand Reno, Nevada, which can be used for new casino development or otherassociated development. In addition, we have agreements to acquire twoadditional parcels of land in Reno, Nevada. We also evaluate other developmentand acquisition opportunities in current and emerging gaming markets, includingland-based, dockside, riverboat and Native American gaming. Our decision whetherto proceed with any new gaming development or acquisition opportunity isdependent upon future economic and regulatory factors, the availability offinancing and competitive and strategic considerations, many of which arebeyond our control.

*Red Rock*

In April 2004, we commenced construction of RedRock located on Charleston Boulevard at the Interstate 215/Charlestoninterchange in the Summerlin master-planned community in Las Vegas, Nevada.Phase I of Red Rock is scheduled to open on April 18, 2006 and is expectedto include over 400 hotel rooms, approximately 3,200 slot machines, 94,000square feet of meeting and convention space, a 35,000-square-foot spa,eight full-service restaurants, a 16-screen movie theater complex,a night club and private pool club to be operated by Midnight Oil Company, bothindoor and outdoor entertainment venues and parking for approximately 5,000vehicles. The cost of phase I is expected to be approximately $760.0 million. PhaseII which is expected to include an additional hotel tower containing over 400hotel rooms, is currently under construction and is expected to be completed bythe end of 2006. The total cost of both phases of Red Rock is expected to beapproximately $925 million, of which approximately $634.4 million has beenincurred as of December 31, 2005.

On July 27, 2005, weentered into a joint venture with Cloobeck Molasky Partners I, LLC (“CloobeckMolasky”) to develop a high-end residential project on approximately 5 acreslocated adjacent to the hotel at Red Rock. It is anticipated that theresidential project is expected to contain approximately 400 luxury units. Pursuantto the terms of the operating agreement, we will own 80% of the joint ventureand Cloobeck Molasky will own 20%. Subject to obtaining local approvals andmarket conditions, sales of the residential towers are expected to begin in2006.

*Aliante Station*

In December 2005, we entered into an agreementwith the Greenspun Corporation to develop Aliante Station, a hotel and casinoin the Aliante master-planned community located in North Las Vegas, Nevada. 

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We will develop and managethe facility to be located on a gaming-entitled 40-acre site on thenortheast corner of Interstate 215 and Aliante Parkway, which was contributedby the Greenspun Corporation for their 50% ownership in the joint venture. Wewill receive a management fee equal to 2% of the property’s revenues andapproximately 5% of EBITDA. The first phase of Aliante Station is expected toinclude 200 hotel rooms, approximately 2,000 slot machines, multiple full-servicerestaurants and a multi-screen movie theater complex. We expect to beginconstruction on Aliante Station in late 2006 or early 2007 with a cost ofapproximately $450 million. Pursuant to the terms of the agreement, in January 2006,we contributed a 54 acre site located on Losee Road in North Las Vegas, Nevada,as well as approximately $2.2 million, for our 50% ownership in the jointventure. As of December 31, 2005, the 54 acre site is included in landheld for development on our consolidated balance sheets.

***Native American Development***

*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 toassist them in designing, developing and financing the project and, uponopening we will manage the facility on behalf of the FIGR. The ManagementAgreement has a term of seven years from the opening of the facility and we willreceive a management fee equal to 24% of the facility’s net income. We willalso receive a development fee equal to 2% of the cost of the project upon theopening 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. In August 2005, wepurchased 180 acres of the optioned property and an additional 90 acres. Theproperty purchased is approximately one-quarter mile from Highway 101 andapproximately 43 miles from downtown San Francisco. In October 2003, theFIGR entered into a Memorandum of Understanding with the City of Rohnert Park.Development of the gaming and entertainment project is subject to certaingovernmental and regulatory approvals, including, but not limited to,negotiating a gaming compact with the State of California, the United StatesDepartment of the Interior (“DOI”) accepting the land into trust on behalf ofthe FIGR and approval of the Management Agreement by the National Indian GamingCommission (“NIGC”). Prior to obtaining third-party financing, we willcontribute significant financial support to the project. As ofDecember 31, 2005, we had advanced approximately $125.9 million toward thedevelopment of this project, primarily to complete the environmental impactstudy and secure real estate for the FIGR project, which is included on ourconsolidated balance sheets. Funds advanced by us are expected to be repaidfrom the proceeds of the project financing or from the FIGR’s gaming revenues.In addition, we have agreed to pay approximately $11.3 million of paymentsupon achieving certain milestones, which will not be reimbursed. As ofDecember 31, 2005, approximately $2.0 million of these payments hadbeen made and were expensed in development expense as incurred. The timing ofthis type of project is difficult to predict and is dependent upon the receiptof 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 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 

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reimbursable. As ofDecember 31, 2005, approximately $2.0 million of these payments had beenmade and were expensed in development expense as incurred. An additional$12.0 million in total may be paid by us in years six and seven of theamended Management Agreement, subject to certain contingencies. Under the termsof the amended Development Agreement, we have agreed to arrange financing forthe ongoing development costs and construction of the project. As ofDecember 31, 2005, we had advanced approximately $28.6 million towardthe development of this project, primarily to complete the environmentalassessment and secure real estate for the project, which is included on ourconsolidated balance sheets. Funds advanced by us are expected to be repaidfrom the proceeds of the project financing or from Gun Lake’s gaming revenues.The amended Management Agreement has a term of seven years from the opening ofthe facility and provides for a management fee of 30% of the project’s netincome to be paid to MPM. Pursuant to the terms of the MPM Operating Agreement,our 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 129th Avenue, approximately 25 miles north ofKalamazoo, Michigan. As currently contemplated, the project is expected to includeup to 2,500 slot machines, 75 table games, a buffet and specialty restaurants.Construction of the project includes the conversion of an existing 192,000-square-footbuilding into the casino and entertainment facility. Development of the gamingand entertainment project and operation of Class III gaming is subject tocertain governmental and regulatory approvals, including, but not limited to,the signing of a gaming compact by the Governor of the State of Michigan, theDOI accepting the land into trust on behalf of Gun Lake and approval of theManagement Agreement by the NIGC. On February 27, 2004, the DOI issued aFinding of No Significant Impact with respect to the proposed project. OnMay 13, 2005, the DOI published in the Federal Register a Notice of FinalAgency Determination (the “Determination”) to take certain land into trust forthe benefit of Gun Lake. The publication commenced a thirty-day period in whichinterested parties could seek judicial review of the Determination. OnJune 13, 2005, Michigan Gambling Opposition filed a complaint (the“Complaint”) in the United States District Court, District of Columbia, seekingdeclaratory and injunctive relief against the DOI and officials of the DOI. TheComplaint seeks judicial review of the Determination. On July 27, 2005,Gun Lake filed a motion to intervene in that lawsuit. On September 1,2005, the District Court granted Gun Lake’s motion to intervene. OnJanuary 6, 2006, Gun Lake filed a motion for judgement on the pleadingsor, in the alternative, for summary judgement. Also on January 6, 2006,the DOI filed a motion to dismiss or, in the alternative, for summaryjudgement. As with all litigation, no assurances can be provided as to theoutcome of that lawsuit. 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 obtained.

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*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 80 milesnorth of Sacramento, California. Under the terms of the Development Agreement,we have 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 facility financing or from the MITCR’s gamingrevenues. As of December 31, 2005, we had advanced approximately $6.9million toward the development of this project, primarily to complete theenvironmental impact study and secure real estate for the project, which isincluded on our consolidated balance sheets. In addition, we have agreed to payapproximately $2.2 million of payments upon achieving certain milestones, whichwill not be reimbursed. As of December 31, 2005, $50,000 of these paymentshad been made and were expensed in development expense as incurred. TheManagement Agreement has a term of seven years from the opening of the facilityand provides for a management fee of 24% of the facility’s net income. Ascurrently contemplated, the facility is expected to include approximately 700slot machines, 12 table games and dining and entertainment amenities.Development of the facility is subject to certain governmental and regulatoryapprovals, including, but not limited to, negotiating a gaming compact with theState of California, the DOI accepting land into trust on behalf of the MITCRand 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.

*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 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, 2005, we had advancedapproximately $3.9 million toward the development of this project, primarily tocomplete the environmental impact study and secure real estate for the project,which is included on our consolidated balance sheets. In addition, we haveagreed to pay approximately $1.3 million of payments upon achieving certainmilestones, which will not be reimbursed. These payments will be expensed asincurred. As of December 31, 2005, none of these payments had been made.The Management Agreement has a term of seven years from the opening of thefacility and provides for a management fee of 24% of the facility’s net income.As currently contemplated, the facility is expected to include approximately2,000 slot machines, 60 table games, dining, hotel and entertainment amenities.Development of the gaming and entertainment project is subject to certaingovernmental and regulatory approvals, including, but not limited to,negotiating a gaming compact with the State of California, the DOI acceptingthe land into trust on behalf of the Mono 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 obtained.

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**Employees**

As of January 31,2006, we had approximately 11,500 employees in Nevada, which includes GreenValley Ranch, Barley’s and The Greens. From time to time, certain of ouremployees are contacted by unions and we engage in discussions with suchemployees regarding establishment of collective bargaining agreements. While weare faced with such movements by employees from time to time, we do not believethat such movements will have any broad-based impact on our employees;however, there can be no assurances to that effect. We believe that we havegood relationships with our employees which was demonstrated when we were namedone of FORTUNE magazine’s 100 best companies to work for in 2005 and again in2006.

**Available Information**

Station Casinos, Inc.is a reporting company under the Securities Exchange Act of 1934, as amended, andfiles annual reports, quarterly reports, proxy statements and other documentswith the SEC. The public may read and copy any of our filings at the SEC’sPublic Reference Room at 100 F Street N.E., Room 1580, 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 1A. RISK FACTORS**

**Weface substantial competition in the gaming industry.**

Our Nevada casino properties face competition from allother casinos and hotels in the Las Vegas area, including to some degree, fromeach other. In addition, our casino properties face competition from all smallernon-restricted gaming locations and restricted gaming locations (locations with15 or fewer slot machines) in the greater Las Vegas area. As of December 31,2005, there were over 1,400 restricted gaming locations with almost 15,000 slotmachines. We compete with other hotel/casinos and restricted gaming locationsby focusing on repeat customers and attracting these customers throughinnovative marketing programs. Our value-oriented, high-quality approachis designed to generate repeat business. Additionally, our casino propertiesare strategically located and designed to permit convenient access and ampleparking, which are critical factors in attracting local visitors and repeatpatrons. Currently, there are approximately 37 major gaming properties locatedon or near the Las Vegas Strip, 14 located in the downtown area and severallocated in other areas of Las Vegas. Major additions, expansions orenhancements of existing properties or the construction of new properties bycompetitors, could also have a material adverse effect on the businesses of ourcasino properties. While past additions 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 hotel occupancy or casino volume will not beadversely affected in the future.

Our Nevada casino properties also face competitionfrom 37 non-restricted gaming locations in the Las Vegas area primarilytargeted to the local and the repeat visitor markets. One of these competitorsopened in December 2005 and some of these competitors have completedexpansions and existing competitors and new entrants into these markets are inthe planning stages or under construction on other projects. Although we havecompeted strongly in these marketplaces, there can be no assurance thatadditional capacity will not have a negative impact on our business.

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To a lesser extent, our Nevada operations compete withgaming operations in other parts of the state of Nevada, such as Reno, Laughlinand Lake Tahoe, riverboat gaming markets in the Midwest and South, facilitiesin Atlantic City, New Jersey, casinos located on Native American land and inother parts of the world and with state-sponsored lotteries,on-and-off-track pari-mutuel wagering, card rooms and other forms of legalizedgambling.

In 1997, the Nevada legislature enacted Senate Bill208. This legislation identified certain gaming enterprise districts whereincasino gaming development would be permitted throughout the Las Vegas valleyand established more restrictive criteria for the establishment of new gamingenterprise districts. We believe the growth in gaming supply in the Las Vegaslocals’ market has been, and will continue to be, limited by the provisions ofSenate Bill 208.

The gaming industry also includes land-based casinos,dockside casinos, riverboat casinos, racetracks with slots, casinos located onNative American land and other forms of legalized gaming. There is intensecompetition among companies in the gaming industry, some of which havesignificantly greater resources than we do. Several states are currentlyconsidering legalizing casino gaming in designated areas. Legalized casinogaming in such states and on Native American land will provide strongcompetition to us and could adversely affect our operations, particularly tothe extent that such gaming is conducted in areas close to our operations.

Native American gaming inCalifornia, as it currently exists, has had little, if any impact on our Nevadaoperations to date, although there are no assurances as to future impact. 61Native American tribes entered into Tribal-State Gaming Compacts (“Compacts”)with the State of California in 1999 and 2000 that are currently in effect. Eachof these Native American tribes may operate up to two gaming facilities. Eightof these Native American tribes are presently not operating a casino. During2003 through 2005, nine Native American tribes entered into new Compacts withthe State of California, of which five Compacts have been ratified by theCalifornia Legislature and are currently in effect. Three of these nine NativeAmerican tribes may operate two gaming facilities and the remaining six NativeAmerican tribes may operate one gaming facility, respectively; however, onlytwo of these Native American tribes are presently operating casinos. Currentlythere are 55 Native American casinos in operation in the State of California. TheseNative American tribes are allowed to operate slot machines, lottery games, andbanking and percentage games (including “21”) on Native American lands. Additionally,during 2004 and 2005, six  tribesre-negotiated their compacts, of which five have been ratified by theCalifornia Legislature and are currently in effect. These re-negotiatedcompacts allow for the expansion of the respective tribe’s current facilities. Itis not certain how this or any expansion of Native American gaming inCalifornia will affect our Nevada operations given that visitors fromCalifornia make up Nevada’s largest visitor market. Moreover, it is uncertainhow soon expansion will affect our interests in Native American gaming inCalifornia. Increased competition from Native American gaming may result in adecline in our revenues and may have a material adverse effect on our business.

**Certainconstruction risks may arise during the building of any new property.**

We are currently constructing Red Rock, expandingSanta Fe Station, Fiesta Henderson and Green Valley Ranch and providing or mayhave to provide, as the case may be, funding for the construction of gamingfacilities for the Federated Indians of Graton Rancheria, theMatch-E-Be-Nash-She-Wish Band of Pottawatomi Indians, the Mechoopda IndianTribe of Chico Rancheria, California and the North Fork Rancheria of MonoIndians (collectively the “Native American Tribes”) and for Aliante Station. Weevaluate expansion opportunities as they become available, and we may in thefuture develop projects in addition to the above listed projects.

Construction projects,such as the construction of Red Rock, and the expansions of Santa Fe Station,Fiesta Henderson and Green Valley Ranch and the proposed gaming facilities forthe Native American 

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Tribes,entail significant risks, including shortages of material or skilled labor,unforeseen engineering, environmental or geological problems, work stoppages,weather interference, floods and unanticipated cost increases, any of which cangive rise to delays or cost overruns.

The anticipated costs andconstruction periods are based upon budgets, conceptual design documents andconstruction schedule estimates prepared by us in consultation with ourarchitects and contractors. Construction, equipment or staffing requirements orproblems or difficulties in obtaining any of the requisite licenses, permits,allocations or authorizations from regulatory authorities can increase the costor delay the construction or opening of each of the proposed facilities orotherwise affect the project’s planned design and features. We have not enteredinto any firm contracts for the expansions of Santa Fe Station or FiestaHenderson, and we cannot be sure that we will not exceed the budgeted costs ofthese projects or that the projects will commence operations within thecontemplated time frame, if at all. Budget overruns and delays with respect toexpansion and development projects could have a material adverse impact on ourresults of operations.

**Wemay experiencedifficulty integrating operations of our acquired companies and developedproperties and managing our overall growth which could have a material adverseeffect on our operating results.**

We may not be able tomanage the combined operations of Station Casinos, Inc., including our RedRock development, the projects with the Native American Tribes and AlianteStation and future acquired companies or acquired or developed propertieseffectively, or realize any of the anticipated benefits of the acquisitions,including streamlining operations or gaining efficiencies from the eliminationof duplicative functions. The integration of other companies as assets willrequire continued dedication of management resources and may temporarilydetract attention from our day-to-day business.

In addition, because weplan to continue to pursue expansion and acquisition opportunities, we facesignificant challenges not only in managing and integrating the operations ofRed Rock and the projects with the Native American Tribes and Aliante Station,but also managing our expansion projects and any other gaming operations we mayacquire in the future. Management of these new projects will require increasedmanagerial resources, and we intend to continue our efforts to enhance ourgaming management team. However, there can be no assurances that we willsucceed in doing so. Failure to manage our growth effectively could have amaterial adverse effect on our operating results.

**Werely on key personnel, the loss of the services of whom could materially andadversely affect our results of operations.**

Our ability to operatesuccessfully and competitively is dependent, in part, upon the continuedservices of certain of our officers and key employees. In the event that theseofficers and/or employees were to leave us, we might not be able to findsuitable replacements. We believe that the loss of the services of theseofficers and/or employees could have a material adverse effect on our resultsof operations.

**Weregularly pursue new gaming acquisition and development opportunities and maynot be able to recover our investment or successfully expand to additionallocations.**

We regularly evaluate andpursue new gaming acquisition and development opportunities in existing andemerging jurisdictions. These opportunities have in the past, and may in thefuture, take the form of joint ventures. To the extent that we decide to pursueany new gaming acquisition or development opportunities, our ability to benefitfrom such investments will depend upon a number of factors including ourability to identify and acquire attractive acquisition opportunities and developmentsites, our ability to secure required federal, state and local licensees,permits and approvals, which in some jurisdictions are limited in number,certain political factors, the availability of adequate financing on acceptableterms (including waivers of restrictions in existing credit arrangements) andour ability to identify and develop satisfactory relationships with jointventure partners.

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Most of these factors are beyond our control. Therefore,we cannot be sure that we will be able to recover our investment in any newgaming development opportunities or acquired facilities, or successfully expandto additional locations.

We have invested, and willlikely continue to invest, in real property in connection with the pursuit ofexpansion opportunities. These investments are subject to the risks generallyincident to the ownership of real property, including changes in economicconditions, environmental risks, governmental rules and fiscal policiesand other circumstances over which we may have little or no control. Thedevelopment of such  properties is alsosubject to restrictions under our revolving credit facility. We cannot be surethat we will be able to recover our investment in any such properties or beable to prevent incurring investment losses.

**Weare subject to extensive state and local regulation and licensing and gamingauthorities have significant control over our operations which could have anadverse effect on our business.**

*Nevada GamingRegulations*

The ownership and operation of casino gamingfacilities and the manufacture and distribution of gaming devices in Nevada aresubject to: (i) the Nevada Gaming Control Act and the rules andregulations promulgated thereunder (collectively, the “Nevada Act”); and (ii) variouslocal ordinances and regulations. Our gaming operations in Nevada are subjectto the licensing and regulatory control of the Nevada Gaming Commission (the “NevadaCommission”), the Nevada State Gaming Control Board (the “Nevada Board”), theCity of Las Vegas, the Clark County Liquor and Gaming Licensing Board (the “ClarkCounty Board”), the City of North Las Vegas, the City of Henderson and certainother local regulatory agencies. The Nevada Commission, the Nevada Board, theCity of Las Vegas, the Clark County Board, the City of North Las Vegas, theCity of Henderson, and certain other local regulatory agencies are collectivelyreferred to as the “Nevada Gaming Authorities”.

The laws, regulations and supervisory procedures ofthe Nevada Gaming Authorities are based upon declarations of public policywhich are concerned with, among other things: (i) the prevention ofunsavory or unsuitable persons from having a direct or indirect involvementwith gaming at any time or in any capacity; (ii) the establishment andmaintenance of responsible accounting practices and procedures; (iii) themaintenance of effective controls over the financial practices of licensees,including the establishment of minimum procedures for internal controls and thesafeguarding of assets and revenues, providing reliable record keeping andrequiring the filing of periodic reports with the Nevada Gaming Authorities; (iv) theprevention of cheating and fraudulent practices; and (v) providing asource of state and local revenues through taxation and licensing fees. Changesin such laws, regulations and procedures could have an adverse effect on ourgaming operations.

Our direct and indirect subsidiaries that conductgaming operations in Nevada are required to be licensed by the Nevada GamingAuthorities. The gaming licenses require the periodic payment of fees and taxesand are not transferable. Palace Station Hotel & Casino, Inc. (“PSHC”),Boulder Station, Inc. (“BSI”), Texas Station LLC (“TSL”), Sunset Station, Inc.(“SSI”), Tropicana Station, Inc. (“TRSI”), Santa Fe Station, Inc. (“SFSI”),Fiesta Station, Inc. (“FSI”), Rancho Station, LLC (“RSL”), Lake MeadStation, Inc. (“LMSI”), Gold Rush Station, LLC (“GRS”) and Magic StarStation, LLC (“MSS”) have received licenses to conduct non-restricted gamingoperations. In addition, Green Valley Ranch Gaming, LLC (“GVRG”) has receivedlicenses to conduct non-restricted gaming operations at Green Valley Ranch ResortSpa Casino. The Company’s ownership in GVRG is held through an intermediarycompany known as GV Ranch Station, Inc. (“GVRS”), which is licensed as amember and manager of GVRG. Town Center Amusements, Inc. (“TCAI”) has beenlicensed to conduct non-restricted gaming operations at Barley’s Casino &Brewing Company (“Barley’s”), a micro brewery and casino located in Henderson,Nevada and Greens Café, LLC (“GC’) has been licensed to conduct nonrestrictedgaming operations at 

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The Greens, a restaurantand bar located in Henderson. Station Casinos’ ownership in TCAI and GC is heldthrough an intermediary company known as Green Valley Station, Inc. (“GVSI”),which is licensed as a member and manager of TCAI and GC. We also own aminority interest in Fiesta Palms, LLC, d.b.a. Palms Casino Resort, which wehold through our subsidiary, Palms Station, LLC (“PSL”). Station Casinos isregistered by the Nevada Commission as a publicly traded corporation (a “RegisteredCorporation”) and has been found suitable to own the stock of PSHC, BSI, TSL,SSI, TRSI, GVSI, SFSI, GVRS, FSI, RSL, LMSI, GRS and MSS. We are also licensedas a manufacturer and distributor of gaming devices. PSHC, BSI, SSI, TRSI,GVSI, SFSI, GVRG, FSI and LMSI are each a corporate gaming licensee and TCAI,TSL, GVRG, RSL, GRS, MSS, GC 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 Gaming Authorities may investigate anyindividual who has a material relationship to, or material involvement with, aRegistered Corporation, such as Station or the Gaming Subsidiaries, which holdlicenses, in order to determine whether such individual is suitable or shouldbe licensed as a business associate of a Registered Corporation or a gaminglicensee. Officers, directors and certain key employees of the GamingSubsidiaries must file applications with the Nevada Gaming Authorities and maybe required to be licensed or found suitable by the Nevada Gaming Authorities. Ourofficers, directors and key employees who are actively and directly involved ingaming activities of the Gaming Subsidiaries may be required to be licensed orfound suitable by the Nevada Gaming Authorities. The Nevada Gaming Authoritiesmay deny an application for licensing for any cause, which they deem reasonable.A finding of suitability is comparable to licensing, and both requiresubmission of detailed personal and financial information followed by a thoroughinvestigation. The applicant for licensing or a finding of suitability must payall the costs of the investigation. Changes in licensed positions must bereported to the Nevada Gaming Authorities and, in addition to their authorityto deny an application for a finding of suitability or licensure, the NevadaGaming Authorities have jurisdiction to disapprove a change in corporateposition.

If the Nevada Gaming Authorities were to find anofficer, director or key employee unsuitable for licensing or unsuitable tocontinue to have a relationship with Station or the Gaming Subsidiaries, thecompanies involved would have to sever all relationships with such person. Inaddition, the Nevada Commission may require Station or the Gaming Subsidiariesto terminate the employment of any person who refuses to file the appropriateapplications. Determinations of suitability or questions pertaining tolicensing are not subject to judicial review in Nevada.

Station and the Gaming Subsidiaries are required tosubmit detailed financial and operating reports to the Nevada Commission. Substantiallyall material loans, leases, sales of securities and similar financingtransactions by us and our Gaming Subsidiaries must be reported to or approvedby the Nevada Commission and/or the Nevada Board.

If it were determined that the Nevada Act was violatedby a Gaming Subsidiary, the gaming licenses it holds could be limited,conditioned, suspended or revoked, subject to compliance with certain statutoryand regulatory procedures. In addition, Station, the Gaming Subsidiaries andthe persons involved could be subject to substantial fines for each separateviolation of the Nevada Act at the discretion of the Nevada Commission. Further,a supervisor could be appointed by the Nevada Commission to operate PalaceStation, Boulder Station, Texas Station, Sunset Station, Santa Fe Station,Green Valley Ranch, Fiesta 

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Rancho, Fiesta Henderson,Wild Wild West, Wildfire, Barley’s, Gold Rush, Magic Star and The Greens and,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 of our voting securities,regardless of the number of shares owned, may be required to file an application,be investigated, and have their suitability as a beneficial owner of our votingsecurities determined if the Nevada Commission has reason to believe that suchownership would otherwise be inconsistent with the declared policies of thestate of Nevada. The applicant must pay all costs of investigation incurred bythe Nevada Gaming Authorities in conducting any such investigation.

