**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

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**FORM 10-K**

**(Mark One)**

**x**                               ANNUAL REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

**for the fiscal year ended December 31, 2006**

**OR**

**o**                                  TRANSITIONREPORT 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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**STATIONCASINOS, INC.**

(Exactname of registrant as specified in its charter)

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

 

**2411West Sahara Avenue, Las Vegas, Nevada 89102**

(Addressof principal executive offices, Zip Code)

Registrant’s telephone number, including area code: **(702) 367-2411**

Securities registered pursuant to Section 12(b) ofthe Act:

| ** ** | **Title  of each class**          | ** ** |   | ** ** | **Name of each exchange on which registered** | ** ** |
|------------|-----------------------------------|------------|--------|------------|-----------------------------------------------|------------|
| ** ** | **Common Stock, $0.01 Par Value** | ** ** |   | ** ** | **New York Stock Exchange**                   | ** ** |
| ** ** |                              | ** ** |
|            |                                   |            |        |            |                                               |            |  |  |

 

Securitiesregistered pursuant to Section 12(g) of the Act: **None**

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

Indicateby check mark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act. Yes o  No x

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x  No o

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to the Form 10-K. x

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated file. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the ExchangeAct. (Check one):Large accelerated filer x  Acceleratedfiler o  Non-accelerated filer o

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Act). Yes  o No x

Theaggregate market value of the voting stock held by non-affiliates (all personsother than executive officers or directors) of the registrant as of June 30,2006, based on the closing price per share of $68.08 as reported on the NewYork Stock Exchange was $3,163,811,105.

Asof January 31, 2007, the registrant has 57,260,989 shares of common stockoutstanding.

**Documents Incorporated by Reference**

Portionsof the Proxy Statement for the Registrant’s 2007 Annual Meeting of Stockholders(which has not been made publicly available as of the date of this filing) areincorporated by reference into Part III.

 

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**PART I**

**ITEM 1. BUSINESS**

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

**Forward-lookingStatements**

When used in this report andelsewhere 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, theoccurrence of any event, change or other circumstances that could give rise tothe termination of the merger agreement with Fertitta Colony Partners LLC, theoutcome of any legal proceedings that have been, or will be, instituted againstus related to the merger agreement, the inability to complete the merger due tothe failure to obtain stockholder approval for the merger or the failure tosatisfy other conditions to complete the merger, including the receipt of allregulatory approvals related to the merger, the failure to obtain the necessaryfinancing arrangements set forth in the debt and equity commitment lettersdelivered pursuant to the merger agreement, risks that the proposed transactiondisrupts current plans and operations and the potential difficulties inemployee retention as a result of the merger, the ability to recognize thebenefits of the merger, the amount of the costs, fees, expenses and chargesrelated to the merger and the actual terms of certain financings that will beobtained for the merger, the impact of the substantial indebtedness to be incurredto finance the consummation of the merger, the ability to maintain existingmanagement, integration of acquisitions, competition within the gamingindustry, the cyclical nature of the hotel business and gaming business,economic conditions, development and construction risks, regulatory matters andlitigation are included in our filings with the Securities and ExchangeCommission. Readers are cautioned not to place undue reliance on any forward-lookingstatements, which speak only as of the date thereof. We undertake no obligationto publicly release any revisions to such forward-looking statements toreflect events or circumstances after the date hereof.

**General**

We are a gaming and entertainment company thatcurrently owns and operates nine major hotel/casino properties (one of which is50% owned) under the Station and Fiesta brand names and seven smaller casinoproperties (two of which are 50% owned), in the Las Vegas metropolitan area, aswell as manages a casino for a Native American tribe. Our growth strategyincludes the master-planned expansions of our existing gaming facilitiesin Nevada, the development of gaming facilities on certain real estate we ownor are under contract to acquire in the Las Vegas valley and Reno, Nevada, theevaluation and pursuit of additional acquisition or development opportunitiesin Nevada and other gaming markets and the pursuit of additional managementagreements with Native American tribes.

We own and operate Palace Station Hotel &Casino (“Palace Station”), Boulder Station Hotel & Casino (“BoulderStation”), Texas Station Gambling Hall & Hotel (“Texas Station”),Sunset Station Hotel & Casino (“Sunset Station”), Santa Fe StationHotel & Casino (“Santa Fe Station”), Red Rock Casino Resort Spa (“RedRock”), Fiesta Rancho Casino Hotel (“Fiesta Rancho”), Fiesta Henderson CasinoHotel (“Fiesta Henderson”), Wild Wild West Gambling Hall & Hotel (“WildWild West”), Wildfire Casino (“Wildfire”), Magic Star Casino (“Magic Star”),Gold Rush Casino (“Gold Rush”) and Lake Mead Casino (“Lake Mead”). We also owna 50% interest in Green Valley Ranch Resort Spa Casino 

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(“Green Valley Ranch”),Barley’s Casino & Brewing Company (“Barley’s”) and The Greens Gamingand Dining (“The Greens”). Each of our casinos caters primarily to local LasVegas area residents. We market the seven “Station” casinos (including GreenValley Ranch and Red Rock) together under the Station Casinos’ brand and thetwo “Fiesta” casinos under the Fiesta brand, offering convenience and choicesto 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”).

As further described inNote 16 to the Consolidated Financial Statements in this Annual Report on Form10-K, on February 23, 2007, we entered into a definitive merger agreement (the“Merger Agreement”) with Fertitta Colony Partners LLC (“FCP”), which has agreedto acquire all of our outstanding common stock for $90 per share in cash (the“Merger”). FCP is a new company formed by Frank J. Fertitta, III, our Chairmanand Chief Executive Officer, Lorenzo J. Fertitta, our Vice Chairman andPresident, and Colony Capital Acquisitions, LLC, an affiliate of ColonyCapital, LLC.  Our board of directors, onthe unanimous recommendation of a special committee composed entirely ofindependent directors (the “Special Committee”), approved the Merger Agreementand has recommended that our stockholders approve the Merger. The Merger isexpected to be completed by the fourth quarter of 2007, and is subject tostockholder approval, regulatory approvals and customary closing conditions.

**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 operatingstrategy emphasizes attracting and retaining customers primarily from the localand repeat visitor markets. Our casino properties attract customers through; 

·       innovative,frequent and high-profile promotional programs directed towards the localmarket;

·       focusedmarketing efforts and convenient locations;

·       aggressivemarketing to the repeat visitor market;

·       andthe development of strong relationships with specifically targeted travelwholesalers in addition to convention business at both Green Valley Ranch andRed Rock. 

Although perceived valueinitially attracts a customer to our casino properties, actual value generatescustomer satisfaction and loyalty. We believe that actual value becomesapparent during the customer’s visit through an enjoyable, affordable and high-qualityentertainment experience. Las Vegas, which is and has been one of the fastestgrowing cities in the United States, is characterized by a historically strongeconomy and demographics, which include an increasing number of retirees andother active gaming customers. We believe that our out-of-town patrons are alsodiscerning customers who enjoy our value-oriented, high-quality approach.We believe that our patrons view our hotel and casino product as a preferablealternative to attractions located on the Las Vegas Strip and downtown LasVegas. In markets outside of Las Vegas we believe customers come from fartherdistances, a radius in some cases of more than 150 miles; however, the businessmodel for local customers remains the same.

*Provide aHigh-Value Experience*

Because we target the repeat customer, we are committedto providing a high-value entertainment experience for our customers in ourrestaurants, hotels, casinos and other entertainment amenities. We developregional entertainment destinations for locals that include other amenitiessuch as spas, movie 

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theaters, bowling centers,ice skating, live entertainment venues and child care facilities. In addition,we believe the value offered by restaurants at each of our casino properties isa major factor in attracting local gaming customers, as dining is a primarymotivation for casino visits by many locals. Through their restaurants, each ofwhich has a distinct style of cuisine, our casino properties offer generousportions of high-quality food at reasonable prices. In addition, our operatingstrategy focuses on slot and video poker machine play. Our target marketconsists of frequent gaming patrons who seek not only a friendly atmosphere andconvenience, but also higher than average payout rates. Because locals andrepeat visitors demand variety and quality in their slot and video pokermachine play, our casino properties offer the latest in slot and video pokertechnology.

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

*Marketing 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 promotions that have become a tradition in thelocals’ market.

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 certain information as of December 31,2006 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)** | ** ** | **Acreage** | ** ** |
|--------------------------------|------------|------------------|------------|--------------|------------|-----------------------|------------|------------------------|------------|-------------|------------|
| Casino Properties              |       |             |       |         |       |                  |       |                   |       |        |       |   |   |   |   |   |   |   |   |   |   |
| Palace Station                 |       |             | 1,007      |         |       |                  | 1,806      |                   |       |        | 55         |   |   |   | 2,600 |   |   |   | 30 |   |   |
| Boulder Station                |       |             | 300        |         |       |                  | 2,992      |                   |       |        | 42         |   |   |   | 4,800 |   |   |   | 54 |   |   |
| Texas Station                  |       |             | 200        |         |       |                  | 2,390      |                   |       |        | 35         |   |   |   | 5,900 |   |   |   | 47 |   |   |
| Sunset Station                 |       |             | 457        |         |       |                  | 2,637      |                   |       |        | 51         |   |   |   | 5,500 |   |   |   | 82 |   |   |
| Santa Fe Station               |       |             | 200        |         |       |                  | 2,965      |                   |       |        | 39         |   |   |   | 5,200 |   |   |   | 38 |   |   |
| Red Rock                       |       |             | 815        |         |       |                  | 3,282      |                   |       |        | 64         |   |   |   | 5,000 |   |   |   | 68 |   |   |
| Green Valley Ranch (50% owned) |       |             | 490        |         |       |                  | 2,721      |                   |       |        | 55         |   |   |   | 3,800 |   |   |   | 40 |   |   |
| Fiesta Rancho                  |       |             | 100        |         |       |                  | 1,603      |                   |       |        | 14         |   |   |   | 2,700 |   |   |   | 25 |   |   |
| Fiesta Henderson               |       |             | 224        |         |       |                  | 1,839      |                   |       |        | 18         |   |   |   | 2,900 |   |   |   | 46 |   |   |
| Other Properties               |       |             |       |         |       |                  |       |                   |       |        |       |   |   |   |   |   |   |   |   |   |   |
| Wild Wild West                 |       |             | 262        |         |       |                  | 232        |                   |       |        | 6          |   |   |   | 600 |   |   |   | 19 |   |   |
| Wildfire                       |       |             | —     |         |       |                  | 239        |                   |       |        | —     |   |   |   | 275 |   |   |   | 5 |   |   |
| Magic Star                     |       |             | —     |         |       |                  | 168        |                   |       |        | —     |   |   |   | 250 |   |   |   | — |   |   |
| Gold Rush                      |       |             | —     |         |       |                  | 154        |                   |       |        | —     |   |   |   | 150 |   |   |   | — |   |   |
| Lake Mead                      |       |             | —     |         |       |                  | 105        |                   |       |        | —     |   |   |   | 64 |   |   |   | 3 |   |   |
| Barley’s (50% owned)      |       |             | —     |         |       |                  | 199        |                   |       |        | —     |   |   |   | — |   |   |   | — |   |   |
| The Greens (50% owned)         |       |             | —     |         |       |                  | 36         |                   |       |        | —     |   |   |   | — |   |   |   | — |   |   |
| Managed Properties             |       |             |       |         |       |                  |       |                   |       |        |       |   |   |   |   |   |   |   |   |   |   |
| Thunder Valley  (4)            |       |             | —     |         |       |                  | 2,786      |                   |       |        | 100        |   |   |   | 4,500 |   |   |   | 49 |   |   |

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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, Texas hold’em and wild hold’em. The Casino Properties,with the exception of Green Valley Ranch, also offer a keno lounge and bingoparlor. The Casino Properties also offer a race and sports book and the OtherProperties offer a sports book with the exception of The Greens and Lake Mead.

(3)          Includes covered parkingspaces of 1,900 for Palace Station, 1,900 for Boulder Station, 3,500 for TexasStation, 2,900 for Sunset Station, 4,500 for Santa Fe Station, 2,300 for RedRock, 2,700 for Green Valley Ranch, 1,000 for Fiesta Rancho and 1,000 forFiesta Henderson.

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

**Casino Properties**

*Palace Station*

Palace Station is strategically located at theintersection of Sahara Avenue and Interstate 15, one of Las Vegas’ most heavilytraveled areas. Palace Station is a short distance from McCarran InternationalAirport and from major attractions on the Las Vegas Strip and downtown LasVegas. Palace Station features a turn-of-the-20th-century railroadstation theme with non-gaming amenities including eight full-servicerestaurants, several fast-food outlets, a 275-seat entertainment lounge,four additional bars, two swimming pools, an approximately 20,000-square-footbanquet and convention center, a 24-hour gift shop and a non-gaming videoarcade.

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Palace Station’s eightfull-service restaurants have a total of approximately 1,300 seats. Theserestaurants offer a variety of high-quality food at reasonable prices,including the Grand Café (featuring American and Chinese fare), Feast GourmetBuffet, The Broiler Steaks and Seafood, Pasta Palace (an Italian restaurant),Cabo Mexican Restaurant, Jack’s Irish Pub, an 18-seat Oyster Bar andChang’s (gourmet Hong Kong cuisine). In addition to these restaurants, PalaceStation offers various fast-food outlets and the Sound Trax Club, anentertainment club.