The Nevada Act provides that persons who acquirebeneficial ownership of more than 5% of the voting securities of a RegisteredCorporation must report the acquisition to the Nevada Commission. The NevadaAct also requires that beneficial owners of more than 10% of the votingsecurities of a Registered Corporation must apply to the Nevada Commission fora finding of suitability within thirty days after the Chairman of the NevadaBoard mails the written notice requiring such filing. An “institutionalinvestor,” as defined in the Nevada Commission’s regulations, which acquiresbeneficial ownership of more than 10%, but not more than 15% of our votingsecurities may apply to the Nevada Commission for a waiver of such finding ofsuitability if such institutional investor holds the voting securities forinvestment purposes only. An institutional investor that has obtained a waivermay, in certain circumstances, hold up to 19% of our voting securities andmaintain its waiver for a limited period of time. An institutional investorshall not be deemed to hold voting securities for investment purposes unlessthe voting securities were acquired and are held in the ordinary course ofbusiness as an institutional investor and not for the purpose of causing,directly or indirectly, the election of a majority of the members of our Boardof Directors, any change in our corporate charter, bylaws, management policiesor our operations, or any of our gaming affiliates, or any other action whichthe Nevada Commission finds to be inconsistent with holding our votingsecurities for investment purposes only. Activities which are not deemed to beinconsistent with holding voting securities for investment purposes onlyinclude: (i) voting on all matters voted on by stockholders; (ii) makingfinancial and other inquiries of management of the type normally made bysecurities analysts for informational purposes and not to cause a change in ourmanagement, policies or operations; and (iii) such other activities as theNevada Commission may determine to be consistent with such investment intent. Ifthe beneficial holder of voting securities who must be found suitable is acorporation, partnership or trust, it must submit detailed business andfinancial information including a list of beneficial owners. The applicant isrequired to pay all costs of the investigation.

Any person who fails or refuses to apply for a findingof suitability or a license within thirty days after being ordered to do so bythe Nevada Commission or the Chairman of the Nevada Board may be foundunsuitable. The same restrictions apply to a record owner if the record owner,after request, fails to identify the beneficial owner. Any stockholder who isfound unsuitable and who holds, directly or indirectly, any beneficialownership of the common stock of a Registered Corporation beyond such period oftime as may be prescribed by the Nevada Commission may be guilty of a criminaloffense. We are subject to disciplinary action if, after we receive notice thata person is unsuitable to be a stockholder or to have any other relationshipwith us or our Gaming Subsidiaries, we (i) pay that person any dividend orinterest upon our voting securities, (ii) allow that person to exercise,directly or indirectly, any voting right conferred through securities held bythat person, (iii) pay remuneration in any form to that person forservices rendered or otherwise, or (iv) fail to pursue all lawful effortsto require such unsuitable person to relinquish his voting securitiesincluding, if necessary, the immediate purchase of said voting securities forcash at fair market value. Additionally, the Clark County Board has theauthority to approve all persons owning or controlling the stock of anycorporation controlling a gaming licensee.

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The Nevada Commission may, in its discretion, requirethe holder of any debt security of a Registered Corporation to fileapplications, be investigated and be found suitable to own the debt security ofa Registered Corporation if the Nevada Commission has reason to believe thatsuch ownership would otherwise be inconsistent with the declared policies ofthe State of Nevada. If the Nevada Commission determines that a person isunsuitable to own such security, then pursuant to the Nevada Act, theRegistered Corporation can be sanctioned, including the loss of its approvals,if without the prior approval of the Nevada Commission, it: (i) pays tothe unsuitable person any dividend, interest, or any distribution whatsoever; (ii) recognizesany voting right by such unsuitable person in connection with such securities; (iii) paysthe unsuitable person remuneration in any form; or (iv) makes any paymentto the unsuitable person by way of principal, redemption, conversion, exchange,liquidation or similar transaction.

We are required to maintain a current stock ledger inNevada, which may be examined by the Nevada Gaming Authorities at any time. If anysecurities are held in trust by an agent or by a nominee, the record holder maybe required to disclose the identity of the beneficial owner to the NevadaGaming Authorities. Failure to make such disclosure may be grounds for findingthe record holder unsuitable. We are also required to render maximum assistancein determining the identity of the beneficial owner. The Nevada Commission hasthe power to require our stock certificates to bear a legend indicating thatthe securities are subject to the Nevada Act. However, to date, the NevadaCommission has not imposed such a requirement on us.

We may not make a public offering of our securitieswithout the prior approval of the Nevada Commission if the securities orproceeds therefrom are intended to be used to construct, acquire or financegaming facilities in Nevada, or to retire or extend obligations incurred forsuch purposes. On May 19, 2005, the Nevada Commission granted usprior approval to make public offerings for a period of two years, subject to certainconditions (“Shelf Approval”). The Shelf Approval may be rescinded for goodcause without prior notice upon the issuance of an interlocutory stop order bythe Chairman of the Nevada Board and must be renewed at the end of the two-yearapproval period. The Shelf Approval also applies to any affiliated companywholly owned by Station (an “Affiliate”), which is a publicly tradedcorporation or would thereby become a publicly traded corporation pursuant to apublic offering. The Shelf Approval includes approval for us to placerestrictions upon the transfer of, and to enter into agreements not to encumberthe equity securities of the Gaming Subsidiaries, as applicable, in conjunctionwith public offerings made under the Shelf Approval, and also includes approvalfor the Gaming Subsidiaries to guarantee any security issued by, or tohypothecate 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 notconstitute a finding, recommendation or approval by the Nevada Commission orthe Nevada Board as to the accuracy or adequacy of the prospectus or theinvestment merits of the securities offered. Any representation to the contraryis unlawful.

Changes in control of the Company through merger,consolidation, stock or asset acquisitions, management or consultingagreements, or any act or conduct by a person whereby such person obtainscontrol, may not occur without the prior approval of the Nevada Commission. Entitiesseeking to acquire control of a Registered Corporation must satisfy the NevadaBoard and the Nevada Commission that they meet a variety of stringent standardsprior to assuming control of such Registered Corporation. The Nevada Commissionmay also require controlling stockholders, officers, directors and otherpersons having a material relationship or involvement with the entity proposingto acquire control, to be investigated and licensed as part of the approvalprocess relating to the transaction.

The Nevada legislature has declared that somecorporate acquisitions opposed by management, repurchases of voting securitiesand corporate defense tactics affecting Nevada corporate gaming licensees, andRegistered Corporations that are affiliated with those operations, may beinjurious to stable and productive corporate gaming. The Nevada Commission hasestablished a regulatory scheme to ameliorate the potentially adverse effectsof these business practices upon Nevada’s gaming industry and to further 

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Nevada’s policy to: (i) assurethe financial stability 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. Approvalsare, in certain circumstances, required from the Nevada Commission before aRegistered Corporation can make exceptional repurchases of voting securitiesabove the current market price thereof and before a corporate acquisitionopposed by management can be consummated. The Nevada Act also requires priorapproval of a plan of re-capitalization proposed by the Registered Corporation’sBoard of Directors in response to a tender offer made directly to theRegistered Corporation’s stockholders for the purpose of acquiring control ofthe Registered Corporation.

License fees and taxes, computed in various waysdepending on the type of gaming or activity involved, are payable to the Stateof Nevada and to the counties and cities in which the Nevada licensee’srespective operations are conducted. Depending upon the particular fee or taxinvolved, these fees and taxes are payable either monthly, quarterly orannually and are based upon either: (i) a percentage of the gross revenuesreceived; (ii) the number of gaming devices operated; or (iii) thenumber of table games operated. A live entertainment tax is also paid by casinooperations where entertainment is furnished in connection with admission charges,the serving or selling of food or refreshments or the selling of anymerchandise. Nevada licensees that hold a license as an operator of a slotroute, or manufacturer’s or distributor’s license also pay certain fees andtaxes 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.

*Nevada LiquorRegulations*

The sale of alcoholicbeverages at Palace Station, Wildfire and Santa Fe Station is subject tolicensing control and regulation by the City of Las Vegas. Boulder Station andWild Wild West are subject to liquor licensing control and regulation by theClark County Board. Texas Station and Fiesta Rancho are subject to liquorlicensing control and regulation by the City of North Las Vegas. SunsetStation, Green Valley Ranch, Fiesta Henderson, Barley’s, Gold Rush, Magic Starand The Greens are subject to liquor licensing control and regulation by theCity of Henderson. All liquor licenses are revocable and are not transferable.The agencies involved have full power to limit, condition, suspend or revokeany such license, and any such disciplinary action could (and revocation would)have a material adverse effect on the operations of the Gaming Subsidiaries.

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**Weare subject to Native American gaming regulations which could have an adverseeffect on our business.**

The terms and conditions of management contracts andthe operation of casinos and all gaming on land held in trust for NativeAmerican tribes in the United States are subject to the Indian GamingRegulatory Act of 1988 (“IGRA”), which is administered by the National IndianGaming Commission (“NIGC”) and the gaming regulatory agencies of tribalgovernments. IGRA is subject to interpretation by the NIGC and may be subjectto judicial and legislative clarification or amendment.

IGRA established three separate classes of tribalgaming-Class I, Class II and Class III. Class Iincludes all traditional or social games solely for prizes of minimal valueplayed 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 NIGC approval of management contractsfor Class II and Class III gaming as well as the review of all agreementscollateral to the management contracts. The management agreement relating tothe Company’s management of the casino owned by the UAIC was approved by theNIGC with respect to Thunder Valley in December 2002. The NIGC will notapprove a management contract if a director or a 10% shareholder of themanagement company: (i) is an elected member of the governing body of theIndian tribe which is the party to the management contract; (ii) has beenor 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 or resolution,or a trustee, exercising the skill due diligence that a trustee is commonlyheld to, would not approve the management contract. A management contract canbe approved only after the NIGC determines that the contract provides, amongother things, for: (i) adequate accounting procedures and verifiablefinancial 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 the NIGC is satisfied thatthe capital investment required, and the income projections for the particulargaming activity require the larger fee and longer term. There is no periodic orongoing review of approved contracts by the NIGC. The only post-approval actionthat could result in possible modification or cancellation of a contract wouldbe as the result of an enforcement action taken by the NIGC based on aviolation of the law or an issue affecting suitability.

IGRA prohibits all forms of Class III gamingunless the tribe has entered into a written agreement with the state thatspecifically authorizes the types of Class III gaming the tribe may offer(a “tribal-state compact”). These compacts provide, among other things,the manner and extent to which each state will conduct backgroundinvestigations and certify the suitability of the manager, its officers,directors, and key employees to conduct gaming on Native American lands. TheCompany has been licensed by the UAIC’s tribal gaming agency to manage ThunderValley.

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Title 25, Section 81 of the United States Codestates that “no agreement shall be made by any person with any tribe ofIndians, or individual Indians not citizens of the United States, for thepayment or delivery of any money or other thing of value... in consideration ofservices for said Indians relative to their lands... unless such contract oragreement be executed and approved” by the Secretary or his or her designee. Anagreement or contract for services relative to Native American lands whichfails to conform with the requirements of Section 81 is void andunenforceable. 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 nations withtheir own governmental systems, which have primary regulatory authority overgaming on land within the tribes’ jurisdiction. Therefore, persons engaged ingaming activities, including the Company, are subject to the provisions oftribal ordinances and regulations on gaming. These ordinances are subject toreview by the NIGC under certain standards established by IGRA. The NIGC maydetermine that some or all of the ordinances require amendment, and thatadditional requirements, including additional licensing requirements, may beimposed on us. We have received no such notification regarding Thunder Valley.The possession of valid licenses from the UAIC are ongoing conditions of ourmanagement agreement with that tribe.

Several bills have been introduced in Congress thatwould amend IGRA. While there have been a number of technical amendments toIGRA, to date there have been no material changes. Any amendment of IGRA couldchange the governmental structure and requirements within which Thunder Valleycould conduct gaming, and may have an adverse effect on our results ofoperations or impose additional regulatory or operational burdens.

*California GamingRegulations*

In California, licensing and registration requirementsfor tribal financing sources are governed by the compact, amended compact andby regulations adopted by the California Gambling Control Commission and theTribal Gaming Authority (the “TGA”).

The UAIC’S compact was set to expire on December 31,2020. The Amended Compact extended the term until December 31, 2030. UAIC’Scompact and amended compact require that any person who directly or indirectlyextends financing to the UAIC’S gaming facility or gaming operation must belicensed as a “financial source” by the TGA. However, as permitted by thecompact and amended compact, the TGA has the discretion to exempt federally andstate regulated banks, savings and loan associations and other federally andstate regulated lending institutions, entities identified by Regulation CGCC-2,subdivision (f) of the California Gambling Control Commission, as well aspersons who hold less than 10% of notes issued by the UAIC or a related entity.The Amended Compact further specifies that entities identified by RegulationCGCC-2, subdivision (h) of the California Gambling ControlCommission, and persons or entities whose sole connection with extendingfinancing to the UAIC is to provide loan brokerage or debt servicing for afinancial source at no cost to the UAIC or the Gaming Operation are notconsidered financial sources. For an applicant who is a non-exempted businessentity, these licensing provisions also apply to the entity’s officers,directors, principal management employees, owners (if an unincorporatedentity), partners and greater than 10% shareholders. Under the compact andamended compact, a permanent license cannot be issued unless the TGA hasconducted 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.

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Prior to receiving a license, an applicant must applyto the California Gambling Control Commission for a determination ofsuitability. The California Department of Justice, Division of Gambling Controlwill then conduct an investigation of the applicant following the guidelinesset forth in the California Gambling Control Act and will provide itssuitability recommendation to the California Gambling Control Commission. Ifthe TGA receives notice that the Commission has determined that a person isunsuitable, the compact requires that the TGA revoke any license it has issuedto such person.

The compact and amended compact state that anyagreement between the UAIC and a financial source terminates upon revocation ornon-renewal of the financial source’s license because of a determination ofunsuitability by the California Gambling Control Commission. Upon such atermination, UAIC’S only liability is for a bona fide repayment of alloutstanding sums (exclusive of interest) owed as of the termination 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 in gaming operations in anyother jurisdictions, such gaming operations will subject us and certain of ourofficers, directors, key employees, stockholders and other affiliates (“RegulatedPersons”) to strict legal and regulatory requirements, including mandatorylicensing and approval requirements, suitability requirements, and ongoingregulatory oversight with respect to such gaming operations. Such legal andregulatory requirements and oversight will be administered and exercised by therelevant regulatory agency or agencies in each jurisdiction (the “RegulatoryAuthorities”). The Company and the Regulated Persons will need to satisfy thelicensing, approval and suitability requirements of each jurisdiction in whichwe seek to become involved in gaming operations. These requirements vary fromjurisdiction to jurisdiction, but generally concern the responsibility,financial stability and character of the owners and managers of gamingoperations as well as persons financially interested or involved in gamingoperations. In general, the procedures for gaming licensing, approval and findingof suitability require Station and each Regulated Person to submit detailedpersonal history information and financial information to demonstrate that theproposed gaming operation has adequate financial resources generated fromsuitable sources and adequate procedures to comply with the operating controlsand requirements imposed by law and regulation in each jurisdiction, followedby a thorough investigation by such Regulatory Authorities. In general, Stationand each Regulated Person must pay the costs of such investigation. Anapplication for any gaming license, approval or finding of suitability may bedenied for any cause that the Regulatory Authorities deem reasonable. Onceobtained, licenses and approvals may be subject to periodic renewal and generallyare not transferable. The Regulatory Authorities may at any time revoke,suspend, condition, limit or restrict a license, approval or finding ofsuitability for any cause that they deem reasonable. Fines for violations maybe levied against the holder of a license or approval and in certainjurisdictions, gaming operation revenues can be forfeited to the state undercertain circumstances. There can be no assurance that we will obtain all of thenecessary licenses, approvals and findings of suitability or that our officers,directors, key employees, other affiliates and certain other stockholders willsatisfy the suitability requirements in one or more jurisdictions, or that suchlicenses, approvals and findings of suitability, if obtained, will not berevoked, limited, suspended or 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.

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**Factorsaffecting the economy and consumer confidence may harm our operating results.**

Our properties draw a substantial number of customersfrom the Las Vegas valley, as well as certain geographic areas, includingSouthern California, Arizona and Utah. Adverse economic conditions in any ofthese regions could have a significant adverse effect on our business,financial condition and results of operations. Since all of our properties arelocated in the Las Vegas valley or Northern California, any terroristactivities or disasters in or around Southern Nevada or Northern Californiacould have a significant adverse effect on our business, financial conditionand results of operations.

Our properties usesignificant amounts of electricity, natural gas and other forms of energy. Whileno shortages of energy have been experienced, the substantial increases in thecost of electricity, natural gas and gasoline in the United States have and maycontinue to negatively affect our operating results. In addition, energy priceincreases in the regions that constitute a significant source of customers forour properties could result in a decline in disposable income of potentialcustomers and a corresponding decrease in visitation and spending at ourproperties, which could negatively impact revenues.

**Wedepend on key markets and may not be able to continue to attract a sufficientnumber of guests and gaming customers in Nevada to make our operationsprofitable.**

Our operating strategyemphasizes attracting and retaining customers from the Las Vegas local andrepeat visitor market. All of our owned casino properties are dependent uponattracting Las Vegas residents. We cannot be sure that we will be able tocontinue to attract a sufficient number of guests, gaming customers and othervisitors in Nevada to make our operations profitable. In addition, ouroperating strategy, including the master-planning of our casinos for futureexpansion, has been developed, in part, based on expected population growth inLas Vegas. There can be no assurance that growth will continue in Las Vegas orthat we will be able to successfully adapt to any downturn.

**Wemay incur losses that are not adequately covered by insurance which may harmour results of operations.**

Although we maintaininsurance customary and appropriate for our business, we cannot assure you thatinsurance will be available or adequate to cover all loss and damage to whichour business or our assets might be subjected. The lack of adequate insurancefor certain types or levels of risk could expose us to significant losses inthe event that a catastrophe occurred for which we are underinsured. Any losseswe incur that are not adequately covered by insurance may decrease our futureoperating income, require us to find replacements or repairs for destroyedproperty and reduce the funds available for payments of our obligations.

**Factorsaffecting tax laws could have an adverse effect on our business.**

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 concluded their 2005 session and there were no increases in taxesaffecting the gaming industry. The Nevada Legislature does not meet again until2007.

**ITEM 1B. UNRESOLVED STAFF COMMENTS**

None.

**ITEM 2. PROPERTIES**

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

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Palace Station is situated on approximately 38 acres thatwe own located on the west side of Las Vegas, Nevada.

Boulder Station is situated on approximately 46 acreslocated on the east side of Las Vegas, Nevada. We own 19 acres and lease theremaining 27 acres from KB Enterprises, a company owned by Frank J. Fertitta, Jr.and Victoria K. Fertitta (the “Related Lessor”), the parents of Frank J.Fertitta III, Chairman of the Board and Chief Executive Officer of the Companyand Lorenzo J. Fertitta, Vice Chairman and President of the Company. The leasehas a maximum term of 65 years, ending in June 2058. The leaseprovides 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 situated on approximately 47 acreslocated in North Las Vegas, Nevada. We lease this land from Texas Gambling Hall &Hotel, Inc., a company owned by the Related Lessor. The lease has amaximum term of 65 years, ending in July 2060. The lease provides formonthly rental payments of $337,417 through June 2010. 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 July 2015, and every ten yearsthereafter, the rent will be adjusted by a cost of living factor. In no event willthe rent for any period be less than the immediately preceding period. Pursuantto the ground lease, we have an option, exercisable at five-year intervals withthe next option in May 2010, to purchase the land at fair market value. Webelieve that the terms of the ground lease are as fair to us as could beobtained from an independent third party.

Sunset Station is situated on approximately 82 acresthat we own located in Henderson, Nevada.

Santa Fe Station is situated on approximately 38 acresthat we own located on the northwest side of Las Vegas, Nevada.

Green Valley Ranch, a 50% owned joint venture, issituated on approximately 40 acres in Henderson, Nevada that is owned by thejoint venture.

Fiesta Rancho is situated on approximately 25 acresthat we own in North Las Vegas, Nevada.

Fiesta Henderson is situated on approximately 46 acresthat we own in Henderson, Nevada.

We have acquired or are under contract to acquireapproximately 67 acres of land on which Wild Wild West is located and thesurrounding area of which, approximately 48 acres had been acquired as of December 31,2005. We exercised our option to purchase the 19-acre parcel of leasedland on which Wild Wild West is located which was to occur in July 2005. InJuly 2005, we entered into an agreement to extend the date for the closeof escrow to no later than January 2007, provided that either party mayaccelerate the close of escrow to an earlier date upon 90 days’ prior writtennotice to the other party.

We currently own or leasesix sites, which have been acquired for potential gaming projects, consistingof 210 acres in the Las Vegas valley, 188 acres in Sacramento, California nearThunder Valley and 104 acres in Reno, Nevada.

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**ITEM 3. LEGAL PROCEEDINGS**

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.

*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 its subsidiaries are liable forunspecified actual and punitive damages, and they seek injunctive and otherrelief, based on allegations that the Company’s “Boarding Pass 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 ofU.S. Patent No. 5,761,647, (2) a Motion for Partial Summary Judgmentof Infringement 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 declared invalid, anddismissed without prejudice the Company’s counterclaims for declaratoryjudgment of noninfringement and invalidity.

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On September 13, 2004, Harrah’s filed a Notice ofAppeal with the United States Court of Appeals for the Federal Circuit. On October 14,2004, the Company filed a Notice of Cross Appeal with the Federal Circuit. On November 14,2005, the Federal Circuit affirmed the decision of the District Court grantingthe Company’s motion for summary judgment on Harrah’s claims that the Companyhad infringed upon the above-referenced patents.

This ruling by the FederalCourt affirming the District Court’s decision resolves in the Company’s favorall of the remaining patent infringement issues in the lawsuit brought byHarrah’s against the Company. While Harrah’s has limited rights to appeal thedecision, and while no assurances can be made with respect to any litigation,the Company believes that the plaintiffs’ claims are without merit and does notexpect that the lawsuit will have a material adverse effect on its financialposition or results of operations.

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

There were no matters submitted to a vote of securityholders during the fourth quarter of 2005.

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**PART II**

**ITEM5.  MARKET FOR REGISTRANT’S COMMON EQUITY,RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES**

***Market Information***

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,  2005** |       |     |       |    |       |
| First Quarter                           |       | $        | 71.22      |    | $          | 53.10 |   |
| Second Quarter                          |       | 70.75    |       | 58.99   |       |
| Third Quarter                           |       | 75.07    |       | 60.68   |       |
| Fourth Quarter                          |       | 70.95    |       | 61.43   |       |
| **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   |       |

 

***Holders***

As of January 31,2006, there were 559 holders of record of our common stock and the closingprice of our common stock was $66.85.

***Dividends***

During the year ended December 31, 2005, we paida quarterly cash dividend of $0.21 per share to shareholders of record on February 11,2005 and May 13, 2005 and $0.25 per share to shareholders of record on August 12,2005 and November 11, 2005. The total amount paid in dividends for 2005was $62.6 million.

During the year ended December 31, 2004, we paida quarterly cash dividend of $0.125 per share to shareholders of record on February 12,2004, $0.175 per share to shareholders of record on May 14, 2004 and August 13,2004 and $0.21 per share to shareholders of record on November 12, 2004. Thetotal amount paid in dividends for 2004 was $44.3 million.

On March 3, 2006, we paida quarterly cash dividend of $0.25 per share to shareholders of record on February 10,2006. The payment of dividends in the future will be at the discretion of ourBoard 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”).

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***Securities Authorized for Issuance Under EquityCompensation Plans***

Thefollowing table lists all equity compensation plans that provide for the awardof our securities or the grant of options as of December 31, 2005:

| **Plan category**                                  | ** ** | ** ** | ** ** | **Number of securities  to be issued upon  exercise of  outstanding options (a)** | ** ** | **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     |       |       | 2,314,182  |                                                                                                                      |       |                                                                        | $          | 12.12                                                                                                                                   |       |   |   | 3,648,692 |   |   |
| Equity  compensation plans not approved by shareholders |       |       | —     |                                                                                                                      |       |                                                                        | —     |                                                                                                                                    |       |   | — |   |   |
| Total                                                   |       |       | 2,314,182  |                                                                                                                      |       |                                                                        | $          | 12.12                                                                                                                                   |       |   |   | 3,648,692 |   |   |

 

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(a)           Thisamount excludes restricted stock awards issued. In addition to the above, wehave 2,124,594 shares of unvested restricted stock awards outstanding underequity compensation plans approved by shareholders.

***Issuers Purchases of Equity Securities***

Thetable below sets forth the information with respect to purchases made by or onbehalf of the Company of its common stock during the three months ended December 31,2005 (unaudited):

| **Period**                  | ** ** | ** ** | ** ** | **Total number  of shares  purchased (b)** | ** ** | **Average price  paid per  share** | ** ** | **Total number of  shares purchased as  part of publicly  announced plans or  programs** | ** ** | **Maximum  number of  shares that may  yet be purchased  under the plans  or programs (c)** | ** ** |
|-----------------------------|------------|------------|------------|-----------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------|------------|
| October 1 - 31,  2005  |       |       | 158        |                                                      |       |                                         | $          | 63.68                                                                                                                            |       |                                                                                                                                     |       | — |   |   |   | 10,369,634 |   |   |
| November 1 -  30, 2005 |       |       | 221,400    |                                                      |       |                                         | $          | 62.11                                                                                                                            |       |                                                                                                                                     |       | 221,400 |   |   |   | 10,148,234 |   |   |
| December 1 -  31, 2005 |       |       | 67,536     |                                                      |       |                                         | $          | 65.21                                                                                                                            |       |                                                                                                                                     |       | — |   |   |   | 10,148,234 |   |   |
| Total                       |       |       | 289,094    |                                                      |       |                                         | $          | 62.84                                                                                                                            |       |                                                                                                                                     |       | 221,400 |   |   |   | 10,148,234 |   |   |

 

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(b)          The shares purchased bythe Company during the three months ended December 31, 2005,consisted of 67,694 restricted shares withheld to offset tax withholdingobligations that occur upon vesting of the restricted shares.

(c)    OnJuly 27, 2001, the Board of Directors authorized the Company to repurchaseup to 10 million shares of its common stock, in addition to 9,482,483 sharespreviously authorized for repurchase, under a share repurchase program. As ofDecember 31, 2005, approximately 10.1 million shares of its common stockremained available for repurchase.

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**ITEM 6. SELECTED FINANCIAL DATA**

Theselected consolidated financial data presented below as of and for our fiscalyears ended December 31, 2005, 2004, 2003, 2002 and 2001 have been derivedfrom our consolidated financial statements which, except for 2002 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 ConsolidatedFinancial Statements, the notes thereto and other financial and statisticalinformation included elsewhere in this Annual Report on Form 10-K.

| ** **                                                                          | ** ** | **For the years ended December 31,**                   | ** ** |
|-------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                                                                          | ** ** | **2005**                                                                        | ** ** | **2004(a)** | ** ** | **2003(b)** | ** ** | **2002** | ** ** | **2001(c)** | ** ** |
| ** **                                                                          | ** ** | **(amounts in thousands, except per share data)** | ** ** |
| **Operating Results:**                                                              |       |                                                                            |       |   |   |   |   |   |   |   |   |
| Net revenues                                                                        |       | $                                                                               | 1,108,833  |   | $ | 986,742 |   | $ | 858,089 |   | $ | 792,865 |   | $ | 836,857 |   |
| Operating costs  and expenses, excluding the following items                        |       | 769,011                                                                         |       | 718,156 |   | 655,844 |   | 638,164 |   | 689,770 |   |
| Development (d)                                                                     |       | 8,747                                                                           |       | 10,683 |   | 4,306 |   | — |   | — |   |
| Preopening (e)                                                                      |       | 6,560                                                                           |       | 848 |   | — |   | — |   | 6,413 |   |
| Lease  terminations (f)                                                             |       | 14,654                                                                          |       | — |   | — |   | — |   | — |   |
| Impairment loss  (g)                                                                |       | —                                                                          |       | — |   | 18,868 |   | 8,791 |   | 4,001 |   |
| Litigation  settlement (h)                                                          |       | —                                                                          |       | — |   | 38,000 |   | — |   | — |   |
| Gain on sale of  properties (i)                                                     |       | —                                                                          |       | — |   | — |   | — |   | (1,662 | ) |
| Operating income                                                                    |       | 309,861                                                                         |       | 257,055 |   | 141,071 |   | 145,910 |   | 138,335 |   |
| Earnings from  joint ventures                                                       |       | 38,885                                                                          |       | 26,524 |   | 20,604 |   | 11,293 |   | 2,504 |   |
| Operating income  and earnings from joint ventures                                  |       | 348,746                                                                         |       | 283,579 |   | 161,675 |   | 157,203 |   | 140,839 |   |
| Other expense                                                                       |       | (92,519                                                                         | )          | (178,350 | ) | (93,498 | ) | (107,447 | ) | (110,376 | ) |
| Income before  income taxes and cumulative effect of change in accounting principle |       | 256,227                                                                         |       | 105,229 |   | 68,177 |   | 49,756 |   | 30,463 |   |
| Income tax  provision                                                               |       | (94,341                                                                         | )          | (38,879 | ) | (23,834 | ) | (18,508 | ) | (11,094 | ) |
| Cumulative effect  of change in accounting principle (j)                            |       | —                                                                          |       | — |   | — |   | (13,316 | ) | — |   |
| Net income  applicable to common stock                                              |       | $                                                                               | 161,886    |   | $ | 66,350 |   | $ | 44,343 |   | $ | 17,932 |   | $ | 19,369 |   |
| Basic earning per  common share                                                     |       | $                                                                               | 2.46       |   | $ | 1.03 |   | $ | 0.76 |   | $ | 0.31 |   | $ | 0.34 |   |
| Diluted earnings  per common share                                                  |       | $                                                                               | 2.40       |   | $ | 1.00 |   | $ | 0.72 |   | $ | 0.30 |   | $ | 0.32 |   |
| Dividends paid  per common share                                                    |       | $                                                                               | 0.92       |   | $ | 0.69 |   | $ | 0.25 |   | $ | — |   | $ | — |   |
| **Balance  Sheet Data:**                                                            |       |                                                                            |       |   |   |   |   |   |   |   |   |
| Total assets                                                                        |       | $                                                                               | 2,929,043  |   | $ | 2,045,584 |   | $ | 1,745,972 |   | $ | 1,598,347 |   | $ | 1,656,122 |   |
| Long-term  debt                                                                     |       | 1,944,328                                                                       |       | 1,338,213 |   | 1,168,957 |   | 1,165,722 |   | 1,237,090 |   |
| Stockholders’ equity                                                           |       | 630,814                                                                         |       | 488,921 |   | 339,939 |   | 270,678 |   | 248,904 |   |

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

(b)          On January 27,2003, we purchased Wildfire. We opened Thunder Valley on June 9, 2003,which we manage on behalf of the UAIC (see Note 6 to the ConsolidatedFinancial Statements in this Annual Report on Form 10-K).

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(c)           On January 4,2001, we purchased Fiesta Rancho. On January 30, 2001, we purchased FiestaHenderson. On September 30, 2001, we sold our slot route managementservices subsidiary, Southwest Gaming Services, Inc. On December 18,2001, we opened Green Valley Ranch.

(d)          During the last half of 2003,we increased our development resources in an effort to identify potentialgaming opportunities. Development expenses include costs to identify potentialgaming opportunities, the internal costs incurred to bring the Native Americanprojects currently under contract to fruition and other developmentopportunities, which include payroll, travel and legal expenses. Also includedin development expense for 2004 is a $2.0 million non-reimbursable milestonepayment related to the Gun Lake project in Michigan. During 2003, $2.0 millionof costs related to the Graton Rancheria project were expensed after achievingcertain milestones on the project and are also not reimbursable (seeNote 10 to the Consolidated Financial Statements in this Annual Report on Form 10-K).

(e)           Preopening expenses forthe years ended December 31, 2005 and 2004 include costs primarily relatedto the opening of Red Rock (see Note 10 to the Consolidated FinancialStatements in this Annual Report on Form 10-K). Preopening expensesfor the year ended December 31, 2001 include costs incurred prior to theacquisitions of Fiesta Rancho and Fiesta Henderson and costs incurred prior tothe opening of Green Valley Ranch.

(f)             During the year endedDecember 31, 2005, we recorded approximately $14.7 million toterminate various leases primarily related to land adjacent to the current WildWild West property.

(g)           During the year ended December 31,2003, we recorded an impairment loss of approximately $18.9 million, ofwhich approximately $17.5 million was related to the impairment ofgoodwill at Fiesta Rancho as a result of reduced growth assumptions. Inaddition, approximately $1.4 million of the impairment loss in 2003 wasprimarily related to the write off of our investment in the development of a newslot product (see Note 7 to the Consolidated Financial Statements in thisAnnual 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. During the year ended December 31,2001, we recorded an impairment loss of approximately $4.0 million relatedto a 34-acre parcel, near the intersection of Martin Luther King Jr.Drive and Craig Road in North Las Vegas.

(h)          On February 9,2004, we entered into an agreement to settle a lawsuit that centered onallegations of improper conduct by our former Missouri legal counsel for$38 million.

(i)             During the year endedDecember 31, 2001, we sold Southwest Gaming Services, Inc., a whollyowned subsidiary, to Blake L. Sartini, our former executive vice-president andchief operating officer, and recorded a gain on the sale of approximately$1.7 million.

(j)              The FinancialAccounting Standards Board issued Statement of Financial Accounting Standards (“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 upon the adoption of SFAS No. 142.We implemented SFAS No. 142 on January 1, 2002 and tested forimpairment in accordance with the provisions of SFAS No. 142 in the firstquarter of 2002. As a result of an independent third party appraisal, werecorded an impairment loss of $13.3 million, net of the applicable taxbenefit, related to Fiesta Rancho, which is shown as a cumulative effect of achange in accounting principle in our consolidated statements of operations.

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**ITEM7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

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 of Operations**

Thefollowing table highlights the results of our operations (dollars inthousands):

| ** **                              | ** ** | **Year ended  December 31,  2005** | ** ** | **Percent  change** | ** ** | **Year ended  December 31,  2004** | ** ** | **Percent  change** | ** ** | **Year ended  December 31,  2003** | ** ** |
|-----------------------------------------|------------|----------------------------------------------|------------|---------------------|------------|----------------------------------------------|------------|---------------------|------------|----------------------------------------------|------------|
| **Net  revenues—total**            |       |                                         | $          | 1,108,833           |       |                                         | 12.4       | %                   |       | $                                            | 986,742    |   |   |   | 15.0 | % |   |   | $ | 858,089 |   |   |
| Major Las Vegas Operations (a)     |       |                                         | 968,017    |                |       | 11.5                                         | %          |                | 868,248    |                                         |       |   | 11.2 | % |   |   | 781,061 |   |   |
| Management fees (b)                |       |                                         | 95,144     |                |       | 12.4                                         | %          |                | 84,618     |                                         |       |   | 81.2 | % |   |   | 46,711 |   |   |
| Other Operations and Corporate (c) |       |                                         | 45,672     |                |       | 34.8                                         | %          |                | 33,876     |                                         |       |   | 11.7 | % |   |   | 30,317 |   |   |
| **Operating income (loss)—total**  |       |                                         | $          | 309,861             |       |                                         | 20.5       | %                   |       | $                                            | 257,055    |   |   |   | 82.2 | % |   |   | $ | 141,071 |   |   |
| Major Las Vegas Operations (a)     |       |                                         | 303,183    |                |       | 30.3                                         | %          |                | 232,678    |                                         |       |   | 36.4 | % |   |   | 170,566 |   |   |
| Management fees (b)                |       |                                         | 95,144     |                |       | 12.4                                         | %          |                | 84,618     |                                         |       |   | 81.2 | % |   |   | 46,711 |   |   |
| Other Operations and Corporate (c) |       |                                         | (88,466    | )                   |       | (46.9                                        | )%         |                | (60,241    | )                                            |       |   | 20.9 | % |   |   | (76,206 | ) |   |
| **Cash  flows provided by (used in):**  |       |                                         |       |                |       |                                         |       |                |       |                                         |       |   |   |   |   |   |   |   |   |
| Operating activities                    |       |                                         | $          | 378,154             |       |                                         | 44.1       | %                   |       | $                                            | 262,516    |   |   |   | 32.7 | % |   |   | $ | 197,775 |   |   |
| Investing activities                    |       |                                         | (886,590   | )                   |       | (162.3                                       | )%         |                | (338,034   | )                                            |       |   | (82.1 | )% |   |   | (185,641 | ) |   |
| Financing  activities                   |       |                                         | 525,571    |                |       | 543.6                                        | %          |                | 81,663     |                                         |       |   | 987.5 | % |   |   | (9,201 | ) |   |

 

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(a)           Includes the whollyowned properties of Palace Station, Boulder Station, Texas Station, SunsetStation, Santa Fe Station, Fiesta Rancho and Fiesta Henderson.

(b)          Includes management feesfrom Thunder Valley (since June 9, 2003), Green Valley Ranch, Barley’s andThe Greens (since December 17, 2005).

(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 revenues for the year ended December 31,2005 increased 12.4% to $1.1 billion as compared to $986.7 millionfor the year ended December 31, 2004. Year over year net revenuesincreased primarily due to the continued strength of the Las Vegas localeconomy, continued population and employment growth in the Las Vegas valley, nonew competition in the local’s market until the latter part of December, aswell as the continued success of our Jumbo brand products, including JumboJackpot. Jumbo Jackpot, which we introduced in April 2003, is an exclusiveprogressive slot jackpot that allows customers using a Boarding Pass or AmigoClub card the opportunity to win between $100,000 and $150,000 just for playingslot machines.

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 included a full year of operations.

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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,** | ** ** |
|--------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                             | ** ** | **2005**                                    | ** ** | **2004** | ** ** | **2003** | ** ** |
| Operating income                                       |       | $                                           | 309,861    |   | $ | 257,055 |   | $ | 141,071 |   |
| *Operating margin*                                     |       | 27.9                                        | %          | 26.1 | % | 16.4 | % |
| Certain charges/credits:                               |       |                                        |       |   |   |   |   |
| Preopening expense                                     |       | 6,560                                       |       | 848 |   | — |   |
| Lease terminations                                     |       | 14,654                                      |       | — |   | — |   |
| Thunder Valley development fee                         |       | —                                      |       | — |   | (4,595 | ) |
| Impairment loss                                        |       | —                                      |       | — |   | 18,868 |   |
| Litigation settlement                                  |       | —                                      |       | — |   | 38,000 |   |
| Operating income,  excluding certain charges/credits   |       | $                                           | 331,075    |   | $ | 257,903 |   | $ | 193,344 |   |
| *Operating  margin, excluding certain charges/credits* |       | 29.9                                        | %          | 26.1 | % | 22.5 | % |

 

Consolidated operating income, excluding certaincharges/credits, increased 28.4% in the year ended December 31, 2005 ascompared to the year ended December 31, 2004 and 33.4% in the year ended December 31,2004 as compared to the year ended December 31, 2003. The increase isprimarily due to increased consolidated net revenues noted above. There issignificant operating leverage on incremental revenue due to a significantamount of fixed costs. As a result, our consolidated operating margin,excluding certain charges/credits, improved 3.8 percentage points in theyear ended December 31, 2005 as compared to the year ended December 31,2004 and 3.6 percentage points in the year ended December 31, 2004 ascompared to the year ended December 31, 2003.

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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,  2005** | ** ** | **Percent  change** | ** ** | **Year ended  December 31,  2004** | ** ** | **Percent  change** | ** ** | **Year ended  December 31,  2003** | ** ** |
|----------------------------------------------|------------|----------------------------------------------|------------|---------------------|------------|----------------------------------------------|------------|---------------------|------------|----------------------------------------------|------------|
| Casino revenues                              |       |                                         | $          | 825,995             | * *   |                                         |       | 13.1                | %          |                                         |       | $ | 730,584 | * * |   |   | 12.6 | % |   |   | $ | 648,664 | * * |   |
| Casino expenses                              |       |                                         | 286,503    | * *            |       |                                         | 4.6        | %                   |       |                                         | 273,816    | * * |   |   | 3.2 | % |   |   | 265,203 | * * |   |
| *Margin*                                     | * *   | * *                                     | *65.3*     | *%*                 |       |                                         |       |                | * *   | * *                                     | *62.5*     | *%* |   |   |   |   | * * | * * | *59.1* | *%* |   |
| Food and beverage revenues                   |       |                                         | $          | 146,774             | * *   |                                         |       | 4.6                 | %          |                                         |       | $ | 140,332 | * * |   |   | 5.0 | % |   |   | $ | 133,676 | * * |   |
| Food and beverage  expenses                  |       |                                         | 102,970    | * *            |       |                                         | 2.4        | %                   |       |                                         | 100,548    | * * |   |   | 14.5 | % |   |   | 87,783 | * * |   |
| *Margin*                                     | * *   | * *                                     | *29.8*     | *%*                 |       |                                         |       |                | * *   | * *                                     | *28.4*     | *%* |   |   |   |   | * * | * * | *34.3* | *%* |   |
| Room revenues                           |       |                                         | $          | 61,238              | * *   |                                         |       | 7.3                 | %          |                                         |       | $ | 57,057 | * * |   |   | 13.1 | % |   |   | $ | 50,460 | * * |   |
| Room expenses                           |       |                                         | 21,094     | * *            |       |                                         | 0.2        | %                   |       |                                         | 21,053     | * * |   |   | 7.5 | % |   |   | 19,580 | * * |   |
| *Margin*                                     | * *   | * *                                     | *65.6*     | *%*                 |       |                                         |       |                | * *   | * *                                     | *63.1*     | *%* |   |   |   |   | * * | * * | *61.2* | *%* |   |
| Other revenues                               |       |                                         | $          | 52,550              | * *   |                                         |       | 25.1                | %          |                                         |       | $ | 42,008 | * * |   |   | (8.6 | )% |   |   | $ | 45,943 | * * |   |
| Other expenses                               |       |                                         | 17,799     | * *            |       |                                         | 5.8        | %                   |       |                                         | 16,820     | * * |   |   | 8.9 | % |   |   | 15,452 | * * |   |
| Selling, general and administrative expenses |       |                                         | $          | 181,670             | * *   |                                         |       | 5.1                 | %          |                                         |       | $ | 172,923 | * * |   |   | 7.0 | % |   |   | $ | 161,643 | * * |   |
| *Percent of net revenues*                    | * *   | * *                                     | *16.4*     | *%*                 |       |                                         |       |                | * *   | * *                                     | *17.5*     | *%* |   |   |   |   | * * | * * | *18.8* | *%* |   |
| Corporate expense                            |       |                                         | $          | 57,619              | * *   |                                         |       | 22.1                | %          |                                         |       | $ | 47,189 | * * |   |   | 42.8 | % |   |   | $ | 33,039 | * * |   |
| *Percent of net revenues*                    | * *   | * *                                     | *5.2*      | *%*                 |       |                                         |       |                | * *   | * *                                     | *4.8*      | *%* |   |   |   |   | * * | * * | *3.9* | *%* |   |
| Earnings from  joint ventures                |       |                                         | $          | 38,885              | * *   |                                         |       | 46.6                | %          |                                         |       | $ | 26,524 | * * |   |   | 28.7 | % |   |   | $ | 20,604 | * * |   |

 

*Casino.  *Casinorevenues increased 13.1% for the year ended December 31, 2005 as comparedto the year ended December 31, 2004 and increased 12.6% for the year endedDecember 31, 2004 as compared to the year ended December 31, 2003,due to the same factors affecting our consolidating net revenues noted above.Casino expenses increased 4.6% and 3.2% over the same periods due to increasedpromotional and marketing expenses related to our Jumbo brand products in 2005and an increase in gaming taxes as a result of the higher casino revenue in2005 and 2004. There is also significant operating leverage on incrementalgaming revenue due to a significant amount of fixed costs in the casinodepartment and, as a result, the casino profit margin increased by 2.8 percentagepoints for the year ended December 31, 2005 as compared to the year ended December 31,2004 and by 3.4 percentage points for the year ended December 31, 2004 ascompared to December 31, 2003.

*Food and Beverage.  *Foodand beverage revenues increased 4.6% for the year ended December 31, 2005as compared to the year ended December 31, 2004, due to selected menuprice increases, as well as enhancements at Santa Fe Station with the expansionof the café in 2004 and the acquisitions of Magic Star and Gold Rush which wasoffset slightly by the temporary closure of the Sunset Station buffet forremodeling. Food covers decreased 2.2% for the year ended December 31,2005 as compared to the year ended December 31, 2004, primarily due to thetemporary closure of the Sunset Station buffet. The average guest checkincreased 5.5% for the year ended December 31, 2005 as compared to theyear ended December 31, 2004 as a result of increased menu prices. Foodand beverage expenses increased 2.4% for the year ended December 31, 2005as compared to the year ended December 31, 2004, resulting in an increasein the food and beverage net operating margin of 1.4 percentage points for thesame period. The increase in food and beverage expense is related to theacquisition of Magic Star and Gold Rush and increases in selected food costitems.

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 

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the café in March 2004 and upgrade of thesteakhouse in December 2003, in addition to an aggressive marketingprogram promoting the buffet. The average guest check increased 4.5% for theyear ended December 31, 2004 as compared to the year ended December 31,2003. Food covers remained virtually unchanged with a 0.4% increase for theyear ended December 31, 2004 as compared to the year ended December 31,2003. Food and beverage expenses increased 14.5% for the year ended December 31,2004 as compared to the year ended December 31, 2003, resulting in adecrease of the food and beverage net operating margin of 5.9 percentage pointsfor the same period. The increase in food and beverage expense is related toincreased payroll and related costs primarily due to rising benefit costs andincreases in cost of selected food items.

*Room.  *Room revenuesincreased 7.3% for the year ended December 31, 2005 as compared to theyear ended December 31, 2004 and 13.1% for the year ended December 31,2004 as compared to the year ended December 31, 2003. Room occupancywas 96% for the years ended December 31, 2005 and 2004, and 94% for theyear ended December 31, 2003. The average daily room rate increased to $61for the year ended December 31, 2005 from $56 for the year ended December 31,2004 and $50 for the year ended December 31, 2003, as a result ofcontinued increase in consumer demand for rooms in Las Vegas during 2005 and 2004.

*Other.  *Otherrevenues primarily include income from gift shops, bowling, entertainment,leased outlets and arcades. Other revenues increased 25.1% for the year ended December 31,2005 as compared to the year ended December 31, 2004. The increase in otherrevenues is primarily due to the opening of the bowling center at SunsetStation in April 2005 and the movie theater complex at Santa Fe Station inMay 2005.

Otherrevenues decreased 8.6% for the year ended December 31, 2004 as comparedto the year ended December 31, 2003. The decrease in other revenues isprimarily due to development fees received from Thunder Valley forapproximately $4.6 million during the year ended December 31, 2003.

*Management Fees.  *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 GreenValley Ranch, Barley’s and The Greens and receive a management fee equal to 2%of revenues and approximately 5% of Earnings Before Interest, Taxes,Depreciation and Amortization (“EBITDA”) from Green Valley Ranch and 10% ofEBITDA from Barley’s and The Greens. For the year ended December 31, 2005,management fees increased to approximately $95.1 million as compared to$84.6 million for the year ended December 31, 2004. The increase isdue to improved results at both Green Valley Ranch and Thunder Valley.

Forthe year ended December 31, 2004, management fees increased toapproximately $84.6 million as compared to $46.7 million for the yearended December 31, 2003. The increase is due to management fees fromThunder Valley, which includes a full year of operations, as well as improvedresults at Green Valley Ranch.

*Selling, General andAdministrative (“SG&A”).  *SG&A as apercentage of net revenues decreased to 16.4% in the year ended December 31,2005 as compared to 17.5% in the year ended December 31, 2004. A portionof these costs are fixed and, as a result, as revenues increased the percentageof SG&A to net revenues decreased. SG&A expenses increased by 5.1% to$181.7 million for the year ended December 31, 2005, from$172.9 million for the year ended December 31, 2004. The increase isattributable to increases in payroll and related expenses and repair and maintenancerelated expenses attributable to increased foot traffic.

SG&Aas a percentage of net revenues decreased to 17.5% in the year ended December 31,2004 as compared to 18.8% in the year ended December 31, 2003. A largeportion of these costs are fixed and, as a result, as revenues increased thepercentage of SG&A to net revenues decreased. SG&A expenses increasedby 7.0% to $172.9 million for the year ended December 31, 2004, from$161.6 million for the year ended December 31, 2003. The increase isattributable to a $8.3 million increase in payroll and related expenses,primarily related to benefits, a $1.1 million increase in accounting feesrelated to the new corporate governance rules mandated by theSarbanes-Oxley Act of 2002 and the net settlement of certain 

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litigation and the payment of a fine and investigativecosts related to violations of Nevada Gaming Commission Regulation 6A of$0.8 million.

*Corporate Expense.  *Corporateexpenses increased to approximately $57.6 million for the year ended December 31,2005 as compared to approximately $47.2 million for the year ended December 31,2004 and 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 incentivecompensation from a stock option based program to a program which includes cashand restricted stock. In addition, employer payroll taxes on stock optionexercises increased $2.8 million during the year ended December 31, 2004as compared to December 31, 2003. As a result, corporate expense as apercentage of net revenues increased to 5.2% in the year ended December 31,2005 as compared to 4.8% in the year ended December 31, 2004 and comparedto 3.9% in the year ended December 31, 2003.

*Development Expense.  *Developmentexpenses include costs to identify potential gaming opportunities, the internalcosts incurred to bring the Native American projects currently under contractto fruition and other development opportunities, which include payroll, traveland legal expenses. Development expenses for the years ended December 31,2005, 2004 and 2003 were $8.7 million, $10.7 million and $4.3 million,respectively. Also included in development expense for 2004 is a$2.0 million non-reimbursable milestone payment related to the Gun Lakeproject in Michigan. During 2003, $2.0 million of costs related to the GratonRancheria project were expensed after achieving certain milestones on theproject and are also not reimbursable (see “Future Development”).

*Depreciation andAmortization.  *Depreciation and amortizationincreased 18.1% to approximately $101.4 million for the year ended December 31,2005 as compared to $85.8 million for the year ended December 31,2004. This increase was due primarily to the addition of new ticket-in,ticket-out slot machines at a majority of the Major Las Vegas properties in2004, the completion of the ice arena at Fiesta Rancho during 2004, the openingof the Santa Fe Station phase II expansion which opened in phases beginning inthe latter part of 2004 and the addition of the bowling center at SunsetStation in April 2005.

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.

*Preopening Expense.  *Preopeningexpenses for the year ended December 31, 2005 and 2004 were approximately$6.6 million and $0.8 million, respectively, which include costs relatedto projects under development including Red Rock (see “Future Development”).

*Lease Terminations.  **During the year ended December 31,2005, we recorded approximately $14.7 million to terminate various leasesprimarily related to land adjacent to the current Wild Wild West property.*

*Impairment Loss.  *Werecorded an impairment loss of approximately $18.9 million in the yearended December 31, 2003 to adjust the carrying value of our goodwill andother assets to their estimated fair value. The impairment loss consisted ofthe write-off of approximately $17.5 million in goodwill at Fiesta Ranchoin accordance with Statement of Financial Accounting Standards No. 142(“SFAS No. 142”) as a result of reduced growth assumptions. The remaining$1.4 million was primarily related to the write-off of our investment in anew slot 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.