*Boulder Station*

Boulder Station, whichopened in August 1994, is strategically located on Boulder Highway,immediately 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), Feast Gourmet Buffet, TheBroiler 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, whichopened in July 1995, is strategically located at the corner of Lake MeadBoulevard and Rancho Drive in North Las Vegas. Texas Station features afriendly Texas atmosphere, highlighted by distinctive early Texas architecturewith non-gaming amenities including five full-service restaurants, severalfast-food outlets, a Kid’s Quest child care facility, a 300-seatentertainment lounge, a 1,700-seat event center, eight additional bars,an 18-screen movie theater complex, a swimming pool, a non-gaming videoarcade, a gift shop, a 60-lane bowling center and approximately 40,000square feet of meeting and banquet space.

Texas Station’s five full-servicerestaurants have a total of approximately 1,200 seats. These restaurants offera variety of high-quality food at reasonable prices, including the 24-hourTexas Café, Austins Steakhouse, San Lorenzo (an Italian restaurant), FeastAround the World Buffet (featuring seven different food stations) and TexasStar Oyster 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.

*Sunset Station*

Sunset Station, whichopened in June 1997, is strategically located at the intersection of Interstate515 and Sunset Road. Multiple access points provide customers convenient accessto the gaming complex and parking areas. Situated in a highly concentratedcommercial corridor along Interstate 515, Sunset Station has prominentvisibility from the freeway and the Sunset commercial corridor. Sunset Stationis located approximately nine miles east of McCarran International Airport andapproximately seven miles southeast of Boulder Station. Sunset Station featuresa Spanish/Mediterranean-style theme with non-gaming amenities includingeight full-service restaurants themed to capitalize on the familiarity of therestaurants at our other properties, a 520-seat entertainment lounge, a4,000-seat outdoor amphitheater, eight 

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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.

Sunset Station’s eightfull-service restaurants have a total of approximately 2,300 seats featuring “live-action”cooking and simulated patio dining. These restaurant facilities offer a varietyof high-quality food at reasonable prices, including the 24-hour SunsetCafé (featuring American fare), Sonoma Cellar Steakhouse, Costa Del Sol (aseafood restaurant), Capri Italian Ristorante, Guadalajara Bar &Grille (a Mexican restaurant), Feast Buffet, a live action buffet featuringMexican, Italian, barbecue, American and Chinese cuisine, Hooter’s and a 65-seatOyster Bar. Guests may also enjoy the Gaudi Bar, a centerpiece of the casinofeaturing over 8,000 square feet of stained glass. Sunset Station also offers avariety of fast-food outlets to enhance the customers’ dining selection.

*Santa Fe Station*

In October 2000, wepurchased Santa Fe Station which is strategically located at the intersectionof Highway 95 and Rancho Drive, approximately five miles northwest ofTexas Station. Santa Fe Station features a Southwestern theme with non-gamingamenities including five full-service restaurants, a gift shop, a non-gamingvideo arcade, a swimming pool, a 500-seat entertainment lounge, sixadditional bars, a 60-lane bowling center, a 16-screen movietheater complex, a Kid’s Quest child care facility and over 20,000 square feetof meeting and banquet facilities.

Santa Fe Station’s fivefull-service restaurants have a total of approximately 1,200 seats, whichinclude the Grand Café, The Charcoal Room (a steakhouse), Cabo MexicanRestaurant, Turf Grill and the Feast Buffet, a live action buffet featuringMexican, Italian, barbecue, American and Chinese cuisine. Santa Fe Station alsooffers a variety of fast-food outlets to enhance the customers’ diningselection. Santa Fe Station was recently expanded; see “Expansion Strategy” fordetails of the expansion.

*Red Rock*

Red Rock, which opened on April 18,2006, is located on Charleston Boulevard at the Interstate 215/Charlestoninterchange in the Summerlin master-planned community in Las Vegas, Nevada. RedRock features an elegant desert oasis theme with a contemporary design,offering 815 hotel rooms featuring ultra-modern design filled with the most up-to-dateluxury amenities. In addition to its standard guestrooms, the hotel offers sixstyles of suites, including one-of-a-kind custom villas and penthouse suites. Additionalnon-gaming amenities include nine full-service restaurants, a 16-screenmovie theater complex, 94,000 square feet of meeting and convention space, anight club, a full-service spa and a Kid’s Quest child care facility.

Red Rock’s ninefull-service restaurants have a total of over 1,900 seats and include T-bonesChophouse, Terra Rossa (an Italian restaurant), Cabo Mexican Restaurant, theGrand Café, The Salt Lick Bar B-Q, Tides Oyster Bar, Feast Buffet, a liveaction buffet featuring Mexican, Italian, barbecue, American and Chinesecuisine, Turf Grill (featuring blue plate specials and your favorite comfortfoods) and Sand Bar. Red Rock also offers a variety of fast-food outlets toenhance the customers’ dining selection. Red Rock is currently being expanded;see “Expansion Strategy” for details of the expansion.

*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”).

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Green Valley Ranch wasdesigned to complement the Green Valley master-planned community. The AAAFour Diamond resort features a Mediterranean-style villa theme with non-gamingamenities including ten full-service restaurants, 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 60,000 square feet ofmeeting and convention space. Green Valley Ranch also offers “Whiskey Beach”,an 8-acre complex featuring private poolside cabanas, a contemporarypoolside bar and grill, three acres of vineyards and an outdoor performancevenue. Green Valley Ranch is currently being expanded; see “Expansion Strategy”for details of the expansion.

Green Valley Ranch’s tenfull-service restaurants include the Grand Café, China Spice (a Chineserestaurant), Sushi+Sake, Il Fornaio (an Italian restaurant), Hank’s Fine Steaksand Martinis, Fado Irish Pub, The Original Pancake House, Feast Around theWorld Buffet, a live action buffet featuring Mexican, Italian, barbecue,American and Chinese cuisine, Tides Oyster Bar and Turf Grill. Green ValleyRanch also offers a variety of fast-food outlets to enhance the customers’dining selection. Guests may also enjoy the Drop Bar, a centerpiece of thecasino, and Whiskey Bar, a 5,300-square-foot nightclub.

*Fiesta Rancho*

Fiesta Rancho waspurchased in January 2001 and is strategically located at the intersectionof Lake Mead Boulevard and Rancho Drive in North Las Vegas across from TexasStation. Fiesta Rancho features a Southwestern theme with non-gaming amenitiesincluding four full-service restaurants, a gift shop, a non-gaming videoarcade, a swimming pool, a 700-seat entertainment lounge, aregulation-size ice skating rink and four additional bars.

Fiesta Rancho’s fourfull-service restaurants have a total of over 700 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 at the intersectionof Interstate 215 and Interstate 515 in Henderson, Nevada. The propertyfeatures four full-service restaurants, a gift shop, a swimming pool, threebars and lounges and meeting space.

Fiesta Henderson’s fourfull-service restaurants have a total of approximately 1,100 seats, and includethe 24-hour Baja Beach Café (featuring American and Chinese fare), FuegoSteakhouse, Amigo’s Mexican Cantina and Festival Buffet. Fiesta Henderson wasrecently expanded; see “Expansion Strategy” for details of the expansion.

**Other Properties**

*Wild Wild West*

Wild Wild West, which weacquired in July 1998, is strategically located on Tropicana Avenue andimmediately adjacent to Interstate 15. Wild Wild West’s non-gaming amenitiesinclude a full-service restaurant, a bar, a gift shop and a truck plaza.

*Barley’s & The Greens*

Barley’s, which opened in January 1996,is a casino and brew pub located in Henderson, Nevada. We own a 50% interest inBarley’s and are also the managing partner receiving a management fee equal to2% of revenues and approximately 10% of EBITDA. Barley’s non-gaming amenitiesinclude a full-service restaurant, a pizza kitchen and a bar.

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In November 2005, wepurchased a 50% interest in The Greens, a restaurant and lounge, located inHenderson, Nevada. We are also the managing partner and receive a management feeequal to 2% of revenues and approximately 10% of EBITDA. The Greens non-gamingamenities include a full-service restaurant and bar.

*Wildfire*

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

*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.

*Lake Mead*

In September 2006, wepurchased Lake Mead located in Henderson, Nevada. Lake Mead’s non-gamingamenities include a full-service restaurant and bar.

**Managed Properties**

*Thunder Valley*

We have entered into aDevelopment Services Agreement and a Management Agreement with the UAIC. Ourseven-year Management Agreement was approved by the National Indian GamingCommission (the “NIGC”) and expires in June 2010. Pursuant to thoseagreements, and in compliance with a Memorandum of Understanding entered intoby the UAIC and Placer County, California, we developed, with the UAIC, ThunderValley, a gaming and entertainment facility located approximately seven milesnorth of Interstate 80, in Placer County, California, near Sacramento, whichopened on June 9, 2003. We receive a management fee equal to 24% of thefacility’s net income (as defined in the management agreement). ThunderValley’s non-gaming amenities include three specialty restaurants, a 500-seatbuffet, a food court and a center pit bar.

**Expansion Strategy**

***Selection Criteria***

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

***Master-PlannedDevelopment***

Our expansion strategyincludes the master-planned expansion of our existing and future gaminglocations. In designing project sites, we plan and engineer for multi-phasedfacility expansions to accommodate future growth and to allow us to developdominant properties. A project’s master-planned 

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designtypically allows the option of adding hotel rooms, casino space, parkingstructures and non-gaming entertainment such as movie theaters, additionalrestaurants, retail shops and various other entertainment venues.

We continually evaluatethe timing and scope of our master-planned developments at each of ourproperties and may determine from time to time to expand the scope of, improveon or suspend the implementation of our master plans. These decisions aredependent upon the availability of financing, competition and future economicand gaming regulatory environments, many of which are beyond our control. Werecently completed portions of phase III master-planned expansions at GreenValley Ranch and Santa Fe Station and phase II master-planned expansions at RedRock and Fiesta Henderson as well as have a phase III master-planned expansion underwayat Red Rock.

In October 2005, webegan a $130 million phase III master-planned expansion at Santa Fe Stationwhich included an additional parking garage, a buffet, additional slotmachines, a remodeled and expanded race and sports book, a meeting and banquetfacility and a new center bar. The entire project included approximately125,000 square-feet of additional space and was completed during the fourthquarter 2006, with the exception of the center bar which is expected to becompleted by the summer of 2007.

In October 2005, webegan a $75 million phase II master-planned expansion at Fiesta Henderson whichincluded a parking garage, additional slot machines, a remodeled and expandedrace and sports book and a multi-screen movie theater complex. Construction ofthe project was completed in August 2006, with the exception of the movietheater complex which is expected to be completed in the fall of 2007.

In October 2006, weopened an additional parking garage, a new race and sports book, a new pokerroom and two new restaurants as part of the $115 million phase IIImaster-planned expansion at Green Valley Ranch. An entertainment lounge isstill under construction and is expected to open in the summer of 2007.

In December 2006, wecompleted phase II master-planned expansion at Red Rock which included anadditional hotel tower containing over 400 rooms and an expanded spa area. In August 2006,we began a $60 million to $65 million phase III master-planned expansion of RedRock, which includes a 72-lane bowling center and an expansion of thewest parking garage. Construction of the bowling center is expected to becompleted in the second quarter of 2007, while the parking garage expansion isexpected to be completed in the third quarter of 2007.

***Development andAcquisition Opportunities***

We have acquired severalparcels of land in the Las Vegas valley, Sacramento, California area nearThunder Valley and Reno, Nevada, which can be used for new casino developmentor other associated development. In addition, we have an agreement to acquirean additional parcel of land in Reno, Nevada. We also evaluate otherdevelopment and acquisition opportunities in current and emerging gamingmarkets, including land-based, dockside, riverboat and Native American gaming.Our decision whether to proceed with any new gaming development or acquisitionopportunity is dependent upon future economic and regulatory factors, theavailability of financing and competitive and strategic considerations, many ofwhich are beyond our control.

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. Thefirst phase of Aliante Station is expected to include 200 hotel rooms,approximately 3,000 slot machines, multiple full-service restaurants anda multi-screen movie 

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theatercomplex. Construction on Aliante Station began in February 2007 and isexpected to be completed by the end of 2008 at a cost of approximately $650million to $675 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.

In December 2006, weentered into an amended and restated operating agreement with FBLV HoldingCompany LLC (“FBLV”). Pursuant to the amended and restated operating agreement,the parties contributed approximately 52 acres (with approximately 20 acrescontributed by us for our 50% ownership and approximately 32 acres contributedby FBLV for their 50% ownership) of improved and unimproved real propertylocated along Rancho Road located behind Palace Station in Las Vegas, Nevadainto a joint venture. It is anticipated that the joint venture will develop,construct and manage, pursuant to a master development plan, a mixed-useresidential, retail and entertainment (excluding non-restricted gaming) projecton all or a portion of such property. The timing, cost and scope of the projecthave yet to be determined.