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*LitigationSettlement.  *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.

*EarningsFrom Joint Ventures.  *We own a 50% interest inGreen Valley Ranch, Barley’s and The Greens, and a 6.7% interest in a jointventure that owns the Palms Casino Resort. We recorded our share of theearnings from these joint ventures of $38.9 million, $26.5 millionand $20.6 million for the years ended December 31, 2005, 2004 and2003, respectively. The increase in earnings from joint ventures is primarilyrelated to improved results at Green Valley Ranch as a result of the completionof the recent expansion in December 2004.

*InterestExpense.  *Interest expense, net of capitalizedinterest, increased 4.6% to $80.5 million in the year ended December 31,2005 as compared to $76.9 million in the year ended December 31,2004. Gross interest expense increased approximately $18.9 million due toan increase in our long-term debt of approximately $605.6 million in the yearended December 31, 2005, and an increase in the weighted average cost ofdebt to 6.2% from 6.1% for the years ended December 31, 2005 and 2004,respectively. Capitalized interest increased approximately $15.3 millionfor the year ended December 31, 2005 primarily due to interest capitalizedfor the construction of Red Rock.

Interest expense, net of capitalized interest,decreased 17.2% to $76.9 million in the year ended December 31, 2004as compared to $92.9 million in the year ended December 31, 2003.Gross interest expense decreased approximately $12.5 million due to adecrease 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 interestincreased approximately $3.5 million for the year ended December 31,2004 primarily due to interest capitalized for the construction of Red Rock.

*Interestand Other Expense from Joint Ventures.  *For theyears ended December 31, 2005, 2004 and 2003, we recorded$6.9 million, $4.5 million and $7.2 million, respectively, ininterest and other expense related to our unconsolidated joint ventures. Theincrease during 2005 in interest and other expense from joint ventures is dueto higher debt balances as a result of the approximate 300 room additioncompleted at Green Valley Ranch in December 2004 and the current $110.0million phase III master-planned expansion. The decrease in interest and otherexpense from joint ventures during the year ended December 31, 2004, isprimarily due to the Company’s 50% share of capitalized interest recorded atGreen Valley Ranch of approximately $1.5 million.

*InterestIncome.  *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.

*Losson Early Retirement of Debt.  *During 2005, weredeemed the remaining $16.9 million of outstanding 83¤8% senior notesdue 2008 and the remaining $17.4 million of outstanding 97¤8% seniorsubordinated notes due 2010. As a result of these redemptions, we recorded aloss on early retirement of debt of approximately $1.3 million to reflect thewrite-off of the unamortized loan costs, unamortized discount and call premium.

During the first quarterof 2004, we refinanced substantially all of our senior and senior subordinatednotes. In connection with the refinancing, we completed tender offers andconsent solicitations for approximately $940.6 million of our senior and seniorsubordinated notes outstanding. As a result, we recorded a loss on earlyretirement of debt of approximately $93.3 million during the year ended 

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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.

**Liquidity and Capital Resources**

The following liquidity and capital resourcesdiscussion contains certain forward-looking statements with respect toour business, financial condition, results of operations, dispositions,acquisitions, expansion projects and our subsidiaries, which involve risks anduncertainties that cannot be predicted or quantified, and consequently, actualresults may differ materially from those expressed or implied herein. Suchrisks and uncertainties include, but are not limited to, financial marketrisks, the ability to maintain existing management, integration ofacquisitions, competition within the gaming industry, the cyclical nature ofthe hotel business and gaming business, economic conditions, regulatory mattersand litigation and other risks described in our filings with the Securities andExchange Commission. In addition, construction projects such as Red Rock andthe expansions at Green Valley Ranch, Santa Fe Station and Fiesta Hendersonentail significant risks, including shortages of materials or skilled labor,unforeseen regulatory problems, work stoppages, weather interference, floodsand unanticipated cost increases. The anticipated costs and constructionperiods are based on budgets, conceptual design documents and construction scheduleestimates. There can be no assurance that the budgeted costs or constructionperiod will be met. All forward-looking statements are based on ourcurrent expectations and projections about future events.

During the year ended December 31, 2005, we generatedcash flows from operating activities of $378.2 million. We issued $350.0million in additional senior subordinated notes, recognizing net proceeds of$358.3 million, while redeeming approximately $34.3 million of our existingsenior and senior subordinated notes (see “Description of Certain Indebtednessand Capital Stock—*Senior and Senior Subordinated Notes*”).**In addition, we received approximately $19.0 millionfrom the exercise of stock options and approximately $22.1 million fromthe sale of land, property and equipment. At December 31, 2005, we hadtotal available borrowings of $2.0 billion under our Revolving Facility,which was reduced by borrowings of $330.0 million and various letters ofcredit totaling approximately $14.3 million, leaving approximately$1.7 billion available as of December 31, 2005. We had$85.6 million in cash and cash equivalents as of December 31, 2005.

During the year ended December 31, 2005, totalcapital expenditures were $830.8 million, of which approximately $483.1million was related to the development of Red Rock (see “Future Development”),approximately $76.1 million was for the purchase of land adjacent to thecurrent Wild Wild West property, approximately $84.7 million was for the purchase of land held fordevelopment, approximately $16.3 million was related to the phase II expansionat Santa Fe Station, approximately $11.1 million was related to the phase IIIexpansion at Santa Fe Station, approximately $9.6 million was related to thephase II expansion at Fiesta Henderson, approximately $21.4 million was for thebowling center and buffet remodel at Sunset Station and approximately $128.5million was for maintenance and other capital expenditures. In addition tocapital expenditures, we paid approximately $111.9 million in reimbursableadvances for our Native American development projects (see “Future Development”),approximately $62.6 million in common stock dividends and approximately $21.4million to repurchase 0.3 million shares of our common stock.

Our primary cash requirements for 2006 are expected toinclude (i) approximately $67 million for the payment of common stockdividends, (ii) approximately $337 million for the development andconstruction of Red Rock, (iii) approximately $80 million for thephase III expansion at Santa Fe Station, (iv) approximately $48 million for the phase II expansion at FiestaHenderson, (v) payments related to our existing and other potential NativeAmerican projects,  (vi) principaland interest payments on indebtedness, (vii) maintenance and other capitalexpenditures, (viii) other strategic land purchases throughout the LasVegas area and (ix) opportunistic repurchases of our common stock.

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On March 13, 2006, we issued $300.0 million 65¤8%senior subordinated notes due in March 2018, which were priced at 99.5. Proceedsfrom the sale of the notes were used to reduce a portion of the amountoutstanding on our Revolving Facility.

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 2006. 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.

*Off Balance SheetArrangements*

As of December 31, 2005, we have certainoff-balance sheet arrangements that affect our financial condition, liquidityand results of operations, which include interest rate swaps with a combined notionalamount of $300.0 million (see “Description of Certain Indebtedness andCapital Stock—Interest Rate Swaps”).

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                                                                                                                                                                                                                          |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| 2006                                        |       | $                                | 123,885    |   | $ | 11,812 |   |   | $ | 83,790 |   |   |   | $ | 219,487 |   |   |
| 2007                                        |       | 124,372                          |       | 9,968 |   |   | 66,893 |   |   |   | 201,233 |   |   |
| 2008                                        |       | 129,684                          |       | 9,359 |   |   | 15,820 |   |   |   | 154,863 |   |   |
| 2009                                        |       | 124,133                          |       | 9,245 |   |   | 3,475 |   |   |   | 136,853 |   |   |
| 2010                                        |       | 454,141                          |       | 9,292 |   |   | 1,592 |   |   |   | 465,025 |   |   |
| Thereafter                                                                                                                                                                                                                                     |       | 2,040,241                        |       | 437,888 |   |   | 1,125 |   |   |   | 2,479,254 |   |   |
| Total                                                                                                                                                                                                                                          |       | $                                | 2,996,456  |   | $ | 487,564 |   |   | $ | 172,695 |   |   |   | $ | 3,656,715 |   |   |

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(a)           Includes interestrelated to interest rate swaps estimated based on the notional amount and netinterest spread as of December 31, 2005. Interest related to the RevolvingFacility is estimated based on the outstanding balance and interest rate as of December 31,2005. See Note 9 to the Consolidated Financial Statements in this AnnualReport on Form 10-K.

(b)          See Note 10 to theConsolidated Financial Statements in this Annual Report on Form 10-K.

(c)           Otherlong-term obligations are comprised of employment contracts, long-term stay-onagreements, slot conversion purchases, the purchase of land located in Reno, Nevadaand the purchase of land related to Wild Wild West.

**FutureDevelopment—Las Vegas**

*Red Rock*

In April 2004, we commenced construction of RedRock Casino Resort Spa (“Red Rock”) located on Charleston Boulevard at theInterstate 215/Charleston interchange in the Summerlin master-planned communityin Las Vegas, Nevada. Phase I of Red Rock is scheduled to open on April 18,2006 and is expected to include over 400 hotel rooms, approximately 3,200 slotmachines, 94,000 square feet of meeting and convention space, a 35,000-square-footspa, eight full-service restaurants, a 16-screen movie theater complex, anight club and private pool club to be operated by Midnight Oil Company, bothindoor 

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and outdoor entertainmentvenues and parking for approximately 5,000 vehicles. The cost of phase I isexpected to be approximately $760.0 million. Phase II which is expected to includean additional hotel tower containing over 400 hotel rooms, is currently underconstruction and is expected to be completed by the end of 2006. The total costof both phases of Red Rock is expected to be approximately $925 million, ofwhich approximately $634.4 million has been incurred as of December 31,2005.

On July 27, 2005, weentered into a joint venture with Cloobeck Molasky Partners I, LLC (“CloobeckMolasky”) to develop a high-end residential project on approximately 5 acreslocated adjacent to the hotel at Red Rock. It is anticipated that theresidential project is expected to contain approximately 400 luxury units. Pursuantto the terms of the operating agreement, we will own 80% of the joint ventureand Cloobeck Molasky will own 20%. Subject to obtaining local approvals andmarket conditions, sales of the residential towers are expected to begin in2006.

*Santa Fe StationExpansion*

In October 2005, webegan a $130 million phase III master-planned expansion at Santa Fe Station whichis expected to include a 2,900-space parking garage, a 500-seatbuffet, 400 additional slot machines, remodeled and expanded race and sportsbook, a 15,000-square-foot meeting and banquet facility and a new center bar. Theentire project will include approximately 125,000 square feet of additionalspace. Construction of this project is expected to be completed in phasesbeginning in the third quarter of 2006 through the fourth quarter of 2006. Approximately$11.1 million has been incurred on the expansion as of December 31, 2005.

*Fiesta HendersonExpansion*

In October 2005, webegan a $70 million phase II master-planned expansion at Fiesta Henderson whichis expected to include a 1,500-space parking garage, 350 additional slotmachines, a remodeled and expanded race and sports book and a 12-screenmovie theater complex. Construction of this project is expected to be completedin the third quarter of 2006 with the exception of the movie theater complexwhich is expected to be completed in the summer of 2007. Approximately $9.6million has been incurred on the expansion as of December 31, 2005.

*Green Valley RanchExpansion*

In October 2005, webegan a $110 million phase III master-planned expansion at Green Valley Ranchwhich is expected to include 1,500-space parking garage, additional slotmachines, a new race and sports book, a new poker room, a 500-seatentertainment lounge, 14,000 square feet of convention space and two newrestaurants. Construction of this project is expected to be completed in phasesfrom the fourth quarter of 2006 through early 2007. Approximately $21.1 millionhad been incurred on the expansion as of December 31, 2005.

*Aliante Station*

In December 2005, weentered into an agreement with the Greenspun Corporation to develop AlianteStation, a hotel and casino in the Aliante master-planned community located inNorth Las Vegas, Nevada. We will develop and manage the facility to be locatedon a gaming-entitled 40-acre site on the northeast corner of Interstate215 and Aliante Parkway, which was contributed by the Greenspun Corporation fortheir 50% ownership in the joint venture. We will receive a management feeequal to 2% of the property’s revenues and approximately 5% of EBITDA. The firstphase of Aliante Station is expected to include 200 hotel rooms, approximately2,000 slot machines, multiple full-service restaurants and a multi-screen movietheater complex. We expect to begin construction on Aliante Station in late2006 or early 2007 with a cost of approximately $450 million. Pursuant to theterms of the agreement, in January 2006, we contributed a 

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54 acresite located on Losee Road in North Las Vegas, Nevada, as well as approximately$2.2 million, for our 50% ownership in the joint venture. As of December 31,2005, the 54 acre site is included in land held for development on ourconsolidated balance sheets.

**FutureDevelopment—Native American**

*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 toassist them in designing, developing and financing the project and, uponopening we will manage the facility on behalf of the FIGR. The ManagementAgreement has a term of seven years from the opening of the facility and wewill receive a management fee equal to 24% of the facility’s net income. Wewill also receive a development fee equal to 2% of the cost of the project uponthe 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. In August 2005, wepurchased 180 acres of the optioned property and an additional 90 acres. Theproperty purchased is approximately one-quarter mile from Highway 101 andapproximately 43 miles from downtown San Francisco. In October 2003, theFIGR entered into a Memorandum of Understanding with the City of Rohnert Park.Development of the gaming and entertainment project is subject to certaingovernmental and regulatory approvals, including, but not limited to,negotiating a gaming compact with the State of California, the United StatesDepartment of the Interior (“DOI”) accepting the land into trust on behalf ofthe FIGR and approval of the Management Agreement by the National Indian GamingCommission (“NIGC”). Prior to obtaining third-party financing, we willcontribute significant financial support to the project. As of December 31,2005, we had advanced approximately $125.9 million toward the developmentof this project, primarily to complete the environmental impact study andsecure real estate for the FIGR project, which is included on our consolidatedbalance sheets. Funds advanced by us are expected to be repaid from theproceeds of the project financing or from the FIGR’s gaming revenues. Inaddition, we have agreed to pay approximately $11.3 million of paymentsupon achieving certain milestones, which will not be reimbursed. As of December 31,2005, approximately $2.0 million of these payments had been made and wereexpensed in development expense as incurred. The timing of this type of projectis difficult to predict and is dependent upon the receipt of the necessarygovernmental and regulatory approvals. There can be no assurances when or if theseapprovals 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 the Match-E-Be-Nash-She-WishBand of Pottawatomi Indians, a federally recognized Native American tribecommonly referred to as the Gun Lake Tribe (“Gun Lake”), entered into amendedDevelopment and Management Agreements, pursuant to which MPM will assist GunLake in developing and operating a gaming and entertainment project to belocated in Allegan County, Michigan. We have agreed to pay $6.0 millionfor our 50% interest in MPM, which is payable upon achieving certain milestonesand is not reimbursable. As of December 31, 2005, approximately $2.0million of these payments had been made and were expensed in developmentexpense as incurred. An additional $12.0 million in total may be paid byus in years six and seven of the amended Management Agreement, subject to certaincontingencies. Under the terms of the amended Development Agreement, we haveagreed to arrange financing for the ongoing development costs and constructionof the project. As of December 31, 2005, we had advanced approximately$28.6 million toward the development of this project, primarily tocomplete the 

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environmental assessmentand secure real estate for the project, which is included on our consolidatedbalance sheets. Funds advanced by us are expected 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, ourportion 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 129th Avenue, approximately 25 miles north ofKalamazoo, Michigan. As currently contemplated, the project is expected to includeup to 2,500 slot machines, 75 table games, a buffet and specialty restaurants.Construction of the project includes the conversion of an existing 192,000-square-footbuilding into the casino and entertainment facility. Development of the gamingand entertainment project and operation of Class III gaming is subject tocertain governmental and regulatory approvals, including, but not limited to,the signing of a gaming compact by the Governor of the State of Michigan, theDOI accepting the land into trust on behalf of Gun Lake and approval of theManagement Agreement by the NIGC. On February 27, 2004, the DOI issued aFinding Of No Significant Impact with respect to the proposed project. On May 13,2005, the DOI published in the Federal Register a Notice of Final AgencyDetermination (the “Determination”) to take certain land into trust for thebenefit of Gun Lake. The publication commenced a thirty-day period in whichinterested parties could seek judicial review of the Determination. On June 13,2005, Michigan Gambling Opposition filed a complaint (the “Complaint”) in theUnited States District Court, District of Columbia, seeking declaratory andinjunctive relief against the DOI and officials of the DOI. The Complaint seeksjudicial review of the Determination. On July 27, 2005, Gun Lake filed amotion to intervene in that lawsuit. On September 1, 2005, the DistrictCourt granted Gun Lake’s motion to intervene. On January 6, 2006, Gun Lakefiled a motion for judgement on the pleadings or, in the alternative, forsummary judgement. Also on January 6, 2006, the DOI filed a motion todismiss or, in the alternative, for summary judgement. As with all litigation,no assurances can be provided as to the outcome of that lawsuit. Prior toobtaining 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.

*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, 2005, we had advanced approximately $6.9million toward the development of this project, primarily to complete theenvironmental impact study and secure real estate for the project, which isincluded on our consolidated balance sheets. In addition, we have agreed to payapproximately $2.2 million of payments upon achieving certain milestones, whichwill not be reimbursed. As of December 31, 2005, $50,000 of these paymentshad been made and were expensed in development expense as incurred. TheManagement Agreement has a term of seven years from the opening of the facilityand provides for a management fee of 24% of the facility’s net income. Ascurrently contemplated, the facility is expected to include approximately 700slot machines, 12 table games and dining and entertainment amenities.Development of the facility is subject to certain governmental and regulatoryapprovals, including but not 

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limitedto, 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 this typeof project 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.

*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 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, 2005, we hadadvanced approximately $3.9 million toward the development of thisproject, primarily to complete the environmental impact study and secure realestate for the project, which is included on our consolidated balance sheets.In addition, we have agreed to pay approximately $1.3 million of payments uponachieving certain milestones, which will not be reimbursed. These payments willbe expensed as incurred. As of December 31, 2005, none of these paymentshave been made. The Management Agreement has a term of seven years from theopening of the facility and provides for a management fee of 24% of thefacility’s net income. As currently contemplated, the facility is expected to includeapproximately 2,000 slot machines, 60 table games, dining, hotel and entertainmentamenities. Development of the gaming and entertainment project is subject tocertain governmental and regulatory approvals, including, but not limited to,negotiating a gaming compact with the State of California, the DOI acceptingthe land into trust on behalf of the Mono 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 obtained.

**Land Acquisition**

We have acquired certain parcels of land as part offuture 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, 2005, we had$252.4 million of land held for development that consists primarily ofseven sites that are owned or leased, which comprise 264 acres in the Las Vegasvalley, 188 acres in the Sacramento area near Thunder Valley and 104 acres inReno, Nevada. The primary gaming-entitled land that we own in the Las Vegasvalley consists of 67 acres located at the intersection of Durango Road and theSouthern Beltway/Interstate 215 in the southwest area of Las Vegas, 49 acresalso located in southwest Las Vegas at the intersection of Flamingo Road andInterstate 215, 60 acres located on the southern end of Las Vegas Boulevard atCactus Avenue of which we lease and have an option to purchase 2.5 acres and 26acres on Boulder Highway at the site formerly known as the Castaways HotelCasino and Bowling Center (the “Castaways”). We also own 54 acres located onLosee Road in North Las Vegas, Nevada that was contributed to the joint venturewhich will develop Aliante Station in January 2006 (see “Aliante Station”).

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During 2004, we purchasedthe real property and improvements of the Castaways which had closed onJanuary 26, 2004, shortly after its former owners filed for bankruptcy. Wehave demolished the existing structure and are currently evaluating potentialuses of the property.

We have also acquired orare under contract to acquire approximately 67 acres of land on which Wild WildWest is located and the surrounding area of which, approximately 48 acres havebeen acquired as of December 31, 2005. In 2003, we exercised our option topurchase the 19-acre parcel of leased land on which Wild Wild West islocated which was to occur in July 2005 at a purchase price of $36million. In July 2005, we entered into an agreement to extend the date forthe close of escrow to no later than January 2007 at a purchase price ofapproximately $36 million, provided that either party may accelerate the closeof escrow to an earlier date upon 90 days’ prior written notice to the otherparty. In addition, the agreement reduced the lease expense from $2.9 millionto $1.6 million per year. No amounts related to this purchase option have beenrecorded on our consolidated balance sheets.

**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.

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 concluded their 2005 session and there were no increases in taxesaffecting the gaming industry. The Nevada Legislature does not meet again until2007.

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.

**Descriptionof Certain Indebtedness and Capital Stock**

*Revolving Facility*

In December 2005, weincreased our availability under our revolving credit facility (the “RevolvingFacility”) from $1.0 billion to $2.0 billion and extended the maturity by one yearto December 2010. The Revolving Facility contains no principalamortization. The Borrowers are the major operating subsidiaries and theRevolving Facility is secured by substantially all of our assets. Borrowingsunder the Revolving Facility bear interest at a margin above the Alternate BaseRate or the Eurodollar Rate (each as defined in the Revolving Facility), asselected by us. The margin above such rates, and the fee on the unfundedportions of the Revolving Facility, will vary quarterly based on our combinedconsolidated ratio of debt to Adjusted EBITDA (as defined in the RevolvingFacility). As of December 31, 2005, the Borrowers’ margin above theEurodollar Rate on borrowings under the Revolving Facility was 1.25%. Themaximum margin for Eurodollar Rate borrowings is 1.75%. The maximum margin forAlternate Base Rate borrowings is 0.50%. As of December 31, 2005, the feefor the unfunded portion of the Revolving Facility was 0.30%.

The Revolving Facilitycontains certain financial and other covenants. These include a maximum fundeddebt to Adjusted EBITDA ratio for the Borrowers combined of 3.25 to 1.00 foreach quarter until December 31, 2008 and 3.00 to 1.00 for the remainingterm of the facility and a minimum fixed charge coverage ratio for thepreceding four quarters for the Borrowers combined of 1.25 to 1.00 for eachquarter. As of December 31, 2005, the Borrowers’ funded debt to AdjustedEBITDA ratio was 0.89 to 1.00 and the fixed charge coverage ratio was 2.13 to1.00. In addition, the Revolving Facility has financial and other covenants,which require that the maximum consolidated funded debt to Adjusted EBITDAratio can be 

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no morethan 5.50 to 1.00 through December 31, 2006, which reduces to 5.25 to 1.00on March 31, 2007 through December 31, 2007, to 5.00 to 1.00 on March 31,2008 through December 31, 2008, to 4.75 to 1.00 on March 31, 2009through December 31, 2009 and to 4.50 to 1.00 on March 31, 2010.Other covenants limit prepayments of indebtedness or rent (includingsubordinated debt other than re-financings meeting certain criteria), assetdispositions, dividends, indebtedness and investments. As of December 31,2005, our consolidated funded debt to Adjusted EBITDA ratio was 4.13 to 1.00.We have pledged the stock of all of our major subsidiaries.

*Senior and Senior Subordinated Notes*

On March 13, 2006, weissued $300.0 million of 65¤8% seniorsubordinated notes due in March 2018, which were priced at 99.5. Proceedsfrom the sale of the notes were used to reduce a portion of the amountoutstanding on our Revolving Facility.

During 2005, we issued$350.0 million of additional 67¤8% seniorsubordinated notes due in March 2016 which were add-ons to the $350.0million of senior subordinated notes issued by us in February 2004. Theproceeds were used to repay outstanding borrowings under the RevolvingFacility, for capital expenditures related to our development projects and forgeneral corporate purposes.

During 2005, we redeemedthe remaining $16.9 million of outstanding 83¤8% senior notesdue 2008 and the remaining $17.4 million of outstanding 97¤8% senior subordinatednotes due 2010. As a result of these redemptions, we recorded a loss on earlyretirement of debt of approximately $1.3 million in the year ended December 31,2005 to reflect the write-off of the unamortized loan costs, unamortizeddiscount and call premium.

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 consisted of $450.0 million 6% senior notes due in April 2012,$450.0 million 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.

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, 2005, our Consolidated CoverageRatio (as defined in the Indentures) was 4.35 to 1.00. The Indentures providethat we may not incur additional indebtedness, other than specified types ofindebtedness, unless the Consolidated Coverage Ratio is at least 2.00 to 1.00.In the event our Consolidated Coverage Ratio is below 2.00 to 1.00, thecovenant 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 in the indentures) for the four mostrecent quarters, plus $15 million. The Indentures also give the holders ofthe Notes the right to require us to purchase the Notes at 101% of theprincipal amount of the Notes plus accrued interest thereon upon a Change ofControl and Rating Decline (each as defined in the Indentures) of the Company.In addition, the indenture governing the senior notes contains a limitation onliens we can incur.

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*Interest Rate Swaps*

We have entered intovarious interest rate swaps with members of our bank group to manage interestexpense. As of December 31, 2005, we have interest rate swaps with acombined notional amount of $300.0 million. We have entered into a fairvalue hedge interest rate swap with a notional amount of $50.0 million tieddirectly to our 6% senior notes converting a portion of our fixed-rate debt toa floating-rate based upon three-month LIBOR rates, terminating in April 2012.This interest rate swap qualifies for the “shortcut” method allowed under SFAS No. 133,“Accounting for Derivative Instruments and Hedging Activities” (and as amendedby SFAS No. 138 and 149), which allows for an assumption of noineffectiveness. As such, there is no income statement impact from changes inthe fair value of the hedging instrument. Instead, the fair value of theinstrument is recorded as an asset or liability on our balance sheet with anoffsetting adjustment to the carrying value of the related debt. In accordancewith SFAS No. 133, we recorded a liability of $2.1 million and$2.2 million as of December 31, 2005 and 2004, respectively,representing the fair value of the interest rate swaps and a correspondingdecrease in long-term debt, as these interest rate swaps are considered highlyeffective under the criteria established by SFAS No. 133. We paid aweighted average rate based on LIBOR, which approximated 5.73% at December 31, 2005,and received a fixed rate of 6.00%.