***Native AmericanDevelopment***

*The Federated Indians of Graton Rancheria*

We have entered intoDevelopment and Management Agreements with the Federated Indians of GratonRancheria (the “FIGR”), a federally recognized Native American tribe. Pursuantto those agreements, we will assist the FIGR in developing and operating agaming and entertainment project to be located in Sonoma County, California.The FIGR selected us to assist them in designing, developing and financingtheir project and, upon opening; we will manage the facility on behalf of theFIGR. The Management Agreement has a term of seven years from the opening ofthe facility and we will receive a management fee equal to 24% of the facility’snet income. We will also receive a development fee equal to 2% of the cost ofthe project upon the opening of the facility.

In August 2003, weentered into an option to purchase 360 acres of land just west of the RohnertPark city limits in Sonoma County, California. In August 2005, wepurchased 180 acres of the optioned property and an additional 90 acres. In March 2006,we purchased an additional 4.7 acres adjacent to the previously acquiredproperty. The property purchased is approximately one-quarter mile from Highway101 and approximately 43 miles from downtown San Francisco. In October 2003,the FIGR entered into a Memorandum of Understanding with the City of RohnertPark. 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 NIGC. Prior toobtaining third-party financing, we will contribute significant financialsupport to the project. As of December 31, 2006, we have advancedapproximately $132.3 million toward the development of this project,primarily to complete the environmental impact study and secure real estate forthe project, which is included on our consolidated balance sheets. Fundsadvanced by us are expected to be repaid from the proceeds of the projectfinancing or from the FIGR’s gaming revenues. In addition, we have agreed topay approximately $11.3 million upon achieving certain milestones, whichwill not be reimbursed. As of December 31, 2006, approximately$2.0 million of these payments had been made and expensed in developmentexpense as incurred. The timing of this type of project is difficult to predictand is dependent upon the receipt of the necessary governmental and regulatoryapprovals. There can be no assurances when or if these approvals will beobtained.

*Gun Lake Tribe*

On November 13, 2003,we agreed to purchase a 50% interest in MPM Enterprises, LLC, a Michiganlimited liability company (“MPM”). Concurrently with our agreement to purchasethat interest, MPM and the Match-E-Be-Nash-She-Wish Band of PottawatomiIndians, a federally recognized Native American 

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tribecommonly referred to as the Gun Lake Tribe (“Gun Lake”), entered into amendedDevelopment and Management Agreements, pursuant to which MPM agreed to assistGun Lake in developing and operating a gaming and entertainment project to belocated in Allegan County, Michigan. On July 29, 2005, MPM and Gun Lakeentered into amended and restated Development and Management Agreements. Wehave agreed to pay $6.0 million for our 50% interest in MPM, which ispayable upon achieving certain milestones and is not reimbursable. As of December 31,2006, approximately $2.0 million of these payments had been made andexpensed in development expense as incurred. An additional $12.0 millionin total may be paid by us in years six and seven of the amended and restated ManagementAgreement, subject to certain contingencies. Under the terms of the amended andrestated Development Agreement, we have agreed to arrange financing for theongoing development costs and construction of the project. As of December 31,2006, we have advanced approximately $34.0 million toward the development ofthis project, primarily to complete the environmental assessment and securereal estate for the project, which is included on our consolidated balancesheets. Funds advanced by us are expected to be repaid from the proceeds of theproject financing or from Gun Lake’s gaming revenues. The amended and restatedManagement Agreement has a term of seven years from the opening of the facilityand provides for a management fee of 30% of the project’s net income to be paidto MPM. Pursuant to the terms of the MPM Operating Agreement, our portion ofthe management fee is 50% of the first $24 million of management feesearned, 83% of the next $24 million of management fees and 93% of anymanagement fees in excess of $48 million.

The proposed project willbe located on approximately 146 acres on Highway 131 near 129th Avenue,approximately 25 miles north of Kalamazoo, Michigan. As currently contemplated,the project will include up to 2,500 slot machines, 75 table games, abuffet and specialty restaurants. Construction of the project includes theconversion of an existing 192,000 square-foot building into the casino andentertainment facility. Development of the gaming and entertainment project andoperation of Class III gaming is subject to certain governmental andregulatory approvals, including, but not limited to, the signing of a gamingcompact by the Governor of the State of Michigan, the DOI taking the land intotrust on behalf of Gun Lake and approval of the Management Agreement by theNIGC. On February 27, 2004, the DOI issued a Finding Of No SignificantImpact with respect to the proposed project. On May 13, 2005, the DOIpublished in the Federal Register a Notice of Final Agency Determination (the “Determination”)to take certain land into trust for the benefit of Gun Lake. The publicationcommenced a thirty-day period in which interested parties could seek judicialreview of the Determination. On June 13, 2005, Michigan GamblingOpposition filed a complaint (the “Complaint”) in the United States DistrictCourt, District of Columbia, seeking declaratory and injunctive relief againstthe DOI and officials of the DOI. The Complaint seeks judicial review of theDetermination. On July 27, 2005, Gun Lake filed a motion to intervene inthat lawsuit. On September 1, 2005, the District Court granted Gun Lake’smotion to intervene. On January 6, 2006, Gun Lake filed a motion forjudgment on the pleadings or, in the alternative, for summary judgment. Also onJanuary 6, 2006, the DOI filed a motion to dismiss or, in the alternative,for summary judgment. By May 2006, all responsive pleadings had been filedand the case was ready for consideration by the District Court. On October 27,2006, the Department of Justice filed a Notice with the District Courtindicating that the DOI planned to take the 146-acre site into trust on January 5,2007, if the plaintiffs did not seek injunctive relief or failed to persuadethe court to issue any relief precluding the DOI from doing so. The DOIsubsequently amended that date to March 5, 2007, in order to provide the Courtsufficient time to render its decision. The Court set oral arguments on theparties’ motions to dismiss or, in the alternative, for summary judgment for November 29,2006. Oral arguments were heard on that date. On February 23, 2007, theDistrict Court issued its decision in favor of the DOI and Gun Lake, findingthat there were no facts which would entitle plaintiffs to any relief on thefour issues raised in the Complaint, and granted the parties’ motion to dismissor, in the alternative for summary judgement. As with all litigation, noassurances can be provided as to the outcome of that lawsuit. Prior toobtaining third-party financing, we will contribute significant financialsupport to the project. The 

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timingof this type of project is difficult to predict and is dependent upon thereceipt of the necessary governmental and regulatory approvals. There can be noassurances when or if these approvals will be obtained.

*Mechoopda Indian Tribe*

We have entered into Development and ManagementAgreements with the Mechoopda Indian Tribe of Chico Rancheria, California (the “MITCR”),a federally recognized Native American tribe. Pursuant to those agreements, wewill assist the MITCR in developing and operating a 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, we have agreed to arrange thefinancing for the ongoing development costs and construction of the facility.Funds advanced by us are expected to be repaid from the proceeds of thefacility financing or from the MITCR’s gaming revenues. As of December 31,2006, we have advanced approximately $8.6 million toward the development ofthis project, primarily to complete the environmental assessment and securereal estate for the project, which is included on our consolidated balancesheets. In addition, we have agreed to pay approximately $2.2 million ofpayments upon achieving certain milestones, which will not be reimbursed. As ofDecember 31, 2006, $50,000 of these payments had been made and expensed indevelopment expense as incurred. The Management Agreement has a term of sevenyears from the opening of the facility and provides for a management fee of 24%of the facility’s net income. As currently contemplated, the facility willinclude approximately 700 slot machines, 12 table games and diningand entertainment amenities. Development of the facility is subject to certaingovernmental and regulatory approvals, including, but not limited to,negotiating a gaming compact with the State of California, the DOI acceptingland into trust on behalf of the MITCR and approval of the Management Agreementby the NIGC. Prior to obtaining third-party financing, we will contributesignificant financial support to the project. The timing of this type ofproject is difficult to predict and is dependent upon the receipt of thenecessary governmental and regulatory approvals. There can be no assuranceswhen or if these approvals will be obtained.

*North Fork Rancheria of Mono Indian Tribe*

We have 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, we will assist the Mono in developing andoperating a gaming and entertainment facility to be located in Madera County,California. We have purchased, for the benefit of the Mono, a 305-acre parcelof land located on Highway 99 north of the city of Madera. Under the terms ofthe Development Agreement, we have agreed to arrange the financing for theongoing development costs and construction of the facility. Funds advanced byus are expected to be repaid from the proceeds of the project financing or fromthe Mono’s gaming revenues. As of December 31, 2006, we have advancedapproximately $6.3 million toward the development of this project,primarily to complete the environmental impact study and secure real estate forthe project, which is included on our consolidated balance sheets. In addition,we have agreed to pay approximately $1.3 million of payments upon achievingcertain milestones, which will not be reimbursed and will be expensed as incurred.As of December 31, 2006, none of these payments had been made. 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 will include approximately 2,000 slotmachines, 60 table games, restaurants, a 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 dependant 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 31,2007, we had approximately 14,600 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 such employeesregarding establishment of collective bargaining agreements. While we are facedwith such movements by employees from time to time, we do not believe that suchmovements will have any broad-based impact on our employees; however,there can be no assurances to that effect. Additionally, we believe that wehave good relationships with our employees which has been demonstrated by beingnamed one of FORTUNE magazine’s 100 best companies to work for the past threeyears.

**Available Information**

We are a reporting companyunder the Securities Exchange Act of 1934, as amended, and file annual reports,quarterly reports, proxy statements and other documents with the SEC. You mayalso read and copy any of our filings at the SEC’s public referenceroom at 100 F Street N.E., Room 1580, Washington, D.C. 20549. Pleasecall the SEC at 1-800-SEC-0330 for further information on thepublic reference room. Because we submit filings to the SEC electronically,access to this information is available at the SEC’s Internet website(www.sec.gov). This site contains reports and other information regardingissuers that file electronically with the SEC. We also make available, free ofcharge, on our website (www.stationcasinos.com) our Annual Report on Form 10-K,Quarterly Reports on Form 10-Q, Current Reports on Form 8-K,and, if applicable, amendments to those reports filed or furnished pursuant tothe Exchange Act as soon as reasonably practicable after we electronically filesuch material with, or furnish it to, the SEC.

**ITEM1A. RISK FACTORS**

**Failure to complete the Merger would likely have anadverse effect on us. **

**Therecan be no assurance that our stockholders will approve the Merger Agreement orthat the other conditions to the completion of the Merger will be satisfied. Inconnection with the Merger, we are subject to several risks, including thefollowing:**

**·****     **OnDecember 1, 2006, the last trading day prior to the announcement ofmanagement’s proposal of the Merger, our common stock closed at$69.10 per share. After that announcement, the stock price rose to trade at$84.90, exceeding the $82 per share proposal price.Since the Merger Agreement was signed on February 23, 2007, our common stockhas traded between $86 and $87 per share. The current price of our common stockmay reflect a market assumption that the Merger will close. If theMerger is not consummated, the stock price would likely retreat from itscurrent trading range.

**·****     **Certaincosts relating to the Merger, including legal, accounting and financialadvisory fees, are payable by us whether or not the Merger iscompleted.

**·****     **Under circumstances set out inthe Merger Agreement, upon termination under specified circumstances related toa competing acquisition proposal, we may be required to pay FCP a terminationfee of $160 million, except in the case of a termination resulting from asuperior proposal received within 30 business days following theexecution of the Merger Agreement, in which case the termination fee payable toFCP will be $106 million.

**·****     **If our stockholders do notapprove the Merger under certain circumstances, we must reimburse FCP for reasonableout-of-pocket fees and expenses (including reasonable legal fees and expenses)incurred by FCP and its affiliates in connection with the transactions contemplatedby the Merger Agreement, which will be credited against the termination fee ifit becomes payable.  

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**·****     **Ourmanagement’s and our employees’ attention will have been diverted from our day-to-dayoperations, we may experienceunusually high employee attrition and our business and customer relationshipsmay be disrupted.

**·****     **Current and prospectiveemployees may experience uncertainty about their future as employees of Stationif the Merger fails to be consummated. This may adversely affect our ability toattract and retain, and may affect the performance during the transition periodof, key management, sales, marketing and technical personnel.

**·****     **Anydelay in the consummation of the Merger or any uncertainty about theconsummation of the Merger may adversely affect our future businesses, growth,revenue and results of operations.

**Speculation about the Merger could have an adverseeffect on us, such as a downgrade of the ratings of our debt securities andthat downgrade could be significant.**

**In response to the December 4, 2006announcement of the proposal to acquire all of our outstanding common stock,Moody’s Investor Services placed both our long**-term and short-term debtratings under review for possible downgrade. Standard & Poor’s put our long-term and short-term debtratings on credit watch with negative implications. Additionally, speculation about the Merger could have otheradverse effects.

**We face substantial competition in the gamingindustry.**

Our Nevada casinoproperties face competition from all other casinos and hotels in the Las Vegasarea, including to some degree, from each other. In addition, our casinoproperties face competition from all smaller non-restricted gaming locationsand restricted gaming locations (locations with 15 or fewer slot machines) inthe greater Las Vegas area. As of December 31, 2006, there were over 1,400restricted gaming locations with over 15,000 slot machines. We compete withother hotel/casinos and restricted gaming locations by focusing on repeatcustomers and attracting these customers through innovative marketing programs.Our value-oriented, high-quality approach is designed to generate repeatbusiness. Additionally, our casino properties are strategically located anddesigned to permit convenient access and ample parking, which are criticalfactors in attracting local visitors and repeat patrons. Currently, there areapproximately 35 major gaming properties located on or near the Las VegasStrip, 14 located in the downtown area and several located in other areas ofLas Vegas. Major additions, expansions or enhancements of existing propertiesor the construction of new properties by competitors, could also have amaterial adverse effect on the business of our casino properties. While pastadditions to capacity have had little, if any, impact on our casino properties’hotel occupancy or casino volume to date, there can be no assurance that hoteloccupancy or casino volume will not be adversely affected in the future.

Our Nevada casinoproperties also face competition from 86 non-restricted gaming locations in theLas Vegas area primarily targeted to the local and the repeat visitor markets. Someof these competitors have completed expansions and existing competitors and newentrants into these markets are in the planning stages or under construction onother projects. Although we have competed strongly in these marketplaces, therecan be no assurance that additional capacity will not have a negative impact onour business.

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

To a lesser extent, ourNevada operations compete with gaming operations in other parts of the state ofNevada, such as Reno, Laughlin and Lake Tahoe, riverboat gaming markets in theMidwest and South, 

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facilitiesin Atlantic City, New Jersey, casinos located on Native American land and inother parts of the world, with state-sponsored lotteries,on-and-off-track pari-mutuel wagering, card rooms and other forms of legalizedgambling.

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.Each of these Native American tribes may operate up to two gaming facilities.Seven of 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 56 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 through 2006, twelve tribes with existing casinos re-negotiatedtheir compacts, of which five have been ratified by the California Legislatureand are currently in effect. These re-negotiated compacts allow for theexpansion of the respective tribe’s current facilities. It is not certain howthis or any expansion of Native American gaming in California will affect our Nevadaoperations given that visitors from California make up Nevada’s largest visitormarket. Moreover, it is uncertain how soon expansion will affect our interestsin Native American gaming in California. Increased competition from NativeAmerican gaming may result in a decline in our revenues and may have a materialadverse effect on our business.

The gaming industry alsoincludes land-based casinos, dockside casinos, riverboat casinos, racetrackswith slots, casinos located on Native American land and other forms oflegalized gaming. There is intense competition among companies in the gamingindustry, some of which have significantly greater resources than we do.Several states are currently considering legalizing casino gaming in designatedareas. Legalized casino gaming in such states and on Native American land willprovide strong competition to us and could adversely affect our operations,particularly to the extent that such gaming is conducted in areas close to ouroperations.

**Certain construction risks may arise during thebuilding of any new property.**

We are currently expandingRed Rock, Santa Fe Station, Fiesta Henderson and Green Valley Ranch andproviding or may have to provide, as the case may be, funding for theconstruction of Aliante Station and gaming facilities for the Federated Indiansof Graton Rancheria, the Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians,the Mechoopda Indian Tribe of Chico Rancheria, California and the North ForkRancheria of Mono Indians (collectively the “Native American Tribes”). Weevaluate expansion opportunities as they become available, and we may in thefuture develop projects in addition to the above listed projects.

Constructionprojects, such as those mentioned above and the proposed gaming facilities forthe Native American Tribes entail significant risks, including the following:

·       shortagesof material or skilled labor;

·       unforeseenengineering, environmental or geological problems;

·       workstoppages;

·       weatherinterference;

·       floods;and

·       unanticipatedcost increases;

any of which can give riseto delays or cost overruns.

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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, staffing requirements,problems 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 cannot be surethat we will not exceed the budgeted costs of these projects or that theprojects will commence operations within the contemplated time frame, if atall. Budget overruns and delays with respect to expansion and developmentprojects could have a material adverse impact on our results of operations.

**Wemay experience difficulty integrating operations of our acquired companies anddeveloped properties and managing our overall growth which could have amaterial adverse effect on our operating results.**

We may not be able tomanage the combined operations of Station Casinos, Inc., including, theprojects with the Native American Tribes and Aliante Station and futureacquired companies or acquired or developed properties effectively, or realizeany of the anticipated benefits of the acquisitions, including streamliningoperations or gaining efficiencies from the elimination of duplicative functions.The integration of other companies as assets will require continued dedicationof management resources and may temporarily detract attention from ourday-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 projects withthe Native American Tribes and Aliante Station, but also managing our expansionprojects and any other gaming operations we may acquire in the future. Managementof these new projects will require increased managerial resources, and weintend to continue our efforts to enhance our gaming management team. However,there can be no assurances that we will succeed in doing so. Failure to manageour growth effectively could have a material adverse effect on our operatingresults.

**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 these officersand/or employees could have a material adverse effect on our results ofoperations.

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

Weregularly evaluate and pursue new gaming acquisition and developmentopportunities in existing and emerging jurisdictions. These opportunities havein the past, and may in the future, take the form of joint ventures. To theextent that we decide to pursue any new gaming acquisition or developmentopportunities, our ability to benefit from such investments will depend upon anumber of factors including:

·       ourability to identify and acquire attractive acquisition opportunities anddevelopment sites;

·       ourability to secure required federal, state and local licenses, permits andapprovals, which in some jurisdictions are limited in number;

·       certainpolitical factors;

·       theavailability of adequate financing on acceptable terms (including waivers ofrestrictions in existing credit arrangements); and

·       ourability to identify and develop satisfactory relationships with joint venturepartners.

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Most of these factors arebeyond our control. Therefore, we cannot be sure that we will be able torecover our investment in any new gaming development opportunities or acquiredfacilities, or successfully expand to additional locations.

Wehave invested, and will likely continue to invest, in real property inconnection with the pursuit of expansion opportunities. These investments aresubject to the risks generally incident to the ownership of real property,including:

·       changesin economic conditions;

·       environmentalrisks;

·       governmentalrules and fiscal policies; and

·       othercircumstances over which we may have little or no control.

The development of suchproperties is also subject to restrictions under our revolving credit facility.We cannot be sure that we will be able to recover our investment in any suchproperties or be able 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 Gaming Regulations*

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

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

Our direct and indirectsubsidiaries that conduct gaming operations in Nevada are required to belicensed by the Nevada Gaming Authorities. The gaming licenses require theperiodic payment of fees and taxes and are not transferable. Palace StationHotel & Casino, Inc. (“PSHC”), Boulder Station, Inc. (“BSI”),Texas Station, LLC (“TSL”), Sunset Station, Inc. (“SSI”), TropicanaStation, Inc. (“TRSI”), Santa Fe Station, Inc. (“SFSI”), CharlestonStation, LLC. (“CSL”), Fiesta Station, Inc. (“FSI”), Rancho Station, LLC (“RSL”),Lake Mead Station, Inc. (“LMSI”), Gold Rush Station, LLC (“GRS”), MagicStar Station, LLC (“MSS”) and LML Station, LLC (“LML”) have received licensesto conduct non-restricted gaming operations. In addition, Green Valley RanchGaming, LLC (“GVRG”) has received licenses to conduct non-restricted gamingoperations at Green Valley Ranch Resort Spa Casino. Our ownership in 

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GVRG isheld through an intermediary company known as GV Ranch Station, Inc. (“GVRS”),which is licensed as a member and manager of GVRG. Town Center Amusements, Inc.(“TCAI”) has been licensed to conduct non-restricted gaming operations atBarley’s Casino & Brewing Company (“Barley’s”), a micro brewery andcasino located in Henderson, Nevada and Greens Café, LLC (“GC’) has beenlicensed to conduct nonrestricted gaming operations at 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, CSL, GVRS, FSI, RSL, LMSI, GRS, MSS and LML. We are alsolicensed as a manufacturer and distributor of gaming devices. PSHC, BSI, SSI,TRSI, GVSI, SFSI, CSL, GVRG, FSI and LMSI are each a corporate gaming licenseeand TCAI, TSL, GVRG, RSL, GRS, MSS, GC, PSL and LML are each a limitedliability company licensee (individually a “Gaming Subsidiary” and collectivelythe “Gaming Subsidiaries”) under the terms of the Nevada Act. As a RegisteredCorporation, Station Casinos is required periodically to submit detailedfinancial and operating reports to the Nevada Commission and the Nevada Boardand furnish any other information, which the Nevada Commission or the NevadaBoard may require. No person may become a stockholder or holder of an interestof, or receive any percentage of profits from the Gaming Subsidiaries withoutfirst obtaining licenses and approvals from the Nevada Gaming Authorities.Station Casinos and the Gaming Subsidiaries have obtained from the NevadaGaming Authorities the various registrations, findings of suitability, approvals,permits and licenses (individually, a “Gaming License” and collectively, the “GamingLicenses”) required in order to engage in gaming activities in Nevada.

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

If the Nevada GamingAuthorities were to find an officer, director or key employee unsuitable forlicensing or unsuitable to continue to have a relationship with Station or theGaming Subsidiaries, the companies involved would have to sever allrelationships with such person. In addition, the Nevada Commission may requireStation or the Gaming Subsidiaries to terminate the employment of any personwho refuses to file the appropriate applications. Determinations of suitabilityor questions pertaining to licensing are not subject to judicial review inNevada.

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

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

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

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

Any person who fails orrefuses to apply for a finding of suitability or a license within thirty daysafter being ordered to do so by the Nevada Commission or the Chairman of theNevada Board may be found unsuitable. The same restrictions apply to a recordowner if the record owner, after request, fails to identify the beneficialowner. Any stockholder who is found unsuitable and who holds, directly orindirectly, any beneficial ownership of the common stock of a RegisteredCorporation beyond such period of time as may be prescribed by the NevadaCommission may be guilty of a criminal offense. We are subject to disciplinaryaction if, after we receive notice that a person is unsuitable to be astockholder or to have any other relationship with us or our GamingSubsidiaries, we (i) pay that person any dividend or 

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interestupon our voting securities, (ii) allow that person to exercise, directlyor indirectly, any voting right conferred through securities held by thatperson, (iii) pay remuneration in any form to that person for servicesrendered or otherwise, or (iv) fail to pursue all lawful efforts torequire such unsuitable person to relinquish his voting securities including,if necessary, the immediate purchase of said voting securities for cash at fairmarket value. Additionally, the Clark County Board has the authority to approveall persons owning or controlling the stock of any corporation controlling agaming licensee.

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

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

We may not make a publicoffering of our securities without the prior approval of the Nevada Commissionif the securities or proceeds therefrom are intended to be used to construct,acquire or finance gaming facilities in Nevada, or to retire or extendobligations incurred for such purposes. On May 19, 2005, the NevadaCommission granted us prior approval to make public offerings for a period oftwo years, subject to certain conditions (“Shelf Approval”). The Shelf Approvalmay be rescinded for good cause without prior notice upon the issuance of aninterlocutory stop order by the Chairman of the Nevada Board and must berenewed at the end of the two-year approval period. The Shelf Approval alsoapplies to any affiliated company wholly owned by Station (an “Affiliate”),which is a publicly traded corporation or would thereby become a publiclytraded corporation pursuant to a public offering. The Shelf Approval includesapproval for us to place restrictions upon the transfer of, and to enter intoagreements not to encumber the equity securities of the Gaming Subsidiaries, asapplicable, in conjunction with public offerings made under the Shelf Approval,and also includes approval for the Gaming Subsidiaries to guarantee anysecurity issued by, or to hypothecate their assets to secure the payment orperformance of any obligations evidenced by a security issued by, Station or anAffiliate in a public offering under the Shelf Approval. The Shelf Approvaldoes not constitute a finding, recommendation or approval by the NevadaCommission or the Nevada Board as to the accuracy or adequacy of the prospectusor the investment merits of the securities offered. Any representation to thecontrary is unlawful. On December 12, 2006, we filed the requisiteapplications seeking approval for a new Shelf Approval.

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

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amaterial relationship or involvement with the entity proposing to acquirecontrol, to be investigated and licensed as part of the approval processrelating to the transaction.

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

License fees and taxes,computed in various ways depending on the type of gaming or activity involved,are payable to the State of Nevada and to the counties and cities in which theNevada licensee’s respective operations are conducted. Depending upon theparticular fee or tax involved, these fees and taxes are payable either monthly,quarterly or annually and are based upon either: (i) a percentage of thegross revenues received; (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 admissioncharges, 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.

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*Nevada LiquorRegulations*

The sale of alcoholic beverages at Palace Station,Wildfire and Santa Fe Station is subject to licensing control and regulation bythe City of Las Vegas. Red Rock, Boulder Station and Wild Wild West are subjectto liquor licensing control and regulation by the Clark County Board. TexasStation and Fiesta Rancho are subject to liquor licensing control andregulation by the City of North Las Vegas. Sunset Station, Green Valley Ranch,Fiesta Henderson, Barley’s, Gold Rush, Magic Star, The Greens and Lake Mead aresubject to liquor licensing control and regulation by the City of Henderson.All liquor licenses are revocable and are not transferable. The agenciesinvolved have full power to limit, condition, suspend or revoke any such license,and any such disciplinary action could (and revocation would) have a materialadverse effect on the operations of the Gaming Subsidiaries.

**We are subject to Native American gaming regulationswhich could have an adverse effect 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 as slots,video poker, lotteries and pari-mutuel wagering. Thunder Valley may provide Class IIgaming and, as limited by the tribal-state compact, Class IIIgaming.