In December 2005, weentered into an interest rate swap with a notional amount of $250.0 million tieddirectly to our Revolving Facility and converts a portion of our floating-ratedebt to a fixed-rate based on three-month LIBOR rates, terminating in December 2010.We will pay a rate of 4.92% and receive three-month LIBOR. The interest rateswap is designated and qualifies as a cash flow hedge resulting in theeffective portion of the gain or loss reported as a component of othercomprehensive income (loss). For the year ended December 31, 2005, werecorded other comprehensive loss of $0.8 million related to the change inmarket value of this interest rate swap.

The difference between amountsreceived and paid under such agreements, as well any costs or fees, is recordedas a reduction of, or an addition to, interest expense as incurred over thelife of the swap. The net effect of the interest rate swaps resulted in areduction in interest expense of $2.1 million, $7.3 million and $3.6million for the years ended December 31, 2005, 2004 and 2003,respectively.

*Green Valley Ranch Financing*

Green Valley Ranch isowned by a 50/50 joint venture between us and GCR Gaming. In December 2004,Green Valley Ranch entered into a new $250 million Second Amended and RestatedLoan Agreement (the “Green Valley Facility”), which refinanced the existing$250 million revolving credit facility and term loan. The Green Valley Facilityextends the maturity of the revolving portion to December 2009 and theterm loan portion to December 2011. The outstanding balance of the GreenValley Ranch revolving credit facility as of December 31, 2005, wasapproximately $210.5 million.

*Common Stock*

We are authorized to issueup to 135 million shares of our common stock, $0.01 par value per share,79,047,602 shares of which were issued and 10,521,414 shares of which were heldin treasury as of December 31, 2005. 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.

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On March 3, 2006, we paida quarterly cash dividend of $0.25 per share to shareholders of record on February 10,2006. During the year ended December 31, 2005, we paid a quarterly cashdividend of $0.21 per share to shareholders of record on February 11, 2005and May 13, 2005 and $0.25 per share to shareholders of record on August 12,2005 and November 11, 2005. The total amount paid in dividends for 2005was $62.6 million.

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.

*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.

*Treasury Stock*

During the year ended December 31,2005, we repurchased approximately 336,000 shares of our common stock forapproximately $21.4 million. As of December 31, 2005, we had acquiredapproximately 10.5 million shares at a cost of approximately$159.1 million and we are authorized to repurchase approximately 10.1million additional shares of our common stock.

During January and February 2006,we have repurchased approximately 3.2 million shares of our common stock forapproximately $216.2 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 

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AcquiringPerson (which will thereafter become void), will thereafter have the right toreceive upon exercise that number of shares of common stock having a marketvalue of two times the exercise price of the Right. In the event that theCompany is acquired in a merger or other business combination transaction or50% or more of our consolidated assets or earning power are sold after a personor group has become an Acquiring Person, proper provision will be made so thateach holder 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.

**CriticalAccounting Policies**

*Significant Accounting 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.

*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 are recordedas revenue with a corresponding offsetting amount included in promotionalallowances. The cost associated with complimentary food, beverage, rooms,entertainment and merchandise redeemed under the Programs is recorded in casinocosts and expenses. We also record a liability for the estimated cost of theoutstanding points under the Programs that we believe will ultimately beredeemed.

*Self-Insurance Reserves*

We are self insured up tocertain stop loss amounts for workers’ compensation and general liability costs. We are also self insured for majormedical claims. 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.

*Interest Rate Swaps*

From time to time we enterinto interest rate swaps in order to manage interest rate risks associated withour current and future borrowings. We have adopted SFAS No. 133, “Accountingfor Derivative Instruments and Hedging Activities” (and as amended by SFAS No. 138and 149) to account for our 

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interestrate swaps. The pronouncements require us to recognize our interest rate swapsas either assets or liabilities in the balance sheets at fair value. Theaccounting for changes in fair value (i.e. gains or losses) of the interestrate swap agreements depends on whether is has been designated and qualifies aspart of a hedging relationship and further, on the type of hedgingrelationship. The difference between amounts received and paid under suchagreements as well as any costs or fees, is recorded as a reduction of, or anaddition to, interest expense as incurred over the life of the swap.

For derivative instrumentsthat are designated and qualify as a cash flow hedge, the effective portion ofthe gain or loss on the derivative instrument is reported as a component ofother comprehensive income (loss) and the ineffective portion, if any, isrecorded in the Statement of Operations.

Derivative instrumentsthat are designated as a fair value hedge and qualify for the “shortcut” methodunder SFAS 133 (and as amended by SFAS No. 138 and 149) allows for anassumption of no ineffectiveness. As such there is no income statement impactfrom the changes in the fair value of the hedging instrument. Instead, the fairvalue of the instrument is recorded as an asset or liability on our balancesheet with an offsetting adjustment to the carrying 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, 2005.

*Goodwill and Other Intangibles*

In accordance with SFAS No. 142,“Goodwill and Other Intangible Assets”, we test for impairment of goodwillannually using the Income Approach, which focuses on the income-producingcapability of the respective property. The underlying premise of this approachis that the value of an asset can be measured by the present worth of the neteconomic benefit (cash receipts less cash outlays) to be received over the lifeof the subject asset. The steps followed in applying this approach includeestimating the expected after-tax cash flows attributable to the respectiveproperty and converting these after-tax cash flows to present value throughdiscounting. The discounting process uses a rate of return, which accounts forboth the time value of money and investment risk factors. The present value ofthe after-tax cash flows is then totaled to arrive at an indication of the fairvalue of the goodwill. If the fair value of the goodwill exceeds the carryingvalue, then impairment is measured based on the difference between thecalculated fair value and the carrying value. Our consolidated financialstatements reflect all adjustments required by SFAS No. 142 as of December 31,2005.

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*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, theFinancial Accounting Standards Board issued SFAS No. 123R, “Share-BasedPayment”, which requires that the compensation cost relating to share-basedpayment transactions be recognized in financial statements based on alternativefair value models. The share-based compensation cost will be measured based onfair value models of the equity or liability instruments issued. We currentlydisclose pro forma compensation expense quarterly and annually by calculatingthe stock option grants’ fair value using the Black-Scholes model anddisclosing the impact on net income and earnings per share in a note to theconsolidated financial statements. Upon adoption, pro forma disclosure will nolonger be an alternative. SFAS No. 123R also requires the benefits of taxdeductions in excess of recognized compensation cost to be reported as afinancing cash flow rather than as an operating cash flow as required undercurrent literature. This requirement will reduce net operating cash flows andincrease net financing cash flows in periods after adoption. While we cannotestimate what those amounts will be in the future, the amount of operating cashflows recognized for such deductions were $31.8 million, $62.6 million and$25.6 million in 2005, 2004 and 2003, respectively. We will begin to apply SFASNo. 123R using the modified prospective method as of the interim reportingperiod ending March 31, 2006 as provided by the Securities ExchangeCommission announcement on April 14, 2005 which amended the effectivedate. Based on stock options outstanding as of December 31, 2005, weestimate approximately $2.3 million in expense to be recorded during 2006, $0.3million in 2007 and virtually zero thereafter.

In June 2005, theFASB ratified Emerging Issues Task Force (“EITF”) 04-5, “DeterminingWhether a General Partner, or the General Partners as a Group, Controls aLimited Partnership or Similar Entity When the Limited Partners Have CertainRights.”  Under EITF 04-5, thegeneral partners in a limited partnership or similar entity are presumed tocontrol that limited partnership regardless of the extent of the generalpartners’ ownership interest in the limited partnership. A general partnershould assess the limited partners’ rights and their impact on the presumptionof control. If the limited partners have either (a) the substantiveability to dissolve the limited partnership or otherwise remove the generalpartners without cause or (b) substantive participating rights, thegeneral partners do not control the limited partnership. For general partnersof all new limited partnerships formed and for existing limited partnershipsfor which the partnership agreement is modified, EITF 04-5 is effective June 29,2005. For general partners in all other limited partnerships, EITF 04-5is effective for the first reporting period in fiscal years beginning after December 15,2005, and allows either of two transition methods. The Company does not believethat EITF 04-5 will have a significant impact on its results ofoperations or financial position.

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**ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT 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 2010.

Thefollowing table provides information about our long-term debt at December 31,2005 (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 5.78% |       | December 2010 |       | $                | 2,000,000  |                | $          | 330,000                        |       | $ | 330,000 |   |
| 61¤2%  senior subordinated notes                                          |       | February 2014 |       | 450,000          |       | 450,000             |       | 455,063                        |       |
| 6% senior notes                                                                |       | April 2012    |       | 450,000          |       | 448,542             |       | 450,563                        |       |
| 67¤8%  senior subordinated notes                                          |       | March 2016    |       | 700,000          |       | 708,003             |       | 714,875                        |       |
| Other debt weighted-average  interest of 6.4%                                  |       | 2007-2026          |       | 9,325            |       | 9,244               |       | 9,244                          |       |
| Market value of  interest rate swaps                                           |       | 2010-2012          |       | (1,461           | )          | (1,461              | )          | (1,461                         | )          |
| Total                                                                          |       |               |       | $                | 3,607,864  |                | $          | 1,944,328                      |       | $ | 1,958,284 |   |

 

We are also exposed to market risk in the form offluctuations in interest rates and their potential impact upon our debt. Thismarket risk is managed by utilizing derivative financial instruments inaccordance with established policies and procedures. We evaluate our exposureto market risk by monitoring interest rates in the marketplace, and do notutilize derivative financial instruments for trading purposes. Our derivativefinancial instruments consist exclusively of interest rate swap agreements.Interest differentials resulting from these agreements are recorded on anaccrual basis as an adjustment to interest expense. Interest rate swaps relatedto debt are matched with specific 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,** | ** ** |
|----------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                                   | ** ** | **2006**                                                         | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
| Long-term debt  (including current portion): |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed-rate                                   |       | $                                                                | —     |   | $ | — |   | $ | 5,334 |   | $ | — |   | $ | — |   | $ | 1,606,546 |   | $ | 1,611,880 |   |
| Average interest rate                        |       | —                                                           |       | — |   | 6.00 | % | — |   | — |   | 6.47 | % | 6.52 | % |
| Variable-rate                                |       | $                                                                | 108        |   | $ | 351 |   | $ | 329 |   | $ | 111 |   | $ | 330,120 |   | $ | 2,890 |   | $ | 333,909 |   |
| Average interest rate                        |       | 7.09                                                             | %          | 7.09 | % | 7.09 | % | 7.09 | % | 5.78 | % | 7.09 | % | 5.80 | % |
| Interest rate swaps:                         |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Notional amount                              |       | $                                                                | —     |   | $ | — |   | $ | — |   | $ | — |   | $ | 250,000 |   | $ | 50,000 |   | $ | 300,000 |   |
| Average payable rate                         |       | —                                                           |       | — |   | — |   | — |   | 4.92 | % | 5.73 | % | 5.06 | % |
| Average  receivable rate                     |       | —                                                           |       | — |   | — |   | — |   | 4.53 | % | 6.00 | % | 4.77 | % |

 

51

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**ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

**INDEXTO CONSOLIDATED FINANCIAL STATEMENTS**

|                                                           | ** ** | **Page** | ** ** |
|-----------------------------------------------------------|------------|----------|------------|
| Reports of Independent Registered Public Accounting  Firm |       |     | 53         |   |   |
| Consolidated  Balance Sheets                              |       |     | 55         |   |   |
| Consolidated Statements of Operations                     |       |     | 56         |   |   |
| Consolidated Statements of Stockholders’ Equity      |       |     | 57         |   |   |
| Consolidated Statements of Cash Flows                     |       |     | 58         |   |   |
| Notes to Consolidated Financial Statements                |       |     | 59         |   |   |

 

52

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**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

**To the Board ofDirectors and Stockholders of Station Casinos, Inc.:**

We have audited the accompanying consolidated balancesheets of Station Casinos, Inc. and its subsidiaries (the “Company”) as ofDecember 31, 2005 and 2004, and the related consolidated statements ofoperations, stockholders’ equity, and cash flows for each of the three years inthe period ended December 31, 2005. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these 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, 2005 and 2004, and theconsolidated results of its operations and its cash flows for each of the threeyears in the period ended December 31, 2005, in conformity with U.S.generally accepted accounting principles.

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, 2005, based on criteria establishedin Internal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commissionand our report dated March 13, 2006 expressed an unqualified opinionthereon.

/s/ Ernst & YoungLLP

Las Vegas, NevadaMarch 13, 2006

53

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**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

**To the Board of Directors and Stockholders of StationCasinos, Inc.:**

We have audited management’s assessment, included inthe accompanying Management’s Report in Internal Control Over FinancialReporting, that Station Casino’s, Inc. and its subsidiaries (the “Company”)maintained effective internal control over financial reporting as of December 31,2005, based on criteria established in Internal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission(the COSO criteria). The Company’s management is responsible for maintainingeffective internal control over financial reporting and for its assessment ofthe effectiveness of internal control over financial reporting. Ourresponsibility is to express an opinion on management’s assessment and anopinion on the effectiveness of the Company’s internal control over financialreporting 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, evaluating management’sassessment, testing and evaluating the design and operating effectiveness ofinternal control, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonablebasis 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 and dispositionsof the assets of the company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, andthat receipts and expenditures of the company are being made only in accordancewith authorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have amaterial 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 31,2005, 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, 2005, basedon the COSO criteria.

We also have audited, in accordance with the standardsof the Public Company Accounting Oversight Board (United States), theconsolidated balance sheets of the Company as of December 31, 2005 and2004, and the related consolidated statements of operations, stockholders’equity, and cash flows for each of the three years in the period ended December 31,2005 of the Company and our report dated March 13, 2006 expressed anunqualified opinion thereon.

/s/ Ernst & YoungLLP

Las Vegas, NevadaMarch 13, 2006

54

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**STATION CASINOS, INC.CONSOLIDATED BALANCE SHEETS(amounts in thousands, except share data)**
|                                                                                                        | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                             | ** ** | **2005**              | ** ** | **2004** | ** ** |
| ASSETS                                                                                                 |       |                  |       |   |   |
| Current assets:                                                                                        |       |                  |       |   |   |
| Cash and cash equivalents                                                                              |       | $                     | 85,552     |   | $ | 68,417 |   |
| Receivables, net                                                                                       |       | 19,604                |       | 21,452 |   |
| Inventories                                                                                            |       | 6,370                 |       | 5,459 |   |
| Prepaid gaming tax                                                                                     |       | 17,942                |       | 16,432 |   |
| Prepaid expenses                                                                                       |       | 9,743                 |       | 7,761 |   |
| Total current assets                                                                                   |       | 139,211               |       | 119,521 |   |
| Property and equipment, net                                                                            |       | 1,990,584             |       | 1,367,957 |   |
| Goodwill and  other intangibles, net                                                                   |       | 154,498               |       | 155,775 |   |
| Land held for  development                                                                             |       | 252,444               |       | 167,729 |   |
| Investments in  joint ventures                                                                         |       | 129,191               |       | 106,598 |   |
| Advances to  tribes                                                                                    |       | 165,244               |       | 49,877 |   |
| Other assets, net                                                                                      |       | 97,871                |       | 78,127 |   |
| Total assets                                                                                           |       | $                     | 2,929,043  |   | $ | 2,045,584 |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                                   |       |                  |       |   |   |
| Current  liabilities:                                                                                  |       |                  |       |   |   |
| Current portion of long-term debt                                                                      |       | $                     | 108        |   | $ | 16,917 |   |
| Accounts payable                                                                                       |       | 12,611                |       | 10,351 |   |
| Construction contracts payable                                                                         |       | 83,151                |       | 36,298 |   |
| Accrued expenses and other current liabilities                                                         |       | 132,895               |       | 112,450 |   |
| Total current liabilities                                                                              |       | 228,765               |       | 176,016 |   |
| Long-term debt, less current portion                                                                   |       | 1,944,220             |       | 1,321,296 |   |
| Deferred income  tax, net                                                                              |       | 79,015                |       | 20,094 |   |
| Other long-term  liabilities, net                                                                      |       | 46,229                |       | 39,257 |   |
| Total liabilities                                                                                      |       | 2,298,229             |       | 1,556,663 |   |
| Commitments and contingencies                                                                          |       |                  |       |   |   |
| Stockholders'  equity:                                                                                 |       |                  |       |   |   |
| Common stock, par value $0.01; authorized  135,000,000 shares; 79,047,602 and 77,298,227 shares issued |       | 578                   |       | 561 |   |
| Treasury stock, 10,521,414 and 10,185,343 shares, at  cost                                             |       | (159,128              | )          | (137,714 | ) |
| Additional paid-in capital                                                                             |       | 627,352               |       | 567,939 |   |
| Deferred compensation - restricted stock                                                               |       | (73,599               | )          | (77,598 | ) |
| Accumulated other comprehensive income (loss)                                                          |       | 24                    |       | (611 | ) |
| Retained earnings                                                                                      |       | 235,587               |       | 136,344 |   |
| Total stockholders' equity                                                                             |       | 630,814               |       | 488,921 |   |
| Total liabilities  and stockholders' equity                                                            |       | $                     | 2,929,043  |   | $ | 2,045,584 |   |
|                                                                                                        |            |                       |            |  |  |  |  |  |

 

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

55

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**STATION CASINOS, INC.CONSOLIDATED STATEMENTSOF OPERATIONS(amounts in thousands, except per share data)**

| ** **                                         | ** ** | **For the years ended December 31,** | ** ** |
|----------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                         | ** ** | **2005**                                                      | ** ** | **2004** | ** ** | **2003** | ** ** |
| Operating revenues:                                |       |                                                          |       |   |   |   |   |
| Casino                                             |       | $                                                             | 825,995    |   | $ | 730,584 |   | $ | 648,664 |   |
| Food and beverage                                  |       | 146,774                                                       |       | 140,332 |   | 133,676 |   |
| Room                                               |       | 61,238                                                        |       | 57,057 |   | 50,460 |   |
| Other                                              |       | 52,550                                                        |       | 42,008 |   | 45,943 |   |
| Management fees                                    |       | 95,144                                                        |       | 84,618 |   | 46,711 |   |
| Gross revenues                                     |       | 1,181,701                                                     |       | 1,054,599 |   | 925,454 |   |
| Promotional  allowances                            |       | (72,868                                                       | )          | (67,857 | ) | (67,365 | ) |
| Net revenues                                       |       | 1,108,833                                                     |       | 986,742 |   | 858,089 |   |
| Operating costs and expenses:                      |       |                                                          |       |   |   |   |   |
| Casino                                             |       | 286,503                                                       |       | 273,816 |   | 265,203 |   |
| Food and beverage                                  |       | 102,970                                                       |       | 100,548 |   | 87,783 |   |
| Room                                               |       | 21,094                                                        |       | 21,053 |   | 19,580 |   |
| Other                                              |       | 17,799                                                        |       | 16,820 |   | 15,452 |   |
| Selling, general  and administrative               |       | 181,670                                                       |       | 172,923 |   | 161,643 |   |
| Corporate                                          |       | 57,619                                                        |       | 47,189 |   | 33,039 |   |
| Development                                        |       | 8,747                                                         |       | 10,683 |   | 4,306 |   |
| Depreciation and  amortization                     |       | 101,356                                                       |       | 85,807 |   | 73,144 |   |
| Preopening                                         |       | 6,560                                                         |       | 848 |   | — |   |
| Lease terminations                                 |       | 14,654                                                        |       | — |   | — |   |
| Impairment loss                                    |       | —                                                        |       | — |   | 18,868 |   |
| Litigation  settlement                             |       | —                                                        |       | — |   | 38,000 |   |
|                                               |       | 798,972                                                       |       | 729,687 |   | 717,018 |   |
| Operating income                                   |       | 309,861                                                       |       | 257,055 |   | 141,071 |   |
| Earnings from  joint ventures                      |       | 38,885                                                        |       | 26,524 |   | 20,604 |   |
| Operating income and  earnings from joint ventures |       | 348,746                                                       |       | 283,579 |   | 161,675 |   |
| Other income (expense):                            |       |                                                          |       |   |   |   |   |
| Interest expense                                   |       | (80,469                                                       | )          | (76,921 | ) | (92,940 | ) |
| Interest and other  expense from joint ventures    |       | (6,947                                                        | )          | (4,485 | ) | (7,233 | ) |
| Interest income                                    |       | 91                                                            |       | 122 |   | 4,873 |   |
| Loss on early  retirement of debt                  |       | (1,278                                                        | )          | (93,265 | ) | — |   |
| Other                                              |       | (3,916                                                        | )          | (3,801 | ) | 1,802 |   |
|                                               |       | (92,519                                                       | )          | (178,350 | ) | (93,498 | ) |
| Income before income  taxes                        |       | 256,227                                                       |       | 105,229 |   | 68,177 |   |
| Income tax provision                               |       | (94,341                                                       | )          | (38,879 | ) | (23,834 | ) |
| Net income                                         |       | $                                                             | 161,886    |   | $ | 66,350 |   | $ | 44,343 |   |
| Earnings per common share:                         |       |                                                          |       |   |   |   |   |
| Basic                                              |       | $                                                             | 2.46       |   | $ | 1.03 |   | $ | 0.76 |   |
| Diluted                                            |       | $                                                             | 2.40       |   | $ | 1.00 |   | $ | 0.72 |   |
| Weighted average common  shares outstanding:       |       |                                                          |       |   |   |   |   |
| Basic                                              |       | 65,707                                                        |       | 64,362 |   | 58,371 |   |
| Diluted                                            |       | 67,588                                                        |       | 66,264 |   | 61,850 |   |
| Dividends paid per common share                    |       | $                                                             | 0.92       |   | $ | 0.69 |   | $ | 0.25 |   |

 

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

56

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**STATION CASINOS, INC.CONSOLIDATED STATEMENTSOF STOCKHOLDERS’ EQUITY(amounts in thousands)**

| ** **                                         | ** ** | ** ** | ** ** | ** **   | ** ** | ** **     | ** ** | **Deferred**      | ** ** | **Accumulated**        | ** ** | ** **   | ** ** | ** **             | ** ** |
|----------------------------------------------------|------------|------------|------------|--------------|------------|----------------|------------|-------------------|------------|------------------------|------------|--------------|------------|------------------------|------------|
| ** **                                         | ** ** | ** ** | ** ** | ** **   | ** ** | **Additional** | ** ** | **compensation-** | ** ** | **other**              | ** ** | ** **   | ** ** | **Total**              | ** ** |
| ** **                                         | ** ** | **Common** | ** ** | **Treasury** | ** ** | **paid-in**    | ** ** | **restricted**    | ** ** | **comprehensive**      | ** ** | **Retained** | ** ** | **stockholders’** | ** ** |
| ** **                                         | ** ** | **stock**  | ** ** | **stock**    | ** ** | **capital**    | ** ** | **stock**         | ** ** | **income (loss)** | ** ** | **earnings** | ** ** | **equity**             | ** ** |
| 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 | ) |   |
| Interest rate swap market value adjustment         |       |       | —     |         |       | —         |       |              | —     |                   |       |         | —     |                   |       |   | 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 | ) |   |
| Interest rate swap market value adjustment         |       |       | —     |         |       | —         |       |              | —     |                   |       |         | —     |                   |       |   | 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 |   |   |
| Exercise of stock options                          |       |       | 16         |         |       | —         |       |              | 50,744     |                   |       |         | —     |                   |       |   | — |   |   | — |   |   | 50,760 |   |   |
| Issuance of restricted stock, net                  |       |       | 1          |         |       | —         |       |              | 8,669      |                   |       |         | (8,670     | )                      |       |   | — |   |   | — |   |   | — |   |   |
| Amortization of deferred compensation              |       |       | —     |         |       | —         |       |              | —     |                   |       |         | 12,669     |                   |       |   | — |   |   | — |   |   | 12,669 |   |   |
| Purchase of treasury stock, at cost (336 shares)   |       |       | —     |         |       | (21,414        | )          |              | —     |                   |       |         | —     |                   |       |   | — |   |   | — |   |   | (21,414 | ) |   |
| Interest rate swap market value adjustment         |       |       | —     |         |       | —         |       |              | —     |                   |       |         | —     |                   |       |   | 635 |   |   | — |   |   | 635 |   |   |
| Dividends paid                                     |       |       | —     |         |       | —         |       |              | —     |                   |       |         | —     |                   |       |   | — |   |   | (62,643 | ) |   | (62,643 | ) |   |
| Net income                                         |       |       | —     |         |       | —         |       |              | —     |                   |       |         | —     |                   |       |   | — |   |   | 161,886 |   |   | 161,886 |   |   |
| Balances,  December 31, 2005             |       |       | $          | 578          |       |           | $          | (159,128          | )          |                   | $          | 627,352      |       |                   |       | $ | (73,599 | ) |   |   | $ | 24 |   |   | $ | 235,587 |   |   | $ | 630,814 |   |   |

 