IGRA requires NIGC approval of management contractsfor Class II and Class III gaming as well as the review of allagreements collateral to the management contracts. The management agreementrelating to our 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 theNative American tribe which is the party to the management contract; (ii) hasbeen or subsequently is convicted of a felony or gaming offense; (iii) hasknowingly and willfully provided materially important false information to theNIGC or the tribe; (iv) has refused to respond to questions from the NIGC;or (v) is a person whose prior history, reputation and associations pose athreat to the public interest or to effective gaming regulation and control, orcreate or enhance the chance of unsuitable activities in gaming or the businessand financial arrangements incidental thereto. In addition, the NIGC will notapprove a management contract if the management company or any of its agentshave attempted to unduly influence any decision or process of tribal governmentrelating to gaming, or if the management company has materially breached theterms of the management contract or the tribe’s gaming ordinance 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 

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possible modification orcancellation of a contract would be as the result of an enforcement actiontaken by the NIGC based on a violation of the law or an issue affectingsuitability.

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 tribal-state compacts provide, amongother 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. Wehave been licensed by the UAIC’s tribal gaming agency to manage Thunder Valley.

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 things 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 Station, are subject to the provisions of tribalordinances and regulations on gaming. These ordinances are subject to review bythe NIGC under certain standards established by IGRA. The NIGC may determinethat some or all of the ordinances require amendment, and those additionalrequirements, including additional licensing requirements, may be imposed onus. We have received no such notification regarding Thunder Valley. Thepossessions of valid licenses from the UAIC are ongoing conditions of ourmanagement agreement with that tribe.

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

*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 Agency (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 indirectlyextend 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 federal 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 

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compact, a permanentlicense cannot be issued unless the TGA has conducted an investigation as to thesuitability of the applicant. Any application for a gaming license may bedenied, and any license issued may be revoked, if the TGA determines theapplicant to be unsuitable or otherwise unqualified for a gaming license. Eachlicense is subject to review for compliance at least every two years.

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. Station California, LLC, our wholly owned subsidiary, has beenfound suitable as a Gaming Resource Supplier and Financial Source by theCalifornia Gambling Control Commission. This finding of suitability is subjectto review for compliance annually.

*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”). We and the Regulated Persons will need to satisfy the licensing,approval and suitability requirements of each jurisdiction in which we seek tobecome involved in gaming operations. These requirements vary from jurisdictionto jurisdiction, but generally concern the responsibility, financial stabilityand character of the owners and managers of gaming operations as well aspersons financially interested or involved in gaming operations. In general,the procedures for gaming licensing, approval and finding of suitabilityrequire Station and each Regulated Person to submit detailed personal historyinformation and financial information to demonstrate that the proposed gamingoperation has adequate financial resources generated from suitable sources andadequate procedures to comply with the operating controls and requirementsimposed by law and regulation in each jurisdiction, followed by a thoroughinvestigation by such Regulatory Authorities. In general, Station and eachRegulated Person must pay the costs of such investigation. An application forany gaming license, approval or finding of suitability may be denied for anycause that the Regulatory Authorities deem reasonable. Once obtained, licensesand approvals may be subject to periodic renewal and generally are nottransferable. The Regulatory Authorities may at any time revoke, suspend,condition, limit or restrict a license, approval or finding of suitability forany cause that they deem reasonable. Fines for violations may be levied againstthe holder of a license or approval and in certain jurisdictions, gamingoperation revenues can be forfeited to the state under certain circumstances.There can be no assurance that we will obtain all of the necessary licenses,approvals and findings of suitability or that our officers, directors, keyemployees, other affiliates and certain other stockholders will satisfy thesuitability requirements in one or more jurisdictions, or that such licenses,approvals and findings of suitability, if obtained, will not be revoked,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 

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jurisdictions.We may be required to submit detailed financial and operating reports toRegulatory Authorities.

**Factors affectingthe 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.While no shortages of energy have been experienced, the substantial increasesin the cost of electricity, natural gas and gasoline in the United States maynegatively affect our operating results. In addition, energy price increases inthe regions that constitute a significant source of customers for ourproperties 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.

**We depend on key markets and may not be able tocontinue to attract a sufficient number of guests and gaming customers inNevada to make our operations profitable.**

Our operating strategiesemphasize 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.

**We may incur losses that are not adequately covered byinsurance which may harm our 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.

**Factors affectingtax 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 is presently in session and there is currently no proposedlegislation to raise gaming taxes.

**ITEM 1B. UNRESOLVEDSTAFF 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 30 acresthat we own located on the west side of Las Vegas, Nevada.

Boulder Station is situated on approximately 54 acreslocated on the east side of Las Vegas, Nevada. We own 27 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 Station andLorenzo J. Fertitta, Vice Chairman and President of Station. The lease has amaximum term of 65 years, ending in June 2058. The lease provides formonthly payments of $183,333 through June 2008. In July 2008, andevery 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 Clark Countyor (ii) 8% per year. In July 2015, and every ten years thereafter,the rent will be adjusted by a cost of living factor. In no event will the rentfor any period be less than the immediately preceding period. Pursuant to theground lease, we have an option, exercisable at five-year intervals with thenext 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.

Red Rock is situated on approximately 68 acres that weown 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 also have acquired or are under contract to acquireapproximately 69 acres of land on which Wild Wild West is located and thesurrounding area of which, approximately 50 acres have been acquired as of December 31,2006. In 2003, we exercised our option to purchase the 19-acre parcel ofleased land on which Wild Wild West is located which was to occur in July 2005at a purchase price of  approximately $36million. We have extended the date for the close of escrow to no later than January 2009.

We currently own or leasesix sites, which have been acquired for potential gaming projects, consistingof 220 acres in the Las Vegas valley, 188 acres in Sacramento, California nearThunder Valley and 112 acres in Reno, Nevada.

**ITEM 3. LEGALPROCEEDINGS**

Station 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.

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*Litigation Relatingto the Merger*

On December 4, 2006, we announced that we hadreceived a proposal from Fertitta Colony Partners, LLC, (“FCP”) to acquire allof our outstanding common stock for $82 per share in cash.  As described in Note 16 to the ConsolidatedFinancial Statements in this Annual Report on Form 10-K, on February 23, 2007,we entered into a definitive merger agreement with FCP, pursuant to which FCPagreed to purchase all of the Company’s outstanding common stock for $90 pershare in cash. FCP is a company formed by Frank J. Fertitta III, Chairman andChief Executive Officer of Station, Lorenzo J. Fertitta, Vice Chairman andPresident of Station, and Colony Capital Acquisitions, LLC, an affiliate ofColony Capital, LLC.

On December 4, 2006, Helen Roessler filed a purportedclass action complaint in the District Court of Clark County, Nevada (the“District Court”), Case No. A532367, against the Company, our Board ofDirectors and Fertitta Colony Partners LLC (“FCP”).  The complaint alleges that the defendantsbreached their fiduciary duties and challenges the proposed transaction asinadequate and unfair to the Company’s public stockholders.  The complaint seeks, among other relief,class certification of the lawsuit and an injunction against the proposedtransaction.  Three similar putativeclass actions were subsequently filed in the District Court:  Goldman v. Station Casinos, Inc., et al.,Case No. A532395, filed on December 4, 2006; Traynor v. Station Casinos,Inc., et al., Case No. A532407, filed on December 4, 2006; and Filhaber v.Station Casinos, Inc., et al., Case No. A532499, filed on December 5, 2006.  (The four above-referenced actions arecollectively referred to as the “Initial Lawsuits.”)

On January 2, 2007, David Griffiths filed a purportedclass action complaint in the District Court against the Company, our Board ofDirectors, Delise F. Sartini, Blake L. Sartini, Colony Capital, LLC (“ColonyCapital”), Colony Capital Acquisitions, LLC (“Colony Acquisitions”) andFCP.  The complaint alleges that theCompany’s Board of Directors breached their fiduciary duties and the remainingdefendants aided and abetted the alleged breaches of fiduciary duties inconnection with the proposed transaction. The complaint seeks, among other relief, class certification of thelawsuit, an injunction against the proposed transaction, declaratory relief,the imposition of a constructive trust upon the defendants, and an award ofattorneys’ fees and expenses to plaintiffs.

On January 4, 2007, the District Court consolidatedthe Initial Lawsuits under the heading In Re Station Casino’s ShareholderLitigation and appointed lead counsel and liason counsel in connectiontherewith.  On January 29, 2007,plaintiff Griffiths filed a motion to vacate the District Court’s orderappointing lead counsel and to establish a briefing schedule on motions toappoint lead plaintiff and lead counsel. A hearing on that motion has been scheduled for March 5, 2007.

On February 14, 2007, the West Palm BeachFirefighters’ Pension Fund filed a purported class and derivative actioncomplaint in District Court against the Company’s Board of Directors, Thomas J.Barrack, Jr., Delise Sartini, Blake Sartini, Colony Capital, ColonyAcquisitions, FCP, Deutsche Bank Trust Company Americas and German AmericanCapital Corporation.  The complaintalleges, among other things, that the Company breached its fiduciary duties andthe remaining defendants aided and abetted the alleged breaches of fiduciaryduty in connection with the proposed transaction.  The complaint seeks, among other relief,class certification of the lawsuit, an injunction against the proposedtransaction unless and until the Company adopts and implements a fair saleprocess, the disclosure of all material information to the Company’sstockholders, the imposition of a constructive trust upon the defendants, andan award of attorneys’ fees and expenses to plaintiffs.

The Company believes that all of the above-referencedactions are without merit and intends to vigorously defend such actions.

**ITEM 4. SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS**

There were no matters submitted to a vote of securityholders during the fourth quarter of 2006.

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**PART II**

**ITEM 5.**                MARKETFOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES 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,  2006** |       |     |       |    |       |
| First Quarter                           |       | $        | 80.72      |    | $          | 64.51 |   |
| Second Quarter                          |       | 81.46    |       | 65.64   |       |
| Third Quarter                           |       | 68.30    |       | 53.45   |       |
| Fourth Quarter                          |       | 85.19    |       | 56.80   |       |
| **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   |       |

 

***Holders***

As of January 31,2007, there were 527 holders of record of our common stock and the closingprice of our common stock was $83.20.

***Dividends***

During the year ended December 31, 2006, we paida quarterly cash dividend of $0.25 per share to shareholders of record on February 10,2006 and May 12, 2006 and $0.2875 per share to shareholders of record on August 11,2006 and November 13, 2006. The total amount paid in dividends for 2006was $65.4 million.

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.

On February 14, 2007,we declared a quarterly cash dividend of $0.2875 per share to shareholders ofrecord on February 26, 2007 payable on March 12, 2007. The payment ofdividends in the future will be at the discretion of our Board of Directors.Restrictions imposed by our debt instruments and other agreements limit thepayment of dividends (see “Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Description of Certain Indebtedness andCapital Stock”).

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***SecuritiesAuthorized for Issuance Under Equity Compensation Plans***

The following table lists all equity compensationplans that provide for the award of our securities or the grant of options asof December 31, 2006:

| **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      |       |       | 2,187,107  |                                                                                                                      |       |                                                                        | $          | 12.07                                                                                                                                   |       |   |   | 1,108,632 |   |   |
| Equity compensation plans not approved by  shareholders |       |       | —     |                                                                                                                      |       |                                                                        | —     |                                                                                                                                    |       |   | — |   |   |
| Total                                                   |       |       | 2,187,107  |                                                                                                                      |       |                                                                        | $          | 12.07                                                                                                                                   |       |   |   | 1,108,632 |   |   |

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(a)           Thisamount excludes restricted stock awards issued. In addition to the above, wehave 3,027,354 shares of unvested restricted stock awards outstanding underequity compensation plans approved by shareholders.

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***Stock Performance Graph***

The graph below compares the cumulative totalstockholder return of the Company; with the cumulative total return of theStandard & Poor’s 500 Stock Index (“S&P 500”) and the Dow Jones USGambling Index (“Dow Jones US Gambling”).

The performance graphassumes that $100 was invested on December 31, 2001 in each of the commonstock of Station Casinos, Inc., the Dow Jones US Gambling and the S&P500. The stock price performance shown in this graph is neither necessarilyindicative of nor intended to suggest future stock price performance.

**COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN***

**Among Station Casinos, Inc., The S & P 500 Index**

**AndThe Dow Jones US Gambling Index**

*                    $100invested on 12/31/01 in stock or index-including reinvestment ofdividends.  Fiscal year ending December31.

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***Issuers Purchasesof Equity Securities***

The table below sets forth the information withrespect to purchases made by or on behalf of us of our common stock during thethree months ended December 31, 2006 (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, 2006  |       |       | 395        |                                                      |       |                                         | $          | 61.87                                                                                                                            |       |                                                                                                                                     |       | — |   |   |   | 7,475,284 |   |   |
| November 1 - 30, 2006 |       |       | —     |                                                      |       |                                         | —     |                                                                                                                             |       |                                                                                                                                     | —     |   |   |   | 7,475,284 |   |   |
| December 1 - 31, 2006 |       |       | 7,577      |                                                      |       |                                         | $          | 82.35                                                                                                                            |       |                                                                                                                                     |       | — |   |   |   | 7,475,284 |   |   |
| Total                      |       |       | 7,972      |                                                      |       |                                         | $          | 81.34                                                                                                                            |       |                                                                                                                                     |       | — |   |   |   | 7,475,284 |   |   |

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(b)          Theshares purchased by us during the three months ended December 31, 2006,consisted of 7,972 restricted shares withheld to offset tax withholdingobligations that occur upon vesting of the restricted shares.

(c)           OnJuly 24, 2006, the Board of Directors authorized us to repurchase up to 10million shares of our common stock.

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**ITEM 6. SELECTEDFINANCIAL DATA**

Theselected consolidated financial data presented below as of and for our fiscalyears ended December 31, 2006, 2005, 2004, 2003 and 2002 have been derivedfrom our consolidated financial statements which, except for 2003 and 2002, 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,**                   | ** ** |
|-------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                                                                          | ** ** | **2006(a)**                                                                     | ** ** | **2005** | ** ** | **2004(b)** | ** ** | **2003(c)** | ** ** | **2002** | ** ** |
| ** **                                                                          | ** ** | **(amounts in thousands, except per share data)** | ** ** |
| **Operating Results:**                                                              | ** ** | ** **                                                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net revenues                                                                        |       | $                                                                               | 1,339,024  |   | $ | 1,108,833 |   | $ | 986,742 |   | $ | 858,089 |   | $ | 792,865 |   |
| Operating costs  and expenses, excluding the following items:                       |       | 983,339                                                                         |       | 772,927 |   | 721,957 |   | 655,844 |   | 638,164 |   |
| Development (d)                                                                     |       | 9,036                                                                           |       | 8,747 |   | 10,683 |   | 4,306 |   | — |   |
| Preopening (e)                                                                      |       | 29,461                                                                          |       | 6,560 |   | 848 |   | — |   | — |   |
| Lease  terminations (f)                                                             |       | 1,053                                                                           |       | 14,654 |   | — |   | — |   | — |   |
| Impairment loss  (g)                                                                |       | —                                                                          |       | — |   | — |   | 18,868 |   | 8,791 |   |
| Litigation  settlement (h)                                                          |       | —                                                                          |       | — |   | — |   | 38,000 |   | — |   |
| Operating income                                                                    |       | 316,135                                                                         |       | 305,945 |   | 253,254 |   | 141,071 |   | 145,910 |   |
| Earnings from  joint ventures                                                       |       | 41,861                                                                          |       | 38,885 |   | 26,524 |   | 20,604 |   | 11,293 |   |
| Operating income  and earnings   from joint ventures                                |       | 357,996                                                                         |       | 344,830 |   | 279,778 |   | 161,675 |   | 157,203 |   |
| Loss on early  retirement of   debt (i)                                             |       | —                                                                          |       | (1,278 | ) | (93,265 | ) | — |   | (5,808 | ) |
| Interest expense,  net                                                              |       | (178,544                                                                        | )          | (87,325 | ) | (81,284 | ) | (93,498 | ) | (101,639 | ) |
| Income before  income taxes and cumulative effect of change in accounting principle |       | 179,452                                                                         |       | 256,227 |   | 105,229 |   | 68,177 |   | 49,756 |   |
| Income tax  provision                                                               |       | (69,240                                                                         | )          | (94,341 | ) | (38,879 | ) | (23,834 | ) | (18,508 | ) |
| Cumulative effect  of change in accounting principle (j)                            |       | —                                                                          |       | — |   | — |   | — |   | (13,316 | ) |
| Net income                                                                          |       | $                                                                               | 110,212    |   | $ | 161,886 |   | $ | 66,350 |   | $ | 44,343 |   | $ | 17,932 |   |
| Basic earning per  common share                                                     |       | $                                                                               | 1.90       |   | $ | 2.46 |   | $ | 1.03 |   | $ | 0.76 |   | $ | 0.31 |   |
| Diluted earnings  per common   share                                                |       | $                                                                               | 1.85       |   | $ | 2.40 |   | $ | 1.00 |   | $ | 0.72 |   | $ | 0.30 |   |
| Dividends paid  per common share                                                    |       | $                                                                               | 1.08       |   | $ | 0.92 |   | $ | 0.69 |   | $ | 0.25 |   | $ | — |   |
| **Balance  Sheet Data:**                                                            | ** ** | ** **                                                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total assets                                                                        |       | $                                                                               | 3,716,696  |   | $ | 2,929,043 |   | $ | 2,045,584 |   | $ | 1,745,972 |   | $ | 1,598,347 |   |
| Long-term  debt                                                                     |       | 3,468,828                                                                       |       | 1,944,328 |   | 1,338,213 |   | 1,168,957 |   | 1,165,722 |   |
| Stockholders’ (deficit)  equity                                                |       | (186,858                                                                        | )          | 630,814 |   | 488,921 |   | 339,939 |   | 270,678 |   |

 

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(a)           On April 18, 2006,we opened Red Rock.

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

(c)           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).

(d)          During the last half of2003, 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 9 to the Consolidated Financial Statements in this Annual Report on Form 10-K).

(e)           Preopening expenses forthe years ended December 31, 2006, 2005 and 2004 include costs primarilyrelated to the opening of Red Rock.

(f)             During the year endedDecember 31, 2006 and 2005, we recorded lease terminations primarilyrelated to land adjacent to the current Wild Wild 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 anew slot product. During the year ended December 31, 2002, we recorded animpairment loss of approximately $8.8 million, of which approximately$3.9 million was related to the write-down of certain assets related toour investment in an Internet, intra-state gaming platform and relatedtechnology and approximately $4.9 million, which was related to thewrite-off of our option to invest in the Internet wagering business withKerzner Interactive.

(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, 2005, we redeemed the remaining $16.9 million of outstanding83¤8% senior notes due 2008 and $17.4million of outstanding 97¤8% senior subordinated notes due2010. During the year ended December 31, 2004, we completed tenderoffers and consent solicitations for approximately $940.6 million of our seniorand senior subordinated notes outstanding. During the year ended December 31,2002, we redeemed our $150 million 93¤4%senior subordinated notes.

(j)              The FinancialAccounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”)142, “Goodwill and Other Intangible Assets”, in June 2001. SFAS 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 142. Weimplemented SFAS 142 on January 1, 2002 and tested for impairment inaccordance with the provisions of SFAS 142 in the first quarter of 2002.As a result of an independent third party appraisal, we recorded an impairmentloss of $13.3 million, net of the applicable tax benefit, related toFiesta Rancho, which is shown as a cumulative effect of a change in accountingprinciple in our consolidated statements of operations.

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**ITEM 7.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussionand analysis should be read in conjunction with “Selected Financial Data” andthe financial statements and notes thereto included elsewhere in this AnnualReport on Form 10-K.

**Results ofOperations**

The following table highlights the results of ouroperations (dollars in thousands):

| ** **                              | ** ** | **Year ended  December 31,  2006** | ** ** | **Percent  change** | ** ** | **Year ended  December 31,  2005** | ** ** | **Percent  change** | ** ** | **Year ended  December 31,  2004** | ** ** |
|-----------------------------------------|------------|----------------------------------------------|------------|---------------------|------------|----------------------------------------------|------------|---------------------|------------|----------------------------------------------|------------|
| **Net  revenues—total**            |       |                                         | $          | 1,339,024           |       |                                         |       | 20.8                | %          |                                         |       | $ | 1,108,833 |   |   | 12.4 | % |   | $ | 986,742 |   |   |
| Major Las Vegas Operations (a)     |       |                                         | 1,189,099  |                |       |                                         | 22.8       | %                   |       |                                         | 968,017    |   |   | 11.5 | % |   | 868,248 |   |   |
| Management fees (b)                |       |                                         | 99,485     |                |       |                                         | 4.6        | %                   |       |                                         | 95,144     |   |   | 12.4 | % |   | 84,618 |   |   |
| Other Operations and Corporate (c) |       |                                         | 50,440     |                |       |                                         | 10.4       | %                   |       |                                         | 45,672     |   |   | 34.8 | % |   | 33,876 |   |   |
| **Operating income (loss)—total**  |       |                                         | $          | 316,135             |       |                                         |       | 3.3                 | %          |                                         |       | $ | 305,945 |   |   | 20.8 | % |   | $ | 253,254 |   |   |
| Major Las Vegas Operations (a)     |       |                                         | 290,924    |                |       |                                         | (4.1       | )%                  |       |                                         | 303,383    |   |   | 30.4 | % |   | 232,677 |   |   |
| Management fees (b)                |       |                                         | 99,485     |                |       |                                         | 4.6        | %                   |       |                                         | 95,144     |   |   | 12.4 | % |   | 84,618 |   |   |
| Other Operations and Corporate (c) |       |                                         | (74,274    | )                   |       |                                         | 19.8       | %                   |       |                                         | (92,582    | ) |   | (44.6 | )% |   | (64,041 | ) |   |
| **Cash  flows provided by (used in):**  | ** ** |                                         |       |                |       |                                         |       |                |       |                                         |       |   | ** ** | ** ** | ** ** |   |   |   |   |
| Operating activities                    |       |                                         | $          | 293,373             |       |                                         |       | (22.2               | )%         |                                         |       | $ | 376,891 |   |   | 43.6 | % |   | $ | 262,411 |   |   |
| Investing activities                    |       |                                         | (836,261   | )                   |       |                                         | 5.5        | %                   |       |                                         | (885,327   | ) |   | (162.0 | )% |   | (337,929 | ) |   |
| Financing  activities                   |       |                                         | 574,234    |                |       |                                         | 9.3        | %                   |       |                                         | 525,571    |   |   | 543.6 | % |   | 81,663 |   |   |

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(a)           Includes the whollyowned properties of Palace Station, Boulder Station, Texas Station, SunsetStation, Santa Fe Station, Red Rock (since April 18, 2006), Fiesta Ranchoand Fiesta Henderson.

(b)          Includes management feesfrom Thunder Valley, Green Valley Ranch, Barley’s and The Greens (since December 17,2005).

(c)           Includes the whollyowned properties of Wild Wild West, Wildfire, Magic Star (since August 2,2004), Gold Rush (since August 2, 2004), Lake Mead (since October 1,2006) and corporate and development expense.

Consolidated net revenues for the year ended December 31,2006 increased 20.8% to $1.3 billion as compared to $1.1 billion forthe year ended December 31, 2005. Year over year net revenues increasedprimarily due to the opening of Red Rock Casino Resort Spa (“Red Rock”) on April 18,2006.

Combined net revenue from our Major Las VegasOperations increased 22.8% to $1.2 billion for the year ended December 31,2006 as compared to $968.0 million for the year ended December 31, 2005,as a result of opening Red Rock as noted above. Combined net revenue from ourMajor Las Vegas Operations, excluding Red Rock, remained virtually unchangedfor the year ended December 31, 2006 as compared to the year ended December 31,2005.

Consolidated net revenuesfor the year ended December 31, 2005 increased 12.4% to $1.1 billionas compared to $986.7 million for the year ended December 31, 2004.Year over year net revenues increased primarily due to the continued strengthof the Las Vegas local economy, continued population and employment growth inthe Las Vegas valley, no new competition in the locals’ market until the latterpart of December, as well as the continued success of our Jumbo brand products,including Jumbo Jackpot. Jumbo Jackpot, which we introduced in April 2003,is an exclusive progressive slot jackpot that allows 

34

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customersusing a Boarding Pass or Amigo Club card the opportunity to win between$100,000 and $150,000 just for playing slot machines.

*OperatingIncome/Operating Margin*

Consolidated operating income increased 3.3% in theyear ended December 31, 2006 as compared to the year ended December 31,2005 while the operating margin decreased to 23.6% from 27.6% for the sameperiods. The increase in the consolidated operating income is a result ofincreased consolidated net revenues as noted above offset by operating expensesfor Red Rock as well as preopening expenses of $29.5 million in the year ended December 31,2006 as compared to $6.6 million in the year ended December 31, 2005. Thedecrease in operating margin was the result of lower operating margins at RedRock. Prior experience has demonstrated that new facilities initially do notoperate as efficiently as more mature facilities. As a result, the operatingmargins have been lower than we expect them to be in the future.

Consolidated operatingincome increased 20.8% in the year ended December 31, 2005 as compared tothe year ended December 31, 2004. The increase is primarily due toincreased consolidated net revenues noted above which were negatively impactedby $14.7 million in lease termination costs. There is significant operatingleverage on incremental revenue due to a significant amount of fixed costs. Asa result, our consolidated operating margin improved 1.9 percentage pointsin the year ended December 31, 2005 as compared to the year ended December 31,2004.

*Share-BasedCompensation*

Effective January 1, 2006, we adopted Statementof Financial Accounting Standards (“SFAS”) 123R, “Share-Based Payment”,utilizing the modified prospective application. Under the modified prospectiveapplication, SFAS 123R applies to new awards and awards that were outstandingon December 31, 2005 that are subsequently modified, repurchased orcancelled. Under the modified prospective application, compensation costrecognized in the year ended December 31, 2006 includes compensation costof all share-based payments granted prior to, but not yet vested as of January 1,2006, based on the grant-date fair value estimated in accordance with theoriginal provisions of SFAS 123 and compensation cost for all share-basedpayments granted subsequent to January 1, 2006, based on the grant-datefair value estimated in accordance with the provisions of SFAS 123R. Accordingly,prior period amounts are not restated to reflect the impact of adopting SFAS123R under the modified prospective application.