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

57

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**STATION CASINOS,INC.CONSOLIDATED STATEMENTSOF CASH FLOWS(amounts in thousands)**

| ** **                                                                                 | ** ** | **For the years ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                                 | ** ** | **2005**                                                      | ** ** | **2004** | ** ** | **2003** | ** ** |
| Cash flows from operating  activities:                                                     |       |                                                          |       |   |   |   |   |
| Net income                                                                                 |       | $                                                             | 161,886    |   | $ | 66,350 |   | $ | 44,343 |   |
| Adjustments to reconcile  net income to net cash provided by operating activities:         |       |                                                          |       |   |   |   |   |
| Depreciation and amortization                                                              |       | 101,356                                                       |       | 85,807 |   | 73,144 |   |
| Tax benefit from exercise of stock options                                                 |       | 31,803                                                        |       | 62,643 |   | 25,620 |   |
| Impairment loss                                                                            |       | —                                                        |       | — |   | 18,868 |   |
| Earnings from joint ventures, net                                                          |       | (31,938                                                       | )          | (22,039 | ) | (13,371 | ) |
| Distributions of earnings from joint ventures                                              |       | 13,130                                                        |       | 920 |   | 1,324 |   |
| Amortization of debt discount and issuance costs                                           |       | 3,262                                                         |       | 2,945 |   | 3,156 |   |
| Loss on early retirement of debt                                                           |       | 1,278                                                         |       | 93,265 |   | — |   |
| Changes  in assets and liabilities:                                                        |       |                                                          |       |   |   |   |   |
| Receivables, net                                                                           |       | 1,848                                                         |       | 6,772 |   | (8,291 | ) |
| Inventories and prepaid expenses                                                           |       | (4,419                                                        | )          | (2,488 | ) | (3,264 | ) |
| Deferred income tax                                                                        |       | 59,481                                                        |       | (28,174 | ) | (449 | ) |
| Accounts payable                                                                           |       | 2,260                                                         |       | (10,087 | ) | 11,904 |   |
| Accrued expenses and other current liabilities                                             |       | 19,885                                                        |       | (9,619 | ) | 41,713 |   |
| Other, net                                                                                 |       | 18,322                                                        |       | 16,221 |   | 3,078 |   |
| Total adjustments                                                                          |       | 216,268                                                       |       | 196,166 |   | 153,432 |   |
| Net cash provided by operating activities                                                  |       | 378,154                                                       |       | 262,516 |   | 197,775 |   |
| Cash flows from investing  activities:                                                     |       |                                                          |       |   |   |   |   |
| Capital expenditures                                                                       |       | (830,805                                                      | )          | (382,035 | ) | (198,772 | ) |
| Note receivable                                                                            |       | —                                                        |       | — |   | 34,487 |   |
| Proceeds from sale of land, property and equipment                                         |       | 22,143                                                        |       | 28,090 |   | 6,670 |   |
| Investments in joint ventures, net                                                         |       | (2,558                                                        | )          | 1,482 |   | 3,334 |   |
| Construction contracts payable                                                             |       | 46,853                                                        |       | 36,298 |   | — |   |
| Advances to tribes                                                                         |       | (111,900                                                      | )          | (22,243 | ) | (21,552 | ) |
| Other, net                                                                                 |       | (10,323                                                       | )          | 374 |   | (9,808 | ) |
| Net cash used in investing activities                                                      |       | (886,590                                                      | )          | (338,034 | ) | (185,641 | ) |
| Cash flows from financing  activities:                                                     |       |                                                          |       |   |   |   |   |
| Borrowings (payments) under bank facility with  maturity dates less than three months, net |       | 278,500                                                       |       | (75,500 | ) | 74,800 |   |
| Borrowings under bank facility, maturity dates  greater than three months                  |       | —                                                        |       | — |   | 310,000 |   |
| Payments under bank facility, maturity dates greater  than three months                    |       | —                                                        |       | (50,000 | ) | (385,000 | ) |
| Principal payments on notes payable, net                                                   |       | (283                                                          | )          | (22 | ) | (122 | ) |
| Purchase of treasury stock                                                                 |       | (21,414                                                       | )          | (3,180 | ) | (25,072 | ) |
| Exercise of stock options                                                                  |       | 18,957                                                        |       | 54,993 |   | 33,143 |   |
| Redemption of senior and senior subordinated notes                                         |       | (34,272                                                       | )          | (1,028,815 | ) | — |   |
| Proceeds from the issuance of senior and senior  subordinated notes                        |       | 358,250                                                       |       | 1,248,214 |   | — |   |
| Payment of dividends                                                                       |       | (62,643                                                       | )          | (44,346 | ) | (14,902 | ) |
| Debt issuance costs                                                                        |       | (11,381                                                       | )          | (19,429 | ) | (792 | ) |
| Other, net                                                                                 |       | (143                                                          | )          | (252 | ) | (1,256 | ) |
| Net cash provided by (used in) financing activities                                        |       | 525,571                                                       |       | 81,663 |   | (9,201 | ) |
| Cash and cash  equivalents:                                                                |       |                                                          |       |   |   |   |   |
| Increase in cash and cash equivalents                                                      |       | 17,135                                                        |       | 6,145 |   | 2,933 |   |
| Balance, beginning of year                                                                 |       | 68,417                                                        |       | 62,272 |   | 59,339 |   |
| Balance, end of year                                                                       |       | $                                                             | 85,552     |   | $ | 68,417 |   | $ | 62,272 |   |
| Supplemental cash flow  disclosures:                                                       |       |                                                          |       |   |   |   |   |
| Cash paid for interest, net of $22,287, $6,968 and  $3,496 capitalized                     |       | $                                                             | 75,424     |   | $ | 62,832 |   | $ | 91,629 |   |
| Cash paid (received) for income taxes, net                                                 |       | $                                                             | 3,036      |   | $ | (2,558 | ) | $ | 1,329 |   |
| Supplemental disclosure  of non-cash items:                                                |       |                                                          |       |   |   |   |   |
| Investment in MPM                                                                          |       | $                                                             | 3,467      |   | — |   | $ | 6,082 |   |

 

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

58

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

**1. Summary of Significant Accounting Policies andBasis 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) under the Station and Fiesta brand names and six smallercasino properties (two of which are 50% owned), in the Las Vegas metropolitanarea, as well as manages a casino for a Native American tribe. The Company iscurrently developing a ninth major hotel/casino property known as Red RockCasino Resort Spa (“Red Rock”) which is scheduled to open on April 18,2006. (see “Las Vegas Development—Red Rock”). The accompanying consolidatedfinancial statements include the accounts of the Company and its wholly ownedsubsidiaries and MPM Enterprises, LLC (which is 50% owned by the Company andrequired to be consolidated). Investments in all other 50% or less ownedaffiliated companies are accounted for under the equity method. All significantintercompany accounts and transactions have been eliminated.

*Use of Estimates*

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions for items such as slot club program liability, self-insurancereserves, bad debt reserves, estimated useful lives assigned to fixed assets,asset impairment, purchase price allocations made in connection withacquisitions and the calculation of the income tax liabilities, that affect thereported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. Actual resultsmay differ from those estimates.

*Cash and CashEquivalents*

Cash and cash equivalentsincludes cash on hand at the Company’s properties, as well as investmentspurchased with an original maturity of 90 days or less.

*Inventories*

Inventories are stated atthe lower of cost or market; cost being determined on a weighted-average basis.

*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 its property and equipment andother long-lived assets for impairment in accordance with Statement ofFinancial Accounting Standards (“SFAS”) No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets.” For assets to be disposed of, theCompany recognizes the asset to be sold at the lower of carrying value or fairmarket 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 

59

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

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

comparesthe estimated future cash flows of the asset, on an undiscounted basis, to thecarrying value of the asset. If the undiscounted cash flows exceed the carryingvalue, no impairment is indicated. If the undiscounted cash flows do not exceedthe carrying value, then an impairment is measured based on fair value comparedto carrying 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, 2005.

*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 borrowings. Interest capitalized was approximately$22.3 million, $7.0 million and $3.5 million for the years endedDecember 31, 2005, 2004 and 2003, respectively.

*Goodwill and OtherIntangibles*

The Company has recorded goodwill as the results ofvarious acquisitions over the years and in accordance with SFAS No. 142,the Company tests for impairment of goodwill during the fourth quarter of eachfiscal year. During 2003, the Company recorded an impairment loss of  $17.5 million at Fiesta Rancho as aresult of reduced growth assumptions. During 2004 and 2005, the Companydetermined there was no impairment.

Also, in connection withthe acquisition of Fiesta Rancho, the Company acquired the customer list whichwas valued at $5.0 million at the time of the purchase and was amortizedover five years. As of December 31, 2005, the customer list has been fullyamortized.

*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*

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 years ended December 31,2005 and 2004, the Company incurred preopening expenses of$6.6 million  and $0.8 million,respectively, primarily related to the development of Red Rock (see Note 10).

*Interest Rate Swaps*

From time to time the Company enters into interestrate swaps order to manage interest rate risks associated with current andfuture borrowings. As such, the Company has adopted SFAS No. 133, 

60

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

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

“Accounting for DerivativeInstruments and Hedging Activities” (and as amended by SFAS No. 138 and149) to account for interest rate swaps. The pronouncements require the Companyto recognize the interest rate swaps as either assets or liabilities in thebalance sheets at fair value. The accounting for changes in fair value (i.e.gains or losses) of the interest rate swap agreements depends on whether it hasbeen designated and qualifies as part of a hedging relationship and further, onthe type of hedging relationship. The difference between amounts received andpaid under such agreements, as well as any costs or fees, is recorded as areduction of, or an addition to, interest expense as incurred over the life ofthe swap. 

For derivative instruments that are designated andqualify as a cash flow hedge, the effective portion of the gain or loss on thederivative instrument is reported as a component of other comprehensive income(loss) and the ineffective portion, if any, is recorded in the Statement ofOperations.

Derivative instrumentsthat are designated as fair value hedges and qualify for the “shortcut” methodunder SFAS 133 (and as amended by SFAS No. 138 and 149) allow for anassumption of no ineffectiveness. As such there is no income statement impactfrom the changes in the fair value of the hedging instrument. Instead, the fairvalue of the instrument is recorded as an asset or liability on our balancesheet with an offsetting adjustment to the carrying value of the related debt(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,** | ** ** |
|-------------------|------------|---------------------------------------------------------------|------------|
| ** **        | ** ** | **2005**                                                      | ** ** | **2004** | ** ** | **2003** | ** ** |
| Food and beverage |       | $                                                             | 62,424     |   | $ | 59,391 |   | $ | 57,985 |   |
| Room              |       | 3,786                                                         |       | 3,489 |   | 3,119 |   |
| Other             |       | 3,414                                                         |       | 2,891 |   | 3,057 |   |
| Total             |       | $                                                             | 69,624     |   | $ | 65,771 |   | $ | 64,161 |   |

 

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.

61

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

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

*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 certain assets. The expenses related to these related party groundlease transactions were approximately $5.9 million, $5.7 million and$5.4 million for the years ended December 31, 2005, 2004 and 2003,respectively. In February 2005, the Company purchased approximately 96acres of gaming-entitled property in Reno, Nevada for $15.1 million from BlakeL. Sartini, the brother-in-law of Frank J. Fertitta III, Chief ExecutiveOfficer, and Lorenzo J. Fertitta, President. In addition, on January 27,2003, the Company purchased substantially all of the assets of Wildfire for$8.0 million from Bauchman Gaming Ventures, LLC, a company owned by twobrothers-in-law of Scott M Nielson, the Company’s Executive Vice President andChief Development Officer.

*Earnings Applicableto Common Stock*

In accordance with theprovisions of SFAS No. 128, “Earnings Per Share”, basic EPS is computed bydividing net income applicable to common stock by the weighted average commonshares outstanding, excluding unvested restricted stock, during the period.Diluted EPS reflects the additional dilution for all potentially dilutivesecurities such as stock options and unvested restricted stock.

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,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                                                             | ** ** | **2005**                                                      | ** ** | **2004** | ** ** | **2003** | ** ** |
| Weighted average  common shares outstanding (used in calculation of basic earnings per  share)                    |       | 65,707                                                        |       | 64,362 |   | 58,371 |   |
| Potential  dilution from the assumed exercise of stock options and unvested restricted  stock                          |       | 1,881                                                         |       | 1,902 |   | 3,479 |   |
| Weighted average common  and common equivalent shares outstanding (used in calculation of diluted  earnings per share) |       | 67,588                                                        |       | 66,264 |   | 61,850 |   |

 

At December 31, 2003there were 28,000 antidilutive stock options.

62

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

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

*Stock-BasedEmployee Compensation*

TheCompany applies APB Opinion No. 25 and related interpretations inaccounting for its stock-based employee compensation programs.Accordingly, compensation expense recognized was different than what would havebeen otherwise recognized under the fair value based method defined in SFASNo. 123, “Accounting for Stock-Based Compensation”. Had compensationexpense for the plans been determined in accordance with SFAS No. 123, theeffect on the Company’s net income and basic and diluted earnings per commonshare would have been as follows (amounts in thousands, except per share data):

| ** **                                                      | ** ** | **For the years ended December 31,** | ** ** |
|-----------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                      | ** ** | **2005**                                                      | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net income:                                                     |       |                                                          |       |   |   |   |   |
| As reported                                                     |       | $                                                             | 161,886    |   | $ | 66,350 |   | $ | 44,343 |   |
| Stock-based compensation expense reported in  net  income       |       | —                                                        |       | 404 |   | 694 |   |
| Stock-based compensation expense under fair  value method  |       | (2,646                                                        | )          | (6,029 | ) | (8,175 | ) |
| Pro forma net income                                            |       | $                                                             | 159,240    |   | $ | 60,725 |   | $ | 36,862 |   |
| Earnings per  common share:                                     |       |                                                          |       |   |   |   |   |
| Basic—as reported                                          |       | $                                                             | 2.46       |   | $ | 1.03 |   | $ | 0.76 |   |
| Basic—pro forma                                            |       | 2.42                                                          |       | 0.94 |   | 0.63 |   |
| Diluted—as reported                                        |       | $                                                             | 2.40       |   | $ | 1.00 |   | $ | 0.72 |   |
| Diluted—pro forma                                          |       | 2.36                                                          |       | 0.92 |   | 0.60 |   |

 

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,** | ** ** |
|-------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2005 (a)**                                                  | ** ** | **2004 (a)** | ** ** | **2003** | ** ** |
| Expected dividend  yield                        |       | —                                                        |       | — |   | 1.63 | % |
| Expected stock  price volatility                |       | —                                                        |       | — |   | 54.30 | % |
| Risk-free  interest rate                        |       | —                                                        |       | — |   | 2.97 | % |
| Expected average  life of options (years)       |       | —                                                        |       | — |   | 3.42 |   |
| Weighted average fair  value per option granted |       | —                                                        |       | — |   | $ | 7.53 |   |
|                                                 |            |                                                               |            |  |  |  |  |  |

----

(a)           No stock option weregranted resulting in no assumptions.

*Operating Segments*

SFAS No. 131, “Disclosures about Segments of anEnterprise and Related Information”, requires separate financial information bedisclosed for all operating segments of a business. The Company believes thatit meets the “economic similarity” criteria established by SFAS No. 131,and as a result, the Company aggregates all of its properties into oneoperating segment. All of our properties offer the same products, cater to thesame customer base, are all located in the greater Las Vegas, Nevada area, havethe same 

63

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

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

regulatory and taxstructure, share the same marketing techniques and are all directed by acentralized management structure.

*Recently IssuedAccounting Standards*

In December 2004, the Financial AccountingStandards Board (“FASB”) issued SFAS No. 123R, “Share-Based Payment”,which requires that the compensation cost relating to share-based paymenttransactions be recognized in financial statements based on alternative fairvalue models. The share-based compensation cost will be measured based on fairvalue models of the equity or liability instruments issued. The Companycurrently discloses pro forma compensation expense quarterly and annually bycalculating the stock option grants’ fair value using the Black-Scholes model anddisclosing the impact on net income and earnings per share in a note to theconsolidated financial statements. Upon adoption, pro forma disclosure will nolonger be an alternative. The table above reflects the estimated impact thatsuch a change in accounting treatment would have had on our net income andearnings per share if it had been in effect during the years ended December 31,2005, 2004 and 2003. SFAS No. 123R also requires the benefits of taxdeductions in excess of recognized compensation cost to be reported as afinancing cash flow rather than as an operating cash flow as required undercurrent literature. This requirement will reduce net operating cash flows andincrease net financing cash flows in periods after adoption. While the Company cannotestimate what those amounts will be in the future, the amount of operating cashflows recognized for such deductions were $31.8 million, $62.6 million and$25.6 million in 2005, 2004 and 2003, respectively. The Company will begin toapply SFAS No. 123R using the modified prospective method as of theinterim reporting period ending March 31, 2006 as provided by theSecurities Exchange Commission announcement on April 14, 2005 whichamended the effective date. Based on stock options outstanding as of December 31,2005, the Company estimates approximately $2.3 million in expense to berecorded during 2006,  $0.3 million in2007 and virtually zero thereafter.

In June 2005, the FASB ratified Emerging IssuesTask Force (“EITF”) 04-5, “Determining Whether a General Partner, or theGeneral Partners as a Group, Controls a Limited Partnership or Similar EntityWhen the Limited Partners Have Certain Rights.” Under EITF 04-5, the general partners in a limited partnership orsimilar entity are presumed to control that limited partnership regardless ofthe extent of the general partners’ ownership interest in the limitedpartnership. A general partner should assess the limited partners’ rights andtheir impact on the presumption of control. If the limited partners have either(a) the substantive ability to dissolve the limited partnership orotherwise remove the general partners without cause or (b) substantiveparticipating rights, the general partners do not control the limitedpartnership. For general partners of all new limited partnerships formed andfor existing limited partnerships for which the partnership agreement ismodified, EITF 04-5 is effective June 29, 2005. For general partnersin all other limited partnerships, EITF 04-5 is effective for the firstreporting period in fiscal years beginning after December 15, 2005, andallows either of two transition methods. The Company does not believe that EITF04-5 will have a significant impact on its results of operations orfinancial position.

*Reclassifications*

Certain amounts in the December 31,2004 and 2003 consolidated financial statements have been reclassified toconform to the December 31, 2005 presentation. These reclassifications hadno effect on the previously reported net income.

64

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

**2. Receivables**

Componentsof receivables are as follows (amounts in thousands):

| ** **                       | ** ** | **December 31,**                                  | ** ** |
|----------------------------------|------------|--------------------------------------------------------|------------|
| ** **                       | ** ** | **2005**                                               | ** ** | **2004** | ** ** |
| Casino                           |       | $        5,696 |       | $       5,554 |   |
| Hotel                            |       | 2,997                                                  |       | 3,723 |   |
| Management fees                  |       | 8,523                                                  |       | 8,168 |   |
| Other                            |       | 4,054                                                  |       | 6,009 |   |
|                             |       | 21,270                                                 |       | 23,454 |   |
| Allowance for  doubtful accounts |       | (1,666                                                 | )          | (2,002 | ) |
| Receivables, net                 |       | $      19,604            |       | $     21,452 |   |

 

**3. Property and Equipment**

Propertyand equipment consists of the following (amounts in thousands):

| ** **                                 | ** ** | ** **                           | ** ** | **December 31,** | ** ** |
|--------------------------------------------|------------|--------------------------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | **Estimated life (years)** | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Land                                       |       |                                 | —     |                  |       | $ | 230,856 |   | $ | 154,724 |   |
| Buildings and  improvements                |       |                                 | 10-45      |                  |       | 1,027,936 |   | 946,243 |   |
| Furniture,  fixtures and equipment         |       |                                 | 3-7        |                  |       | 531,459 |   | 472,599 |   |
| Construction in  progress                  |       |                                 | —     |                  |       | 729,892 |   | 241,485 |   |
|                                       |       |                                 |       |                  |       | 2,520,143 |   | 1,815,051 |   |
| Accumulated  depreciation and amortization |       |                                 |       |                  |       | (529,559 | ) | (447,094 | ) |
| Property and  equipment, net               |       |                                 |       |                  |       | $ | 1,990,584 |   | $ | 1,367,957 |   |

 

At December 31, 2005and 2004, substantially all property and equipment of the Company is pledged ascollateral for long-term debt.

**4. Land Held forDevelopment**

As of December 31, 2005, the Company had$252.4 million of land held for development that consists primarily ofseven sites that are owned or leased, which comprise 264 acres in the Las Vegasvalley, 188 acres in the Sacramento area near Thunder Valley and 104 acres inReno, Nevada. The primary gaming-entitled land that the Company owns in the LasVegas valley consists of 67 acres located at the intersection of Durango Roadand the Southern Beltway/Interstate 215 in the southwest area of Las Vegas, 49acres also located in southwest Las Vegas at the intersection of Flamingo Roadand Interstate 215, 60 acres located on the southern end of Las Vegas Boulevardat Cactus Avenue of which we lease and have an option to purchase 2.5 acres and26 acres on Boulder Highway at the site formerly known as the Castaways HotelCasino and Bowling Center (the “Castaways”). The Company also owns 54 acreslocated at Losee Road in North Las Vegas, Nevada that was contributed to thejoint venture which will develop Aliante Station (see Note 10—Aliante Station).

65

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

**4. Land Heldfor Development (Continued)**

During 2004, the Company purchased the real propertyand improvements of the Castaways which had closed on January 26, 2004,shortly after its former owners filed for bankruptcy. The Company hasdemolished the existing structure and is currently evaluating potential uses ofthe property.

The Company also has acquired or is under contract toacquire approximately 67 acres of land on which Wild Wild West is located andthe surrounding area of which, approximately 48 acres have been acquired as of December 31,2005. During the year ended December 31, 2005 the Company incurred andexpensed approximately $11.7 million to terminate various leases related to theland. In 2003, the Company exercised its option to purchase the 19-acreparcel of leased land on which Wild Wild West is located which was to occur in July 2005at a purchase price of  approximately $36million. In July 2005, the Company entered into an agreement to extend thedate for the close of escrow to no later than January 2007 at a purchaseprice of approximately $36 million, provided either party may accelerate theclose of escrow to an earlier date upon 90 days’ prior written notice to theother party. In addition, the agreement reduced the lease expense from $2.9million to $1.6 million per year. No amounts related to this purchase optionhave been recorded on the Company’s consolidated balance sheets.

The Company’s decision whetherto proceed with any new gaming or development opportunity is dependent uponfuture economic and regulatory factors, the availability of financing andcompetitive and strategic considerations. As many of these considerations arebeyond the Company’s control, no assurances can be made that it will be able tosecure additional, acceptable financing in order to proceed with any particularproject.

**5. Investments in JointVentures**

TheCompany has investments in three 50% owned joint ventures, Green Valley Ranch,Barley’s and The Greens, 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. Investments in joint venturesconsist of the following (amounts in thousands):

| ** **                     | ** ** | **December 31,** | ** ** |
|--------------------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Green Valley  Ranch (50.0%)    |       | $                     | 104,290    |   | $ | 85,274 |   |
| Barley’s (50.0%)          |       | 3,619                 |       | 2,984 |   |
| The Greens  (50.0%)            |       | 3,396                 |       | — |   |
| Palms Casino  Resort (6.7%)    |       | 17,886                |       | 18,340 |   |
| Investments in  joint ventures |       | $                     | 129,191    |   | $ | 106,598 |   |

 

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

**5. Investments in JointVentures (Continued)**

Summarized balance sheetinformation for the joint ventures is as follows (amounts in thousands):

| ** **                                    | ** ** | **December 31,** | ** ** |
|-----------------------------------------------|------------|-----------------------|------------|
| ** **                                    | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Current assets                                |       | $                     | 67,436     |   | $ | 72,451 |   |
| Property and  equipment and other assets, net |       | 835,171               |       | 633,592 |   |
| Current  liabilities                          |       | 74,393                |       | 60,605 |   |
| Long-term  debt and other liabilities         |       | 384,289               |       | 243,430 |   |
| Stockholders’ equity                     |       | 443,925               |       | 402,008 |   |
|                                               |            |                       |            |  |  |  |  |

 

Summarizedresults of operations for the joint ventures are as follows (amounts inthousands):

| ** **                       | ** ** | **For the years ended December 31,** | ** ** |
|----------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                       | ** ** | **2005**                                                      | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net revenues                     |       | $                                                             | 437,618    |   | $ | 385,838 |   | $ | 327,190 |   |
| Operating costs  and expenses    |       | 341,021                                                       |       | 302,135 |   | 263,481 |   |
| Operating income                 |       | 96,597                                                        |       | 83,703 |   | 63,709 |   |
| Interest and  other expense, net |       | 14,368                                                        |       | 10,069 |   | 12,734 |   |
| Net income                       |       | $                                                             | 82,229     |   | $ | 73,634 |   | $ | 50,975 |   |

 

Theoperating earnings from these joint ventures are shown as a separate line itemon the Company’s consolidated statements of operations after operating income.In addition, interest and other expense from these joint ventures is shown as aseparate component under other income (expense) in the Company’s consolidatedstatements of operations. The following table identifies the total equityearnings from joint ventures (amounts in thousands):

| ** **                                      | ** ** | **For the years ended December 31,** | ** ** |
|-------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2005**                                                      | ** ** | **2004** | ** ** | **2003** | ** ** |
| Operating  earnings from joint ventures         |       | $                                                             | 38,885     |   | $ | 26,524 |   | $ | 20,604 |   |
| Interest and  other expense from joint ventures |       | (6,947                                                        | )          | (4,485 | ) | (7,233 | ) |
| Net earnings from  joint ventures               |       | $                                                             | 31,938     |   | $ | 22,039 |   | $ | 13,371 |   |

 

**6. Management Fees**

The Company manages Thunder Valley on behalf of theUnited Auburn Indian Community (“UAIC”) and receives a management fee equal to24% of net income (as defined in the management agreement). The Company is alsothe managing partner for Green Valley Ranch, Barley’s and The Greens andreceives a management fee equal to 2% of revenues and approximately 5% ofEarnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) fromGreen Valley Ranch and 10% of EBITDA from Barley’s and The Greens. TheCompany’s management fees are included in net revenues on the Company’sconsolidated statements of operations.