The recognition of compensation expense related to theissuance of restricted stock has not changed with the adoption of SFAS 123R,except for the addition of the estimate of forfeitures, and such compensationexpense continues to be expensed in the statements of operations. During theyear ended December 31, 2006, income before income tax and net income werereduced by approximately $2.2 million and $1.4 million, respectively, as aresult of adopting SFAS 123R, and basic earnings per share and diluted earningsper share were reduced by $0.03 and $0.02, respectively, reflectingcompensation expense related to stock option awards that were previously notrecognized in the financial statements due to our prior application of APB Opinion25.

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The following tablehighlights our various sources of revenues and expenses as compared to prioryears (dollars in thousands):

| ** **                                   | ** ** | **Year ended  December 31,  2006** | ** ** | **Percent  change** | ** ** | **Year ended  December 31,  2005** | ** ** | **Percent  change** | ** ** | **Year ended  December 31,  2004** | ** ** |
|----------------------------------------------|------------|----------------------------------------------|------------|---------------------|------------|----------------------------------------------|------------|---------------------|------------|----------------------------------------------|------------|
| Casino revenues                              |       |                                         | $          | 969,147             | * *   |                                         |       | 17.3                | *%*        |                                         |       | $ | 825,995 | * * |   |   | 13.1 | % |   |   | $ | 730,584 |   |   |
| Casino expenses                              |       |                                         | 348,659    | * *            |       |                                         | 21.7       | *%*                 |       |                                         | 286,503    | * * |   |   | 4.6 | % |   |   | 273,816 |   |   |
| *Margin*                                     | * *   | * *                                     | *64.0*     | *%*                 | * *   | * *                                     | * *   | * *            | * *   | * *                                     | *65.3*     | *%* |   |   | * * | * * |   |   | *62.5* | *%* |   |
| Food and beverage revenues                   |       |                                         | $          | 211,579             | * *   |                                         |       | 44.2                | *%*        |                                         |       | $ | 146,774 | * * |   |   | 4.6 | % |   |   | $ | 140,332 |   |   |
| Food and beverage  expenses                  |       |                                         | 152,300    | * *            |       |                                         | 47.9       | *%*                 |       |                                         | 102,970    | * * |   |   | 2.4 | % |   |   | 100,548 |   |   |
| *Margin*                                     | * *   | * *                                     | *28.0*     | *%*                 | * *   | * *                                     | * *   | * *            | * *   | * *                                     | *29.8*     | *%* |   |   | * * | * * | * * | * * | *28.4* | *%* |   |
| Room revenues                           |       |                                         | $          | 82,431              | * *   |                                         |       | 34.6                | *%*        |                                         |       | $ | 61,238 | * * |   |   | 7.3 | % |   |   | $ | 57,057 |   |   |
| Room expenses                           |       |                                         | 29,962     | * *            |       |                                         | 42.0       | *%*                 |       |                                         | 21,094     | * * |   |   | 0.2 | % |   |   | 21,053 |   |   |
| *Margin*                                     | * *   | * *                                     | *63.7*     | *%*                 | * *   | * *                                     | * *   | * *            | * *   | * *                                     | *65.6*     | *%* |   |   | * * | * * | * * | * * | *63.1* | *%* |   |
| Other revenues                               |       |                                         | $          | 70,245              | * *   |                                         |       | 33.7                | *%*        |                                         |       | $ | 52,550 | * * |   |   | 25.1 | % |   |   | $ | 42,008 |   |   |
| Other expenses                               |       |                                         | 26,244     | * *            |       |                                         | 47.4       | *%*                 |       |                                         | 17,799     | * * |   |   | 5.8 | % |   |   | 16,820 |   |   |
| Selling, general and administrative expenses |       |                                         | $          | 230,278             | * *   |                                         |       | 26.8                | *%*        |                                         |       | $ | 181,670 | * * |   |   | 5.1 | % |   |   | $ | 172,923 |   |   |
| *Percent of net revenues*                    | * *   | * *                                     | *17.2*     | *%*                 | * *   | * *                                     | * *   | * *            | * *   | * *                                     | *16.4*     | *%* |   |   |   |   |   |   | *17.5* | *%* |   |
| Corporate expense                            |       |                                         | $          | 63,066              | * *   |                                         |       | 9.5                 | *%*        |                                         |       | $ | 57,619 | * * |   |   | 22.1 | % |   |   | $ | 47,189 |   |   |
| *Percent of net revenues*                    | * *   | * *                                     | *4.7*      | *%*                 | * *   | * *                                     | * *   | * *            | * *   | * *                                     | *5.2*      | *%* |   |   |   |   |   |   | *4.8* | *%* |   |
| Earnings from  joint ventures                |       |                                         | $          | 41,861              | * *   |                                         |       | 7.7                 | *%*        |                                         |       | $ | 38,885 | * * |   |   | 46.6 | % |   |   | $ | 26,524 |   |   |

 

*Casino.**  **Casino revenues and expenses increased17.3% and 21.7%, respectively, for the year ended December 31, 2006 ascompared to the year ended December 31, 2005. The increase in revenues wasdue to the same factors affecting our consolidated net revenues noted above. Theincrease in casino expenses was due to the opening of Red Rock, which includesapproximately 3,200 slot machines and over 60 table games. Operating margin wasalso impacted by the opening of Red Rock as noted above.*

Casino revenues increased13.1% for the year ended December 31, 2005 as compared to the year ended December 31,2004, due to the same factors affecting our consolidated net revenues notedabove. Casino expenses increased 4.6% over the same period due to increasedpromotional and marketing expenses related to our Jumbo brand products and anincrease in gaming taxes as a result of higher casino revenues in 2005. Thereis also significant operating leverage on incremental gaming revenue due to asignificant amount of fixed costs in the casino department and, as a result,the casino profit margin increased by 2.8 percentage points for the yearended December 31, 2005 as compared to the year ended December 31,2004.

*Food and Beverage.  *Foodand beverage revenues increased 44.2% for the year ended December 31, 2006as compared to the year ended December 31, 2005, as a result of theopening of Red Rock on April 18, 2006. Food covers increased 20.6% andaverage guest check increased 14.8% for the year ended December 31, 2006as compared to the year ended December 31, 2005. Food and beverageexpenses increased 47.9% primarily due to the opening of Red Rock as notedabove which included the addition of nine restaurants.

Food and beverage revenuesincreased 4.6% for the year ended December 31, 2005 as compared to theyear ended December 31, 2004, due to selected menu price increases, aswell as enhancements at Santa Fe Station with the expansion of the café in 2004and the acquisitions of Magic Star and Gold Rush which was offset slightly bythe temporary closure of the Sunset Station buffet for remodeling. Food coversdecreased 2.2% for the year ended December 31, 2005 as compared to theyear ended December 31, 2004, 

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primarilydue to the temporary closure of the Sunset Station buffet. The average guestcheck increased 5.5% for the year ended December 31, 2005 as compared tothe year ended December 31, 2004 as a result of increased menu prices.Food and beverage expenses increased 2.4% for the year ended December 31,2005 as compared to the year ended December 31, 2004, resulting in anincrease in the food and beverage net operating margin of 1.4 percentage pointsfor the same period. The increase in food and beverage expense is related tothe acquisition of Magic Star and Gold Rush and increases in selected food costitems.

*Room.  *Room revenuesincreased 34.6% for the year ended December 31, 2006 as compared to theyear ended December 31, 2005. Room expenses increased 42.0% for theyear ended December 31, 2006 as compared to the year ended December 31,2005, which is due to the opening of Red Rock which included approximately 400hotel rooms. Room occupancy was 95% for the year ended December 31,2006, as compared to 96% for the year ended December 31, 2005. The averagedaily room rate increased to $73 for the year ended December 31, 2006 from$61 for the year ended December 31, 2005, primarily due to an averagedaily room rate of $169 for the year ended December 31, 2006 at Red Rock.

Room revenuesincreased 7.3% for the year ended December 31, 2005 as compared to theyear ended December 31, 2004. Room occupancy remained unchanged at96% while the average daily room rate increased to $61 for the year ended December 31,2005 from $56 for the year ended December 31, 2004, as a result ofcontinued increase in consumer demand for rooms in Las Vegas during 2005.

*Other.  *Otherrevenues primarily include income from gift shops, bowling, entertainment,leased outlets and the spa. Other revenues increased 33.7% for the year ended December 31,2006 as compared to the year ended December 31, 2005. The increase inother revenues is primarily due to the opening of Red Rock which includes afull-service spa and several leased outlets including a 16-screen movietheater complex.

Other revenues increased25.1% for the year ended December 31, 2005 as compared to the year ended December 31,2004. The increase in other revenues is primarily due to the opening of thebowling center at Sunset Station in April 2005 and the movie theatercomplex at Santa Fe Station in May 2005.

*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, 2006,management fees increased to approximately $99.5 million as compared to$95.1 million for the year ended December 31, 2005 and $84.6 millionfor the year ended December 31, 2004. The increase is due to improvedresults at both Green Valley Ranch and Thunder Valley.

*Selling, General andAdministrative (“SG&A”).  *SG&A as apercentage of net revenues increased to 17.2% in the year ended December 31,2006 as compared to 16.4% in the year ended December 31, 2005. SG&Aexpenses increased by 26.8% to $230.3 million for the year ended December 31,2006, from $181.7 million for the year ended December 31, 2005. Theincrease is primarily related to the opening of Red Rock during the secondquarter.

SG&A as a percentageof net revenues decreased to 16.4% in the year ended December 31, 2005 ascompared to 17.5% in the year ended December 31, 2004. A portion of thesecosts are fixed and, as a result, as revenues increased the percentage ofSG&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 andmaintenance related expenses attributable to increased foot traffic.

*Corporate Expense.  *Corporateexpense increased to approximately $63.1 million for the year ended December 31,2006 as compared to approximately $57.6 million for the year ended December 31,2005. 

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The increase isprimarily due to stock option expense as a result of adopting SFAS 123R (see “Share-BasedCompensation”), expenses related to costs associated with the Fertitta ColonyPartners, LLC transaction (as further described in Note 16 to the ConsolidatedFinancial Statements in this Annual Report on Form 10-K) and additionalrestricted stock awards offset by lower cash bonuses. 

Corporate expensesincreased to approximately $57.6 million for the year ended December 31, 2005as compared to approximately $47.2 million for the year ended December 31, 2004.The increase is primarily due to increased investment in corporateinfrastructure to handle prorated growth and a change in incentive compensationfrom a stock option based program to a program which includes cash andrestricted stock.

*Development Expense.  *Developmentexpense includes 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 31,2006, 2005 and 2004 were $9.0 million, $8.7 million and $10.7 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.

*Depreciation and Amortization.  *Depreciationand amortization increased 29.3% to approximately $131.1 million for theyear ended December 31, 2006 as compared to $101.4 million for theyear ended December 31, 2005. This increase was due primarily to thecompletion of phase I of Red Rock in April 2006, portions of the phase IImaster planned expansion at Fiesta Henderson in August 2006 and the remodel ofthe buffet at Sunset Station in December 2005.

Depreciation andamortization increased 18.1% to approximately $101.4 million for the yearended December 31, 2005 as compared to $85.8 million for the yearended December 31, 2004. This increase was due primarily to the additionof new ticket-in, ticket-out slot machines at a majority of the Major Las Vegasproperties in 2004, the completion of the ice arena at Fiesta Rancho during2004, the completion of the Santa Fe Station phase II expansion which opened inphases beginning in the latter part of 2004 and the addition of the bowlingcenter at Sunset Station in April 2005.

*Preopening Expense.  *Preopeningexpenses for the year ended December 31, 2006, 2005 and 2004 wereapproximately $29.5 million, $6.6 million and $0.8 million, respectively,which include costs related to projects under development including Red Rock.

*Lease Terminations.  **During the year ended December 31,2006 and 2005, we recorded approximately $1.1 million and $14.7 million,respectively, to terminate various leases primarily related to land adjacent tothe current Wild Wild West property.*

*Earnings From JointVentures.  *We own a 50% interest in various jointventures including Green Valley Ranch and Barley’s, and a 6.7% interest in ajoint venture that owns the Palms Casino Resort. We recorded our share of theearnings from these joint ventures of $41.9 million, $38.9 million and$26.5 million for the years ended December 31, 2006, 2005 and 2004,respectively. The increase in earnings from joint ventures is primarily relatedto improved results at Green Valley Ranch as a result of the completion ofvarious portions of the phase III master-planned expansion in October 2006and phase II master-planned expansion in December 2004.

*Interest Expense.  *Interestexpense, net of capitalized interest, increased 113.7% to $171.7 millionin the year ended December 31, 2006 as compared to $80.4 million inthe year ended December 31, 2005. Gross interest expense increasedapproximately $100.3 million due to an increase in our long-term debt ofapproximately $1.5 billion in the year ended December 31, 2006, and anincrease in the weighted average cost of debt to 6.7% from 6.2% for the yearsended December 31, 2006 and 2005, respectively. Capitalized interestincreased approximately $7.4 million for the year ended December 31,2006 as compared to the year ended December 31, 2005, primarily due to interestcapitalized for the construction of Red Rock.

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Interest expense, net ofcapitalized interest, increased 4.7% to $80.4 million in the year ended December 31,2005 as compared to $76.8 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 and Other Expensefrom Joint Ventures.  *For the years ended December 31,2006, 2005 and 2004, we recorded $6.8 million, $6.9 million and$4.5 million, respectively, in interest and other expense related to ourunconsolidated joint ventures. The increase during 2005 in interest and otherexpense from joint ventures is due to higher debt balances as a result of theapproximate 300 room addition completed at Green Valley Ranch in December 2004.