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

**6. Management Fees (Continued)**

*United Auburn IndianCommunity*

The Company hasentered into a Development Services Agreement and a Management Agreement withthe UAIC. The Company’s seven-year Management Agreement was approved by theNational Indian Gaming Commission (the “NIGC”) and expires in June 2010.Pursuant to those agreements, and in compliance with a Memorandum ofUnderstanding entered into by the UAIC and Placer County, California, theCompany and the UAIC developed Thunder Valley, a gaming and entertainmentfacility on approximately 49 acres located approximately seven miles north ofInterstate 80 on Highway 65, in Placer County, California, near Sacramento,which opened on June 9, 2003.

**7. Asset Impairment**

The Company recorded animpairment loss of approximately $18.9 million in the year endedDecember 31, 2003 to adjust the carrying value of its goodwill and otherassets to their estimated fair value. The impairment loss consisted of thewrite-off of approximately $17.5 million in goodwill at Fiesta Rancho inaccordance with SFAS No. 142 as a result of reduced growth assumptions.The remaining $1.4 million was primarily related to the write-off of theCompany’s investment in a new slot product development. The impairment of thisasset was based upon a decision by the Company to no longer pursue thedevelopment of certain slot products. As a result, all of the development coststhat the Company had incurred were written off, as they were deemed to have novalue.

**8. Accrued Expenses andOther Current Liabilities**

Accruedexpenses and other current liabilities consist of the following (amounts inthousands):

| ** **                                            | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------|------------|-----------------------|------------|
| ** **                                            | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Accrued payroll  and related                          |       | $                     | 53,523     |   | $ | 40,874 |   |
| Accrued interest  payable                             |       | 35,932                |       | 27,524 |   |
| Other accrued  expenses and current liabilities       |       | 43,440                |       | 44,052 |   |
| Total accrued  expenses and other current liabilities |       | $                     | 132,895    |   | $ | 112,450 |   |

** **

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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,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Revolving credit  facility, $2.0 billion limit at December 31, 2005, due December 31,  2010, interest at a margin above the Alternate Base Rate or the  Eurodollar Rate (5.78% and 4.9% at December 31, 2005 and 2004,  respectively) |       | $                     | 330,000    |   | $ | 51,500 |   |
| 61¤2%  senior subordinated notes, interest payable semi-annually, principal  due February 1, 2014, callable February 1, 2009                                                                                                          |       | 450,000               |       | 450,000 |   |
| 6% senior notes,  interest payable semi-annually, principal due April 1, 2012, callable  April 1, 2008, net of unamortized discount of $1.5 and $1.6 million at December 31,  2005 and December 31, 2004, respectively                |       | 448,542               |       | 448,354 |   |
| 67¤8%  senior subordinated notes, interest payable semi-annually, principal  due March 1, 2016, callable March 1, 2009, net of unamortized  premium of $8.0 million at December 31, 2005                                         |       | 708,003               |       | 350,000 |   |
| 97¤8%  senior subordinated notes principal due July 1, 2010, called  July 1, 2005                                                                                                                                                     |       | —                |       | 17,332 |   |
| 83¤8%  senior notes, principal due February 15, 2008, called  February 15, 2005                                                                                                                                                       |       | —                |       | 16,894 |   |
| Other long-term  debt, weighted-average interest of 6.4% at December 31, 2005, maturity  dates ranging from 2007 to 2026                                                                                                                             |       | 9,244                 |       | 6,060 |   |
| Total long-term  debt                                                                                                                                                                                                                                     |       | 1,945,789             |       | 1,340,140 |   |
| Current portion of long-term  debt                                                                                                                                                                                                                        |       | (108                  | )          | (16,917 | ) |
| Market value of interest  rate swaps                                                                                                                                                                                                                      |       | (1,461                | )          | (1,927 | ) |
| Total long-term debt, net                                                                                                                                                                                                                                 |       | $                     | 1,944,220  |   | $ | 1,321,296 |   |

 

*Revolving Facility*

In December 2005, the Company increased itsavailability under its revolving credit facility (the “Revolving Facility”)from $1.0 billion to $2.0 billion and extended the maturity by one year to December 2010.The Revolving Facility contains no principal amortization. The Borrowers arethe major 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, 2005, the Borrowers’ margin above theEurodollar Rate on borrowings under the Revolving Facility was 1.25%. Themaximum margin for Eurodollar Rate borrowings is 1.75%. The maximum margin forAlternate Base Rate borrowings is 0.50%. As of December 31, 2005, the feefor the unfunded portion of the Revolving Facility was 0.30%.

The Revolving Facility contains certain financial andother covenants. These include a maximum funded debt to Adjusted EBITDA ratiofor the Borrowers combined of 3.25 to 1.00 for each quarter until December 31,2008 and 3.00 to 1.00 for the remaining term of the facility and a minimumfixed charge coverage ratio for the preceding four quarters for the Borrowerscombined of 1.25 to 1.00 for each quarter. As of December 31, 2005, theBorrowers’ funded debt to Adjusted EBITDA ratio was 0.89 to 1.00 and the fixedcharge coverage ratio was 2.13 to 1.00. In addition, the Revolving Facility hasfinancial and other 

69

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

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

covenants, which requirethat the maximum consolidated funded debt to Adjusted EBITDA ratio can be nomore than 5.50 to 1.00 through December 31, 2006, which reduces to 5.25 to1.00 on March 31, 2007 through December 31, 2007, to 5.00 to 1.00 on March 31,2008 through December 31, 2008, to 4.75 to 1.00 on March 31, 2009through December 31, 2009 and to 4.50 to 1.00 on March 31, 2010.Other covenants limit prepayments of indebtedness or rent (includingsubordinated debt other than re-financings meeting certain criteria), assetdispositions, dividends, indebtedness, and investments. As of December 31,2005, the Company’s consolidated funded debt to Adjusted EBITDA ratio was 4.13to 1.00. The Company has pledged the stock of all of its major subsidiaries.

*Senior and Senior Subordinated Notes (See Note 16)*

During 2005, the Companyissued $350.0 million of additional 67¤8% seniorsubordinated notes due in March 2016 which were add-ons to the $350.0million of senior subordinated notes issued by the Company in February 2004.The proceeds were used to repay outstanding borrowings under the RevolvingFacility, for capital expenditures related to the Company’s developmentprojects and for general corporate purposes.

During 2005, the Companyredeemed the remaining $16.9 million of outstanding 83¤8%senior notes due 2008 and the remaining $17.4 million of outstanding 97¤8%senior subordinated notes due 2010. As a result of these redemptions, theCompany recorded a loss on early retirement of debt of approximately $1.3million for the year ended December 31, 2005 to reflect the write-off ofthe unamortized loan costs, unamortized discount and call premium.

During the first quarterof 2004, the Company refinanced substantially all of its senior and seniorsubordinated notes. The Company issued $1.25 billion in new senior and seniorsubordinated notes which consisted of $450.0 million 6% senior notes due in April 2012,$450.0 million 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.

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, 2005, the Company’sConsolidated Coverage Ratio (as defined in the Indentures) was 4.35 to 1.00.The Indentures 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 in the Indentures) for the four most recent quarters, plus$15 million. The Indentures also give the holders of the Notes the rightto require the Company to purchase the Notes at 101% of the principal amount of

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

**9. Long-termDebt (Continued)**

the Notes plus accruedinterest thereon upon a Change of Control and Rating Decline (each as definedin the Indentures) of the Company. In addition, the indenture governing thesenior notes contains a limitation on liens the Company can incur.

The estimated fair value of the Company’s long-termdebt at December 31, 2005 was approximately $1.96 billion, comparedto its book value of approximately $1.95 billion. The estimated fair valueamounts were based on quoted market prices on or about December 31, 2005,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.

Scheduledmaturities of long-term debt are as follows (amounts in thousands):

| **Years ending December 31,** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|------------|------------|------------|------------|
| 2006                                         |       | $          | 108        |       |
| 2007                                         |       | 351        |       |
| 2008                                         |       | 5,663      |       |
| 2009                                         |       | 111        |       |
| 2010                                         |       | 330,120    |       |
| Thereafter                                   |       | 1,609,436  |       |
| Total                                        |       | $          | 1,945,789  |       |

 

*Interest Rate Swaps*

The Company has enteredinto various interest rate swaps with members of its bank group to manageinterest expense. As of December 31, 2005, the Company has interestrate swaps with a combined notional amount of $300.0 million. The Companyentered into a fair value hedge interest rate swap with a notional amount of$50.0 million tied directly to the Company’s 6% senior notes converting aportion of the Company’s fixed-rate debt to a floating-rate based upon three-monthLIBOR rates, terminating in April 2012. This interest rate swap qualifiesfor the “shortcut” method allowed under SFAS No. 133, “Accounting forDerivative Instruments and Hedging Activities” (and as amended by SFAS No. 138and 149), which allows for an assumption of no ineffectiveness. As such, thereis no income statement impact from changes in the fair value of the hedginginstrument. 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 $2.1 million and $2.2 million asof December 31, 2005 and 2004, respectively, representing the fair valueof the interest rate swaps and a corresponding decrease in long-term debt, asthese interest rate swaps are considered highly effective under the criteriaestablished by SFAS No. 133.  TheCompany paid a weighted average rate based on LIBOR, which approximated 5.73%at December 31, 2005 and received a fixed rate of 6.00%.

In December 2005, the Company entered into aninterest rate swap with a notional amount of $250.0 million tied directly tothe Company’s Revolving Facility and converts a portion of the Company’sfloating-rate debt to a fixed-rate based on three-month LIBOR rates,terminating in December 2010. The Company will pay a rate of 4.92% andwill receive three-month LIBOR. This interest rate swap is designated andqualifies as  cash flow hedge resultingin the effective portion of the gain or loss reported as a component of othercomprehensive income (loss). For the year ended December 31, 2005, theCompany recorded other comprehensive loss of $0.8 million related to the changein market value of this interest rate swap.

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

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

The difference between amounts received and paid undersuch agreements, as well as any costs or fees, is recorded as a reduction of,or an addition to, interest expense as incurred over the life of the swap. Thenet effect of the interest rate swaps resulted in a reduction in interestexpense of $2.1 million, $7.3 million and $3.6 million for the yearsended December 31, 2005, 2004 and 2003, respectively.

**10. Commitments andContingencies**

***Leases***

*Boulder StationLease*

The Company entered into a ground lease for 27 acresof land on which Boulder Station is located. The Company leases this land fromKB Enterprises, a company owned by Frank J. Fertitta, Jr. andVictoria K. Fertitta (the “Related Lessor”), the parents of Frank J.Fertitta III, Chairman of the Board and Chief Executive Officer of the Companyand Lorenzo J. Fertitta, Vice Chairman and President of the Company. The leasehas a maximum term of 65 years, ending in June 2058. The leaseprovides 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 a ground lease for 47 acresof land on which Texas Station is located. The Company leases this land fromTexas Gambling Hall & Hotel, Inc., a company owned by the RelatedLessor. The lease has a maximum term of 65 years, ending in July 2060.The lease provides for monthly rental payments of $337,417 through June 2010.In July 2010, and every ten years thereafter, the rent will be adjusted tothe product of the fair market value of the land and the greater of (i) thethen prevailing annual rate of return being realized for owners of comparableland in Clark County or (ii) 8% per year. In July 2015, and every tenyears thereafter, the rent will be adjusted by a cost of living factor. In noevent will the rent for any period be less than the immediately precedingperiod. Pursuant to the ground lease, the Company has an option, exercisable atfive-year intervals with the next option in May 2010, to purchase the landat fair market value. The Company’s leasehold interest in the property issubject to a lien to secure borrowings under the Revolving Facility.

*Wild Wild WestLease*

The Company exercised its option to purchase the 19-acreparcel of land on which Wild Wild West is located in 2003. Pursuant to thelease, the purchase was to take place in July 2005 for approximately$36 million. In July 2005, the Company entered into an agreement toextend the date for the close of escrow to no later than January 2007 at apurchase price of $36 million, provided that either party may accelerate theclose of escrow to an earlier date upon 90 days’ prior written notice to theother party. In addition, the agreement reduces the lease expense from $2.9million to $1.6 million per year. No amounts 

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

**10. Commitmentsand Contingencies (Continued)**

related to this purchaseoption have been recorded on the Company’s consolidated balance sheets at December 31,2005 and 2004.

*Operating Leases*

The Company leasesseveral parcels of land, buildings and equipment used in its operations. Leaseson various parcels ranging from 2.5 acres to 47 acres have terms expiringbetween January 2007  and August 2103.Future minimum lease payments required under these operating leases and othernoncancelable operating leases are as follows (amounts in thousands):

| **Years ending December 31,** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|------------|------------|------------|------------|
| 2006                                         |       | $          | 11,812     |       |
| 2007                                         |       | 9,968      |       |
| 2008                                         |       | 9,359      |       |
| 2009                                         |       | 9,245      |       |
| 2010                                         |       | 9,292      |       |
| Thereafter                                   |       | 437,888    |       |
| Total                                        |       | $          | 487,564    |       |

 

Rent expense totaledapproximately $12.8 million, $14.9 million and $13.6 million for theyears ended December 31, 2005, 2004 and 2003, respectively.

***Las Vegas Development***

*Red Rock*

**In April 2004, the Companycommenced construction of Red Rock located on Charleston Boulevard at theInterstate 215/Charleston interchange in the Summerlin master-planned communityin Las Vegas, Nevada. Phase I of Red Rock is scheduled to open on April 18,2006 and is expected to include over 400 hotel rooms, approximately 3,200 slotmachines, 94,000 square feet of meeting and convention space, a 35,000-square- footspa, eight full-service restaurants, a 16-screen movie theater complex, anight club and private pool club to be operated by Midnight Oil Company, bothindoor and outdoor entertainment venues and parking for approximately 5,000 vehicles.The cost of phase I is expected to be approximately $760.0 million. Phase IIwhich is expected to include an additional hotel tower containing over 400hotel rooms, is currently under construction and is expected to be completed bythe end of 2006. The total cost of both phases of Red Rock is expected to beapproximately $925 million, of which approximately $634.4 million has beenincurred as of December 31, 2005.**

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

**10. Commitmentsand Contingencies (Continued)**

On July 27, 2005, theCompany entered into a joint venture with Cloobeck Molasky Partners I, LLC (“CloobeckMolasky”) to develop a high-end residential project on approximately 5 acreslocated adjacent to the hotel at Red Rock. It is anticipated that theresidential project is expected to contain approximately 400 luxury units. Pursuantto the terms of the operating agreement, the Company will own 80% of the jointventure and Cloobeck Molasky will own 20%. Subject to obtaining local approvalsand market conditions, sales of the residential towers are expected to begin in2006.

*Santa Fe StationExpansion*

In October 2005, the Company began a $130 millionphase III master-planned expansion at Santa Fe Station which is expected toinclude a 2,900-space parking garage, a 500-seat buffet, 400additional slot machines, remodeled and expanded race and sports book, a 15,000-square-footmeeting and banquet facility and a new center bar. The entire project isexpected to include approximately 125,000 square feet of additional space. Constructionof this project is expected to be completed in phases beginning in the thirdquarter of 2006 through the fourth quarter of 2006. Approximately $11.1 millionhas been incurred on the expansion as of December 31, 2005.

*Fiesta HendersonExpansion*

In October 2005, theCompany began a $70 million phase II master-planned expansion at FiestaHenderson which is expected to include a 1,500-space parking garage, 350additional slot machines, a remodeled and expanded race and sports book and a 12-screenmove theater complex. Construction of this project is expected to be completedin the third quarter of 2006 with the exception of the movie theater complexwhich is expected to be completed in the summer of 2007. Approximately $9.6million has been incurred on the expansion as of December 31, 2005.

*Green Valley RanchExpansion*

In October 2005, theCompany began a $110 million phase III master-planned expansion at Green ValleyRanch which is expected to include 1,500-space parking garage, additionalslot machines, a new race and sports book, a new poker room, a 500-seatentertainment lounge, 14,000 square feet of convention space and two newrestaurants. Construction of this project is expected to be completed in phasesfrom the fourth quarter of 2006 through early 2007. Approximately $21.1 millionhad been incurred on the expansion as of December 31, 2005.

*Aliante Station*

**In December 2005, the Company entered into anagreement with the Greenspun Corporation to develop Aliante Station, a hoteland casino in the Aliante master-planned community located in North Las Vegas,Nevada. The Company will develop and manage the facility, to be located on agaming-entitled 40-acre site on the northeast corner of Interstate 215and Aliante Parkway, which was contributed by the Greenspun Corporation fortheir 50% ownership in the joint venture. The Company will receive a managementfee equal to 2% of the property’s revenues and approximately 5% of EBITDA. Thefirst phase of Aliante Station is expected to include 200 hotel rooms,approximately 2,000 slot machines, multiple full-service restaurants and amulti-screen movie theater complex. The Company expects to begin constructionon Aliante Station in late 2006 or early 2007 with a cost of approximately $450million.**

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

**10. Commitmentsand Contingencies (Continued)**

Pursuant to the terms of the agreement, in January 2006,the Company contributed a 54 acre site located on Losee Road in North LasVegas, Nevada, as well as approximately $2.2 million  for our 50% ownership in the joint venture. Asof December 31, 2005, the 54 acre site is included in land held fordevelopment on the Company’s consolidated balance sheets.

***Native American Development***

*The FederatedIndians of Graton Rancheria*

The Company has entered into Development andManagement Agreements with the Federated Indians of 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 assist them in designing, developing and financing theproject and, upon opening, the Company will manage the facility on behalf ofthe FIGR. The Management Agreement has a term of seven years from the openingof the facility and the Company will receive a management fee equal to 24% ofthe facility’s net income. The Company will also receive a development feeequal to 2% of the cost of the project upon the opening 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. In August 2005, theCompany purchased 180 acres of the optioned property and an additional 90 acres.The property purchased is approximately one-quarter mile from Highway 101 and approximately43 miles from downtown San Francisco. In October 2003, the FIGR enteredinto a Memorandum of Understanding with the City of Rohnert Park. Developmentof the gaming 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 FIGR and approval of the Management Agreement by the NIGC. Priorto obtaining third-party financing, the Company will contribute significantfinancial support to the project. As of December 31, 2005, theCompany had advanced approximately $125.9 million toward the developmentof this project, primarily to complete the environmental impact study andsecure real estate for the FIGR project, which is included on the Company’sconsolidated balance sheets. Funds advanced by the Company are expected to berepaid with the proceeds of the project financing or from the FIGR’s gamingrevenues. In addition, the Company has agreed to pay approximately$11.3 million of payments upon achieving certain milestones, which willnot be reimbursed. As of December 31, 2005, 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, the Company agreed to purchase a50% interest in MPM Enterprises, LLC, a Michigan limited liability company (“MPM”).Concurrently with the Company’s agreement to purchase that interest, MPM andthe Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians, a federallyrecognized Native American tribe commonly referred to as the Gun Lake Tribe (“GunLake”), entered into amended Development and Management Agreements, pursuant towhich MPM will assist Gun Lake in developing and operating a gaming and entertainmentproject to be located in Allegan County,**

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

**10. Commitmentsand Contingencies (Continued)**

Michigan. The Company has agreed to pay$6.0 million for its 50% interest in MPM, which is payable upon achievingcertain milestones and is not reimbursable. As of December 31, 2005,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, 2005,the Company had advanced approximately $28.6 million toward thedevelopment of this project, primarily to complete the environmental assessmentand secure real estate for the project, which is included on the Company’sconsolidated balance sheets. Funds advanced by the Company are expected to berepaid from the proceeds of the project financing or from Gun Lake’s gamingrevenues. The amended Management Agreement has a term of seven years from theopening of the facility and provides for a management fee of 30% of the project’snet income to be paid to MPM. Pursuant to the terms of the MPM OperatingAgreement, the Company’s portion of the management fee is 50% of the first$24 million of management fees earned, 83% of the next $24 million ofmanagement 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 129th Avenue, approximately 25 miles north ofKalamazoo, Michigan. As currently contemplated, the project is expected to includeup to 2,500 slot machines, 75 table games, a buffet and specialty restaurants.Construction of the project includes the conversion of an existing 192,000-square-footbuilding into the casino and entertainment facility. Development of the gamingand entertainment project and operation of Class III gaming is subject tocertain governmental andregulatory approvals, including, but not limited to,the signing of a gaming compact by the Governor of the State of Michigan, theDOI accepting the land into trust on behalf of Gun Lake and approval of theManagement Agreement by the NIGC. On February 27, 2004, the DOI issued aFinding Of No Significant Impact with respect to the proposed project. On May 13,2005, the DOI published in the Federal Register a Notice of Final AgencyDetermination (the “Determination”) to take certain land into trust for thebenefit of Gun Lake. The publication commenced a thirty-day period in whichinterested parties could seek judicial review of the Determination. On June 13,2005, Michigan Gambling Opposition filed a complaint (the “Complaint”) in theUnited States District Court, District of Columbia, seeking declaratory andinjunctive relief against the DOI and officials of the DOI. The Complaint seeksjudicial review of the Determination. On July 27, 2005, Gun Lake filed amotion to intervene in that lawsuit. On September 1, 2005, the DistrictCourt granted Gun Lake’s motion to intervene. On January 6, 2006, Gun Lakefiled a motion for judgement on the pleadings or, in the alternative, forsummary judgement. Also on January 6, 2006, the DOI filed a motion todismiss or, in the alternative, for summary judgement. As with all litigation,no assurances can be provided as to the outcome of that lawsuit. Prior toobtaining third-party financing, the Company will contribute significantfinancial support to the project. 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.

*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 

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

**10. Commitmentsand Contingencies (Continued)**

gaming and entertainmentfacility to be located on approximately 650 acres in Butte County, California,at the intersection of State Route 149 and Highway 99, approximately 10 milessoutheast of Chico, California and 80 miles north of Sacramento, California.Under the terms of the Development Agreement, the Company has agreed to arrangethe financing for the ongoing development costs and construction of thefacility. Funds advanced by the Company are expected to be repaid from theproceeds of the facility financing or from the MITCR’s gaming revenues. As of December 31, 2005,the Company had advanced approximately $6.9 million toward the development ofthis project, primarily to complete the environmental impact study and securereal estate for the project, which is included on the Company’s consolidatedbalance sheets. In addition, the Company has agreed to pay approximately $2.2million of payments upon achieving certain milestones, which will not bereimbursed. As of December 31, 2005, $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 is expected to include approximately 700 slotmachines, 12 table games and dining and entertainment amenities. Development ofthe facility is subject to certain governmental and regulatory approvals,including, but not limited to, negotiating a gaming compact with the State ofCalifornia, the DOI accepting land into trust on behalf of the MITCR andapproval of the Management Agreement by the NIGC. Prior to obtainingthird-party financing, the Company 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 ForkRancheria of Mono Indian Tribe*

**The Company has entered into Development and ManagementAgreements with the North Fork Rancheria of Mono Indians (the “Mono”), afederally recognized Native American tribe located near Fresno, California.Pursuant to those agreements, the Company will assist the Mono in developingand operating a gaming and entertainment facility to be located in MaderaCounty, California. The Company has secured for the benefit of the Mono twoparcels of land located on Highway 99 north of the city of Madera. Under the termsof the development Agreement, the Company has agreed to arrange the financingfor the ongoing development costs and construction of the facility. Fundsadvanced by the Company are expected to be repaid from the proceeds of theproject financing or from the Mono’s gaming revenues. As of December 31, 2005,the Company had advanced approximately $3.9 million toward the developmentof this project, primarily to complete the environmental impact study andsecure real estate for the project, which is included on the Company’sconsolidated balance sheets. In addition, the Company has agreed to payapproximately $1.3 million of payments upon achieving certain milestones, whichwill not be reimbursed. These payments will be expensed as incurred. As of December 31,2005, none of these payments had been made. The Management Agreement has a termof seven years from the opening of the facility and provides for a managementfee of 24% of the facility’s net income. As currently contemplated, thefacility is expected to include approximately 2,000 slot machines, 60 tablegames, dining, hotel and entertainment amenities. 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 DOI accepting the land into trust on behalf of theMono and approval of the Management Agreement by the NIGC. Prior to obtainingthird-party financing, the Company will contribute significant financialsupport to the project. The timing of this type of project is difficult to**

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

**10. Commitmentsand Contingencies (Continued)**

**predict,and is dependant upon the receipt of the necessary governmental and regulatoryapprovals. There can be no assurances when or if these approvals will beobtained.**

**11. Stockholders’ Equity**

*Common Stock*

**The Company is authorized to issueup to 135 million shares of its common stock, $0.01 par value per share,79,047,602 shares of which were issued and 10,521,414 shares of which were heldin treasury as of December 31, 2005. 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,such dividends as may be declared by the Board of Directors out of fundslegally available therefore, as well as any distributions to the stockholdersand, in the event of liquidation, dissolution or winding up of the Company, isentitled to share ratably in all assets of the Company remaining after paymentof liabilities.**

During the year ended December 31, 2005, theCompany paid a quarterly cash dividend of $0.21 per share to shareholders ofrecord on February 11, 2005 and May 13, 2005 and $0.25 per share toshareholders of record on August 12, 2005 and November 11, 2005. Thetotal amount paid in dividends for 2005 was $62.6 million.

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 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, 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.

*Preferred Stock*

The Company is authorized to issue up to5 million shares of its preferred stock, $0.01 par value per share ofwhich none were issued. The Board of Directors, without further action by theholders of common stock, may issue shares of preferred stock in one or moreseries 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 endedDecember 31, 2005, the Company repurchased approximately 336,000 shares ofits common stock for approximately $21.4 million. As of December 31,2005, the Company had acquired approximately 10.5 million shares at a costof approximately $159.1 million and is authorized to repurchaseapproximately 10.1 million additional shares of its common stock (see Note 16).

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

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

*Other ComprehensiveIncome*

SFAS No. 130,“Reporting Comprehensive Income”, requires companies to disclose othercomprehensive income and the components of such income. Comprehensive income isthe total of net income and all other non stockholder changes in equity. Forthe years ended December 31, 2005, 2004 and 2003, the Company recorded themark-to-market valuation of its interest rate swap and its 50% interest in themark-to-market valuation of the interest rate swaps at Green Valley Ranch asother comprehensive income. Comprehensive income was computed as follows(amounts in thousands):

| ** **                                                   | ** ** | **For the years ended December 31,** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                   | ** ** | **2005**                                                      | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net income                                                   |       | $                                                             | 161,886    |   | $ | 66,350 |   | $ | 44,343 |   |
| Mark-to-market  valuation of interest rate swaps, net of tax |       | 635                                                           |       | 723 |   | 361 |   |
| Comprehensive  income                                        |       | $                                                             | 162,521    |   | $ | 67,073 |   | $ | 44,704 |   |

 

*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 acquiredbeneficial ownership of 15% or more of the outstanding common stock (“AcquiringPerson”) or 10 business days (or such later date as may be determined by actionof the Board of Directors prior to such time as any person or group ofaffiliated persons becomes an Acquiring Person) following the commencement of,or announcement 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 as otherholders upon exercise of the Rights. Because of the nature of the PreferredShares’ dividend, liquidation and voting rights, the value of one one-hundredthinterest in a Preferred Share purchasable upon exercise of each Right shouldapproximate the value of one common share. In the event that any person orgroup of affiliated or associated persons becomes an Acquiring Person, theproper provisions will be made so that each holder of a Right, other thanRights beneficially owned by the Acquiring Person (which will thereafter becomevoid), will thereafter have the right to receive upon exercise that number ofshares of common stock having a market value of two times the exercise price ofthe Right. In the event that the Company is acquired in a merger or otherbusiness combination transaction or 50% or more of its consolidated assets orearning power are sold after a person or group has become an Acquiring Person,proper provision will be made so that each holder of a Right will thereafterhave the right to receive, upon exercise thereof, that number of shares ofcommon stock of the acquiring company, which at the time of such transactionwill have a market value of two times the exercise price of the Right. Becauseof the characteristics of the Rights in connection with a person or group ofaffiliated or 

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

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

associatedpersons becoming an Acquiring Person, the Rights may have the effect of makingan acquisition of the Company more difficult and may discourage such anacquisition.

**12. Benefit Plans**

*Stock CompensationPrograms*

In May 2005, the stockholders approved and the Companyadopted the 2005 Stock Compensation Plan (the “2005 Plan”) which provides forgrants of stock options, stock appreciation rights, restricted stock,restricted stock units, and other stock awards (collectively, the “Awards”). Individualseligible to receive Awards under the 2005 Plan include employees, directors andindependent contractors of the Company and its subsidiaries and other entitiescontrolled by the Company. However, incentive stock options may be granted onlyto an employee of the Company or a subsidiary of the Company. Upon adoption ofthe 2005 Plan, no additional grants of awards will be made under the followingplans of the Company (the “Prior Plans”): (i) the Incentive Stock OptionPlan, (ii) the Compensatory Stock Option Plan, (iii) the RestrictedShare Plan, (vi) the Non-employee Director Stock Option Plan, (v) the1999 Compensatory Stock Option Plan, and (vi) the 1999 Share Plan.

Under the 2005 Plan the maximum number of shares ofcommon stock that will be available for the grants of Awards is 3,829,671,which includes 3,000,000 new shares and 829,671 shares that were available forawards under the Prior Plans. The number of shares otherwise available for thegrant of Awards under the 2005 Plan will be increased by the number of sharessubject to awards granted under any of the Prior Plans that are currentlyoutstanding which are cancelled, terminated, or forfeited or expire after theeffective date of the 2005 Plan. Each share subject to an award of restrictedstock, restricted stock unit or other stock award shall reduce the sharesavailable for grant by 1.9 shares. Options are granted at the current marketprice at the date of grant. The plan provides for a variety of vestingschedules, including immediate, 20% per year for five years, 10% per year for10 years, and a cliff vest at the vesting date, to be determined at thetime of grant. Generally, all options expire 10 years from the date ofgrant.

The 2005 Plan will terminate 10 years from thedate of adoption or extension, unless terminated earlier by the Board ofDirectors, and no options or restricted shares may be granted. Summarizedinformation for the 2005 Plan and Prior Plans, collectively, is as follows:

| ** **                            | ** ** | **For the years ended December 31,** | ** ** |
|---------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                            | ** ** | **2005**                                                      | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                            | ** ** | **Options**                                                   | ** ** | **Weighted  average  exercise  price** | ** ** | **Options** | ** ** | **Weighted  average  exercise  price** | ** ** | **Options** | ** ** | **Weighted  average  exercise  price** | ** ** |
| Outstanding at  beginning of the year |       | 3,952,700                                                     |       |   | $ | 11.96 |   |   | 9,619,816 |   |   | $ | 11.25 |   |   | 13,533,544 |   |   | $ | 10.59 |   |   |
| Granted                               |       | —                                                        |       |   | — |   |   | — |   |   | — |   |   | 169,500 |   |   | $ | 19.98 |   |   |
| Exercised                             |       | (1,620,018                                                    | )          |   | $ | 11.70 |   |   | (5,203,316 | ) |   | $ | 10.57 |   |   | (3,838,986 | ) |   | $ | 8.63 |   |   |
| Canceled                              |       | (18,500                                                       | )          |   | $ | 14.78 |   |   | (463,800 | ) |   | $ | 12.72 |   |   | (244,242 | ) |   | $ | 13.15 |   |   |
| Outstanding at  end of the year       |       | 2,314,182                                                     |       |   | $ | 12.12 |   |   | 3,952,700 |   |   | $ | 11.96 |   |   | 9,619,816 |   |   | $ | 11.25 |   |   |
| Exercisable at  end of year           |       | 1,547,382                                                     |       |   | $ | 12.24 |   |   | 1,972,850 |   |   | $ | 11.82 |   |   | 5,383,469 |   |   | $ | 10.36 |   |   |
| Options available for  grant          |       | 3,648,692                                                     |       |   |   |   |   | 456,876 |   |   |   |   |   | 1,182,455 |   |   |   |   |   |

 

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

**12. BenefitPlans (Continued)**

The following tablesummarizes information about the options outstanding at December 31, 2005:

| ** **                          | ** ** | **Options outstanding**                             | ** ** | **Options exercisable**                            | ** ** |
|-------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| **Range of  exercise  prices** | ** ** | **Number  outstanding  at  December 31, 2005** | ** ** | **Weighted  average  remaining  contractual life** | ** ** | **Weighted  average  exercise  price** | ** ** | **Number  exercisable  at  December 31, 2005** | ** ** | **Weighted  average  exercise  price** | ** ** |
| $  5.00 - $10.00          |       |                                                     | 898,050    |                                                    |       |   | 5.89 |   |   |   | $ | 8.57 |   |   |   | 506,650 |   |   |   | $ | 8.58 |   |   |
| $10.01 - $15.00                     |       |                                                     | 1,204,675  |                                                    |       |   | 5.30 |   |   |   | $ | 13.76 |   |   |   | 929,975 |   |   |   | $ | 13.70 |   |   |
| $15.01 - $20.00                     |       |                                                     | 187,457    |                                                    |       |   | 5.81 |   |   |   | $ | 16.91 |   |   |   | 104,757 |   |   |   | $ | 16.33 |   |   |
| $20.01 - $31.65                     |       |                                                     | 24,000     |                                                    |       |   | 7.56 |   |   |   | $ | 25.78 |   |   |   | 6,000 |   |   |   | $ | 24.61 |   |   |
|                                |       |                                                     | 2,314,182  |                                                    |       |   | 5.59 |   |   |   | $ | 12.12 |   |   |   | 1,547,382 |   |   |   | $ | 12.24 |   |   |

 

Restricted stock grants of 137,000, 1,420,413, and383,468 shares were issued under the 2005 Plan and Prior Plans during the yearsended December 31, 2005, 2004 and 2003, respectively. The effect of thesegrants is to increase the issued and outstanding shares of the Company’s commonstock and decrease the number of shares available for grant in the plan.Deferred compensation is recorded for the restricted stock grants equal to themarket value of the Company’s common stock on the date of grant. The deferredcompensation is amortized over the period the restricted stock vests and isrecorded as compensation expense in the accompanying consolidated statements ofoperations.

The fair value on thegrant date of the restricted shares and the amount of compensation expenserecognized in connection with the restricted shares is as follows (amounts inthousands):

| ** **                | ** ** | **For the years ended December 31,** | ** ** |
|---------------------------|------------|---------------------------------------------------------------|------------|
| ** **                | ** ** | **2005**                                                      | ** ** | **2004** | ** ** | **2003** | ** ** |
| Fair value on  grant date |       | $                                                             | 9,087      |   | $ | 65,924 |   | $ | 11,472 |   |
| Compensation expense      |       | 12,669                                                        |       | 9,676 |   | 3,201 |   |
|                           |            |                                                               |            |  |  |  |  |  |  |  |

 

*401(k) Plan*

The Company has a defined contribution401(k) plan, which covers all employees who meet certain age and length ofservice requirements and allows an employer contribution up to 50% of the first4% of each participating employee’s compensation. Plan participants can electto defer before tax compensation through payroll deductions. These deferralsare regulated under Section 401(k) of the Internal Revenue Code. TheCompany’s matching contribution was approximately $2.2 million,$2.0 million and $1.8 million for the years ended December 31,2005, 2004 and 2003, respectively.

**13. 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)**

**14. Income Taxes**

The Company files a consolidated federal income taxreturn. The provision for income taxes for financial reporting purposes was$94.3 million, $38.9 million and $23.8 million for the years ended December 31,2005, 2004 and 2003, respectively.

Theprovision for income taxes attributable to net income consists of the following(amounts in thousands):

| ** **         | ** ** | **For the years ended December 31,** | ** ** | ** ** |
|--------------------|------------|---------------------------------------------------------------|------------|------------|
| ** **         | ** ** | **2005**                                                      | ** ** | **2004**   | ** ** | **2003** | ** ** | ** ** |
| Current            |       | $                                                             | (31,864    | )          | $ | (10,187 | ) | $ | (27,416 | ) |   |
| Deferred           |       | (62,477                                                       | )          | (28,692    | ) | 3,582 |   |   |
| Total income taxes |       | $                                                             | (94,341    | )          | $ | (38,879 | ) | $ | (23,834 | ) |   |

 

The income tax provisiondiffers from that computed at the federal statutory corporate tax rate asfollows:

| ** **                                                             | ** ** | **For the years ended December 31,** | ** ** | ** ** |
|------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|------------|
| ** **                                                             | ** ** | **2005**                                                      | ** ** | **2004**   | ** ** | **2003** | ** ** | ** ** |
| Federal statutory  rate                                                |       | 35.0                                                          | %          | 35.0       | % | 35.0 | % |   |
| Lobbying and  political                                                |       | 0.2                                                           |       | 0.4        |   | 0.2 |   |   |
| Fines and  penalties                                              |       | —                                                        |       | 0.6        |   | — |   |   |
| Meals and  entertainment                                               |       | —                                                        |       | 0.1        |   | 0.1 |   |   |
| Credits earned,  net                                                   |       | (0.3                                                          | )          | (0.6       | ) | (0.9 | ) |   |
| Nondeductible  officers compensation                                   |       | 1.7                                                           |       | 2.4        |   | 2.6 |   |   |
| Reduction in liability  based on conclusion of an IRS examination |       | —                                                        |       | (1.1       | ) | (2.2 | ) |   |
| Other, net                                                             |       | 0.2                                                           |       | 0.1        |   | 0.2 |   |   |
| Effective tax  rate                                                    |       | 36.8                                                          | %          | 36.9       | % | 35.0 | % |   |

 

 

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

**14. Income Taxes (Continued)**

The tax effects ofsignificant temporary differences representing net deferred tax assets andliabilities are as follows (amounts in thousands):

| ** **                                               | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------|------------|-----------------------|------------|
| ** **                                               | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Deferred tax  assets:                                    |       |                  |       |   |   |
| Accrued vacation, bonuses and group insurance            |       | $                     | 6,394      |   | $ | 4,986 |   |
| Preopening and other costs, net of amortization          |       | 1,051                 |       | 4,991 |   |
| Net operating loss carryover                             |       | —                |       | 53,256 |   |
| Accrued benefits                                         |       | 15,752                |       | 13,739 |   |
| FICA credits                                             |       | 3,961                 |       | 2,846 |   |
| Minimum tax credit carryover                             |       | 22,712                |       | 20,838 |   |
| Other deferred tax assets                                |       | 5,237                 |       | 5,294 |   |
| Total deferred  tax assets                               |       | $                     | 55,107     |   | $ | 105,950 |   |
| Deferred tax  liabilities:                               |       |                  |       |   |   |
| Prepaid expenses and other                               |       | $                     | (12,373    | ) | $ | (10,463 | ) |
| Temporary differences related to property and  equipment |       | (112,641              | )          | (110,309 | ) |
| Amortization                                             |       | (9,880                | )          | (5,485 | ) |
| Total deferred  tax liabilities                          |       | $                     | (134,894   | ) | $ | (126,257 | ) |
| Net                                                      |       | $                     | (79,787    | ) | $ | (20,307 | ) |

 

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, 2005 or 2004relating 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 in the year ended December 31,2004.

**15. 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 to any litigation, the Company believes that the plaintiffs’ claimsare without merit and does not expect that the lawsuits will have a materialadverse effect on the 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 its subsidiaries are liable forunspecified actual and punitive damages, and they seek 

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

**15. LegalMatters (Continued)**

injunctive and otherrelief, based on allegations that the Company’s “Boarding Pass 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 ofU.S. Patent No. 5,761,647, (2) a Motion for Partial Summary Judgmentof Infringement 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, theDistrict Court heard oral argument on certain of the summary judgment motionsand motions to strike. On May 19, 2004, the District Court granted theCompany’s motion for summary judgment on Harrah’s claims that the Company hadinfringed 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 subjectmatter. A substantial portion of the patent infringement claim brought byHarrah’s regarding U.S. Patent No. 6,003,013 (the “013 Patent”) was alsodismissed as a result of that summary judgment ruling. On August 23, 2004,the District Court entered final judgment and declared invalid all claims ofU.S. Patent Nos. 5,761,647 and 6,183,362, and all but three claims of the ‘013Patent. The final judgment also dismissed with prejudice all claims of the ‘013Patent that were not declared invalid, and dismissed without prejudice theCompany’s counterclaims for declaratory judgment of noninfringement andinvalidity.**

On September 13, 2004, Harrah’s filed a Notice ofAppeal with the United States Court of Appeals for the Federal Circuit. On October 14,2004, the Company filed a Notice of Cross Appeal with the Federal Circuit. On November 14,2005, the Federal Circuit affirmed the decision of the District Court grantingthe Company’s motion for summary judgment on Harrah’s claims that the Companyhad infringed upon the above-referenced patents.

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

**15. LegalMatters (Continued)**

This ruling by the FederalCourt affirming the District Court’s decision resolves in the Company’s favorall of the remaining patent infringement issues in the lawsuit brought byHarrah’s against the Company. While Harrah’s has limited rights to appeal thedecision, and while no assurances can be made with respect to any litigation,the Company believes that the plaintiffs’ claims are without merit and does notexpect that the lawsuit will have a material adverse effect on its financialposition or results of operations.

**16. Subsequent Events**

During January and February 2006, theCompany has repurchased approximately 3.2 million shares of its common stockfor approximately $216.2 million.

On March 13, 2006,the Company issued $300.0 million 65¤8% seniorsubordinated notes due in March 2018, which were priced at 99.5. Proceedsfrom the sale of the notes were used to reduce a portion of the amountoutstanding on the Revolving Facility.

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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** | ** ** | **Net  income  (loss)  applicable  to  common  stock** | ** ** | **Diluted  earnings  (loss)  per  common  share** | ** ** |
|----------------------------------------|------------|------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------------------------------|------------|--------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                             | ** ** | **(amounts in thousands, except per share amounts)** | ** ** |
| **Year ended December 31,  2005** |       |                                                                               |       |                  |       |                                          |       |                                                   |       |                                              |       |   |   |   |   |   |   |
| First quarter (a)                      |       | $                                                                                  | 273,460    |                  |       | $                                             | 74,552     |                                                   |       |                                              | $          | 64,001 |   |   | $ | 40,640 |   |   | $ | 0.59 |   |   |
| Second quarter (b)                     |       | 273,968                                                                            |       |                  | 77,075     |                                          |       |                                                   | 64,458     |                                              |       | 40,609 |   |   | 0.58 |   |   |
| Third quarter (c)                      |       | 276,337                                                                            |       |                  | 78,808     |                                          |       |                                                   | 61,841     |                                              |       | 38,960 |   |   | 0.56 |   |   |
| Fourth quarter (d)                     |       | 285,068                                                                            |       |                  | 79,426     |                                          |       |                                                   | 65,927     |                                              |       | 41,677 |   |   | 0.61 |   |   |
| **Year ended December 31,  2004** |       |                                                                               |       |                  |       |                                          |       |                                                   |       |                                              |       |   |   |   |   |   |   |
| First quarter (e)                      |       | $                                                                                  | 238,965    |                  |       | $                                             | 63,651     |                                                   |       |                                              | $          | (46,497 | ) |   | $ | (29,758 | ) |   | $ | (0.48 | ) |   |
| Second quarter (f)                     |       | 240,177                                                                            |       |                  | 62,328     |                                          |       |                                                   | 45,328     |                                              |       | 29,010 |   |   | 0.43 |   |   |
| Third quarter (g)                      |       | 242,862                                                                            |       |                  | 58,608     |                                          |       |                                                   | 45,670     |                                              |       | 29,086 |   |   | 0.43 |   |   |
| Fourth quarter (h)                     |       | 264,738                                                                            |       |                  | 72,468     |                                          |       |                                                   | 60,728     |                                              |       | 38,012 |   |   | 0.55 |   |   |

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(a)           Includes developmentexpense of approximately $2.6 million, preopening expense of approximately $0.6million, lease terminations of approximately $8.1 million and loss on earlyretirement of debt of approximately $0.7 million.

(b)          Includesdevelopment expense of approximately $2.1 million, preopening expense ofapproximately $1.2 million and lease terminations of approximately $3.6million.

(c)           Includes developmentexpense of approximately $2.0 million, preopening expense of approximately $1.7million and loss on early retirement of debt of approximately $0.6 million.

(d)          Includes developmentexpenses of approximately $2.0 million, preopening expense of approximately $3.1 million and lease terminationsof approximately $3.0 million.

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

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

(g)           Includes developmentexpense of approximately $2.1 million and preopening expense of approximately$0.2 million.

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

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**ITEM9.**               CHANGES IN ANDDISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

**ITEM9A.**        CONTROLS AND PROCEDURES

As of the end of the period covered by this AnnualReport on Form 10-K, an evaluation was carried out by the Company’smanagement, with the participation of its Chief Executive Officer and ChiefFinancial Officer, of the effectiveness of the Company’s disclosure controlsand procedures (as defined in Rule 13a-15(e) under theSecurities 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’sReport on Internal Control Over Financial Reporting*

The management of theCompany is responsible for establishing and maintaining adequate internalcontrol over financial reporting. The Company’s internal control system wasdesigned to provide reasonable assurance to the Company’s management and boardof directors regarding the preparation and fair presentation of publishedfinancial statements.

All internal controlsystems, no matter how well designed, have inherent limitations, including thepossibility of human error and the circumvention or overriding of controls.Accordingly, even effective internal controls can provide only reasonableassurances with respect to financial statement preparation. Further because ofchanges in conditions, the effectiveness of internal controls may vary overtime.

Management assessed theeffectiveness of the company’s internal control over financial reporting as of December 31,2005. In making this assessment, it used the criteria set forth by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO) in *Internal Control—Integrated Framework*. Based on ourassessment we believe that, as of December 31, 2005, the Company’sinternal control over financial reporting is effective based on those criteria.

The Company’s independent auditors have issued anaudit report on our assessment of the company’s internal control over financialreporting. This report appears on page 54.

**ITEM9B. OTHER INFORMATION**

None

87

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**PART III**

**ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THEREGISTRANT**

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 made publiclyavailable with the Securities and Exchange Commission.

**ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

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.

**ITEM 13. CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS**

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.

**ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES**

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

88

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**PART IV**

**ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES**

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

Reports of Independent Registered Public AccountingFirm—Ernst & Young LLP

Consolidated Balance Sheets as of December 31,2005 and 2004

Years Ended December 31, 2005, 2004 and 2003

Consolidated Statements of Operations

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated 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 6%  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 61¤2%  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 67¤8%  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         |            | Third Amended and  Restated Loan Agreement (“Revolving Credit Facility”) dated as of  December 15, 2005. (Incorporated herein by reference to the Company’s  Form 8-K dated December 19, 2005)                                            |   |
| 4                | .8         |            | 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)                                 |   |

89

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| 4  | .9  |   | 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  | .10 |   | 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)         |   |
| 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  |   | Lease Amendment No. 1, dated December 23, 1996  between Boulder Station, Inc. and KB Enterprises.                                                                                                                                                                                                        |   |
| 10 | .6  |   | Second Amendment to Ground Lease and Sublease, dated  January 7, 1997, by and between KB Enterprises, as landlord and Boulder  Station, Inc.                                                                                                                                                             |   |
| 10 | .7  |   | 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 | .8  |   | 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 | .9  |   | 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 | .10 |   | Lease Amendment No. 1, dated December 23, 1996  between Registrant and Texas Gambling Hall & Hotel, Inc.                                                                                                                                                                                             |   |
| 10 | .11 |   | Second Amendment to Ground Lease, dated January 7,  1997, by and between Texas Gambling Hall & Hotel, Inc. as landlord and  Registrant.                                                                                                                                                              |   |
| 10 | .12 |   | 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)     |   |
| 10 | .13 |   | 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 | .14 |   | 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 | .15 |   | 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)                                                              |   |

90

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| 10     | .16    |   | 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     | .17    |   | First Amendment  to Executive Employment Agreement between Glenn C. Christenson 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 March 31, 2005)         |   |
| 10     | .18    |   | 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     | .19    |   | First Amendment to Executive Employment Agreement  between Scott M Nielson and the Registrant dated as of July 13,  2004. (Incorporated herein by reference to the Company’s Annual Report on  Form 10-K for the period ended December 31, 2004)          |   |
| 10     | .20    |   | 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     | .21    |   | 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     | .22    |   | 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     | .23    |   | 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     | .24    |   | 2005 Stock  Compensation Program of the Registrant effective as of May 18, 2005.  (Incorporated herein by reference to the Company’s Form S-8 filed  as of August 10, 2005)                                                                                    |   |
| 10     | .25    |   | 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     | .26    |   | 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     | .27    |   | 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     | .28    |   | 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     | .29    |   | 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)          |   |
| 10     | .30    |   | 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)    |   |
|   |   |   |                                                                                                                                                                                                                                                                               |   |
|   |   |   |                                                                                                                                                                                                                                                                               |   |

91

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| 10 | .31 |   | 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 | .32 |   | 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 | .33 |   | 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 | .34 |   | Form of  Indemnification Agreement for Directors and Executive Officers. (Incorporated  herein by reference to the Company’s Registration Statement No. 33-59302)                                                                                                                                                                                                         |   |
| 10 | .35 |   | 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 | .36 |   | 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 | .37 |   | 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 | .38 |   | 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 | .39 |   | 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. (Incorporated herein by reference to the  Company’s Annual Report on Form 10-K for the period ended  December 31, 2004)                                       |   |
| 10 | .40 |   | 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, Independent Registered Public Accounting Firm                                                                                                                                                                                                                                                                                                    |   |
| 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)          None

(c)           None

92

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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 14, 2006 |   | 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 14, 2006 |       |
| Frank J. Fertitta III              |       | Officer  (Principal Executive Officer)     |       |                |       |
| /s/ LORENZO  J. FERTITTA           |       | Vice Chairman, President  and Director     |       | March 14, 2006 |       |
| Lorenzo J. Fertitta                |       |                                       |       |                |       |
|                               |       | Executive Vice  President, Chief Financial |       |                |       |
| /s/ GLENN  C. CHRISTENSON          |       | Officer, Chief  Administrative Officer and |       | March 14, 2006 |       |
| Glenn C. Christenson               |       | Treasurer  (Principal Financial and        |       |                |       |
|                               |       | Accounting  Officer)                       |       |                |       |
| /s/ LOWELL  H. LEBERMANN, Jr. |       | Director                                   |       | March 14, 2006 |       |
| Lowell H. Lebermann, Jr.      |       |                                       |       |                |       |
| /s/ JAMES  E. NAVE                 |       | Director                                   |       | March 14, 2006 |       |
| James E. Nave                      |       |                                       |       |                |       |
| /s/ LEE  S. ISGUR                  |       | Director                                   |       | March 14, 2006 |       |
| Lee S. Isgur                       |       |                                       |       |                |       |
| /s/ ROBERT  E. LEWIS               |       | Director                                   |       | March 14, 2006 |       |
| Robert E. Lewis                    |       |                                       |       |                |       |

 

93

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