*Loss on Early Retirementof Debt.**  *During2005, we redeemed the remaining $16.9 million of outstanding 83¤8% senior notesdue 2008 and $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 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 andCapital 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 the expansionsat Red Rock, Green Valley Ranch, Santa Fe Station and Fiesta Henderson entailsignificant 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 constructionschedule estimates. There can be no assurance that the budgeted costs orconstruction period will be met. All forward-looking statements are basedon our current expectations and projections about future events.

During the year ended December 31, 2006, wegenerated cash flows from operating activities of $293.4 million. Wereceived $698.5 million from the issuance of senior and senior subordinatednotes (see “Description of Certain Indebtedness and Capital Stock—*Senior and Senior Subordinated Notes*”).**Inaddition, we received approximately $18.0 million from the sale of land,property and equipment. At December 31, 2006, we had total availableborrowings of $2.0 billion under our Revolving Facility, which was reducedby borrowings of $1.2 billion and various letters of credit totalingapproximately $1.2 million, leaving approximately $843.0 millionavailable as of December 31, 2006. We had $116.9 million in cash andcash equivalents as of December 31, 2006, virtually all of which is usedfor day-to-day operations of our casinos.

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During the year ended December 31, 2006, totalcapital expenditures were $756.8 million, of which approximately $379.2million was related to the development of Red Rock phases I and II (see “FutureDevelopment”), approximately $22.7 million was related to the phase IIIexpansion of Red Rock, approximately $19.0 million was for the purchase ofland adjacent to the current Wild Wild West property,  approximately $23.8 million was for thepurchase of land held for development, approximately $116.7 million was relatedto the phase III expansion of Santa Fe Station, approximately $46.6 million wasrelated to the phase II expansion of Fiesta Henderson and approximately $148.8million was for maintenance and other capital expenditures. In addition tocapital expenditures, we paid approximately $15.9 million in reimbursableadvances for our Native American development projects (see “Future Development”),approximately $65.4 million in common stock dividends, approximately $880.7million to repurchase 12.7 million shares of our common stock and approximately$42.4 million was contributed to various joint ventures.

Our primary cash requirements for 2007 are expected toinclude (i) approximately $20 million for the phase II expansion of Red Rock,(ii) approximately $50 million for the phase III expansion of Red Rock, (iii) approximately$12 million for the phase III expansion of Santa Fe Station, (iv) approximately$23 million for the phase II expansion of Fiesta Henderson, (v) paymentsof cash dividends, (vi) principal and interest payments on indebtedness, (vii) maintenanceand other capital expenditures, (viii) other strategic land purchases and (ix) equitycontributions to joint ventures.

We believe that cash flows from operations, availableborrowings under the Revolving Facility, existing cash balances and thedistribution from Green Valley Ranch (see “Description of Certain Indebtednessand Capital Stock—Green Valley Ranch Financing”) will be adequate to satisfyour anticipated uses of capital during 2007. However, we are continuallyevaluating our financing needs. If more attractive financing alternatives orexpansion, development or acquisition opportunities become available to us, wemay amend our financing plans assuming such financing would be permitted underour existing debt agreements (see “Description of Certain Indebtedness andCapital Stock”) and other applicable agreements.

It is anticipated that thefunds necessary to consummate the Merger and related transactions described inNote 16 to the Consolidated Financial Statements in this Annual Report on Form10-K will be funded by new credit facilities and equity financing. Ourcapitalization, liquidity and capital resources will change substantially ifthe Merger is approved by our shareholders and the related financingtransactions are completed. Upon the closing of the financing transactions, wewill be highly leveraged. Our liquidity requirements will be significant,primarily due to debt service and lease expense requirements and financingcosts related to the indebtedness and lease expense expected to be incurred inconnection with the closing of the Merger.

*Off Balance SheetArrangements*

As of December 31, 2006, we have certainoff-balance sheet arrangements that affect our financial condition, liquidityand results of operations, which include interest rate swaps with a combinednotional amount of $550.0 million (see “Description of CertainIndebtedness and Capital Stock—Interest Rate Swaps”).

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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 |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| 2007                  |       | $                                | 242,495    |   | $ | 10,382 |   |   | $ | 45,063 |   |   |   | $ | 297,940 |   |   |
| 2008                  |       | 242,486                          |       | 10,408 |   |   | 27,296 |   |   |   | 280,190 |   |   |
| 2009                  |       | 247,591                          |       | 7,981 |   |   | 48,897 |   |   |   | 304,469 |   |   |
| 2010                  |       | 1,398,065                        |       | 7,818 |   |   | 2,502 |   |   |   | 1,408,385 |   |   |
| 2011                  |       | 155,895                          |       | 7,818 |   |   | 1,384 |   |   |   | 165,097 |   |   |
| Thereafter            |       | 2,853,559                        |       | 320,098 |   |   | 125 |   |   |   | 3,173,782 |   |   |
| Total                 |       | $                                | 5,140,091  |   | $ | 364,505 |   |   | $ | 125,267 |   |   |   | $ | 5,629,863 |   |   |

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(a)           Includes interestrelated to interest rate swaps estimated based on the notional amount and netinterest spread as of December 31, 2006. Interest related to the RevolvingFacility is estimated based on the outstanding balance and interest rate as of December 31,2006. See Note 8 to the Consolidated Financial Statements in this AnnualReport on Form 10-K.

(b)          See Note 9 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 and the purchase of land related to WildWild West.

**Future Development—LasVegas**

***Las Vegas Development***

*Red Rock*

On April 18, 2006, we opened phase I of Red RockCasino Resort Spa (“Red Rock”) located on Charleston Boulevard at theInterstate 215/Charleston interchange in the Summerlin master-planned communityin Las Vegas, Nevada. Phase I included approximately 400 hotel rooms,approximately 3,200 slot machines, 94,000 square feet of meeting and conventionspace, a full service spa, nine restaurants, a 16-screen movie theatercomplex, a night club and private pool club, both indoor and outdoorentertainment venues and parking for approximately 5,000 vehicles. Phase II,which included an additional hotel tower containing over 400 rooms and anexpanded spa area was completed during December 2006. The total cost ofphases I and II of Red Rock is $1.0 billion as of December 31, 2006.

In August 2006, we began a phase IIImaster-planned expansion of Red Rock, which includes a 72-lane bowlingcenter and an expansion of the west parking garage. Construction of the bowlingcenter is expected to be completed in the second quarter of 2007, while theparking garage expansion is expected to be completed in the third quarter of2007. The total cost of phase III is expected to be between $60 million and $65million, of which approximately $22.7 million had been incurred as of December 31,2006.

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. Pursuant to the terms of theoperating agreement, we owned 80% of the joint venture and Cloobeck Molaskyowned 20%. In June 2006, we notified Cloobeck Molasky that the jointventure had been dissolved based on the terms of the operating agreement. As ofDecember 31, 2006, we cancelled the residential project resulting in awrite-off of approximately $2.5 million, which is included in loss on assetdisposals, net on our consolidated statement of operations.

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*Santa Fe StationExpansion*

In October 2005, webegan a $130 million phase III master-planned expansion at Santa Fe Stationwhich included an additional 2,900-space parking garage, a 500-seatbuffet, 400 additional slot machines, a remodeled and expanded race and sportsbook, a meeting and banquet facility and a new center bar. The entire projectincluded approximately 125,000 square-feet of additional space and wascompleted during the fourth quarter 2006, with the exception of the center barwhich is expected to be completed by the summer of 2007.  Approximately $127.8 million had been incurredon the expansion as of December 31, 2006.

*Fiesta Henderson Expansion*

In October 2005, webegan a $75 million phase II master-planned expansion at Fiesta Henderson whichincluded a 1,500-space parking garage, 350 additional slot machines, aremodeled and expanded race and sports book and a 12-screen movie theatercomplex. Construction of the project was completed in August 2006, withthe exception of the movie theater complex which is expected to be completed inthe fall of 2007. Approximately $56.2 million had been incurred on theexpansion as of December 31, 2006.

*Green Valley Ranch Expansion*

In October 2006, weopened an additional 1,200-space parking garage, a new race and sports book, anew poker room and two new restaurants as part of the $115 million phase IIImaster-planned expansion at Green Valley Ranch. An entertainment lounge isstill under construction and is expected to open in the summer of 2007.Approximately $98.1 million had been incurred on the expansion as of December 31,2006.

*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. Thefirst phase of Aliante Station is expected to include 200 hotel rooms,approximately 3,000 slot machines, multiple full-service restaurants and amulti-screen movie theater complex. Construction on Aliante Station began in February 2007and is expected to be completed by the end of 2008 at a cost of approximately$650 million to $675 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. During the year ended December 31, 2006, we contributed anadditional $4.0 million to fund design and development costs.

*Rancho Road*

In December 2006, weentered into an amended and restated operating agreement with FBLV HoldingCompany LLC (“FBLV”). Pursuant to the amended and restated operating agreement,the parties contributed approximately 52 acres (with approximately 20 acrescontributed by us for our 50% ownership and approximately 32 acres contributedby FBLV for their 50% ownership) of improved and unimproved real propertylocated along Rancho Road located behind Palace Station in Las Vegas, Nevadainto a joint venture. It is anticipated that the joint venture will develop,construct and manage, pursuant to a master development plan, a mixed-useresidential, retail and entertainment (excluding non-restricted gaming) projecton all or a portion of such property. The timing, cost and scope of the projecthave yet to be determined.

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***Native AmericanDevelopment***

*The Federated Indians of Graton Rancheria*

We have entered intoDevelopment and Management Agreements with the Federated Indians of GratonRancheria (the “FIGR”), a federally recognized Native American tribe. Pursuantto those agreements, we will assist the FIGR in developing and operating agaming and entertainment project to be located in Sonoma County, California.The FIGR selected us to assist them in designing, developing and financingtheir project and, upon opening, we will manage the facility on behalf of theFIGR. The Management Agreement has a term of seven years from the opening ofthe facility and we will receive a management fee equal to 24% of the facility’snet income. We will also receive a development fee equal to 2% of the cost ofthe project upon the opening of the facility.

In August 2003, weentered into an option to purchase 360 acres of land just west of the RohnertPark city limits in Sonoma County, California. In August 2005, wepurchased 180 acres of the optioned property and an additional 90 acres. In March 2006,we purchased an additional 4.7 acres adjacent to the previously acquiredproperty. The property purchased is approximately one-quarter mile from Highway101 and approximately 43 miles from downtown San Francisco. In October 2003,the FIGR entered into a Memorandum of Understanding with the City of RohnertPark. 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 NIGC. Prior toobtaining third-party financing, we will contribute significant financialsupport to the project. As of December 31, 2006, we have advancedapproximately $132.3 million toward the development of this project,primarily to complete the environmental impact study and secure real estate forthe project, which is included on our consolidated balance sheets. Fundsadvanced by us are expected to be repaid from the proceeds of the projectfinancing or from the FIGR’s gaming revenues. In addition, we have agreed topay approximately $11.3 million upon achieving certain milestones, whichwill not be reimbursed. As of December 31, 2006, approximately$2.0 million of these payments had been made and expensed in developmentexpense as incurred. The timing of this type of project is difficult to predictand is dependent upon the receipt of the necessary governmental and regulatoryapprovals. There can be no assurances when or if these approvals will beobtained.

*Gun Lake Tribe*

On November 13, 2003,we agreed to purchase a 50% interest in MPM Enterprises, LLC, a Michiganlimited liability company (“MPM”). Concurrently with our agreement to purchasethat interest, MPM and the Match-E-Be-Nash-She-Wish Band of PottawatomiIndians, a federally recognized Native American tribe commonly referred to asthe Gun Lake Tribe (“Gun Lake”), entered into amended Development andManagement Agreements, pursuant to which MPM agreed to assist Gun Lake in developingand operating a gaming and entertainment project to be located in AlleganCounty, Michigan. On July 29, 2005, MPM and Gun Lake entered into amendedand restated Development and Management Agreements. We have agreed to pay$6.0 million for our 50% interest in MPM, which is payable upon achievingcertain milestones and is not reimbursable. As of December 31, 2006,approximately $2.0 million of these payments had been made and expensed indevelopment expense as incurred. An additional $12.0 million in total maybe paid by us in years six and seven of the amended and restated ManagementAgreement, subject to certain contingencies. Under the terms of the amended andrestated Development Agreement, we have agreed to arrange financing for theongoing development costs and construction of the project. As of December 31,2006, we have advanced approximately $34.0 million toward the development ofthis project, primarily to complete the environmental assessment and securereal estate for the project, which is included on our consolidated balancesheets. Funds advanced by us are expected to be repaid from the proceeds of theproject financing or from Gun Lake’s gaming revenues. The amended and restated ManagementAgreement has a term of seven years from the opening of the facility andprovides for a 

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managementfee of 30% of the project’s net income to be paid to MPM. Pursuant to the termsof the MPM Operating Agreement, our portion of the management fee is 50% of thefirst $24 million of management fees earned, 83% of the next$24 million of management fees and 93% of any management fees in excess of$48 million.

The proposed project willbe located on approximately 146 acres on Highway 131 near 129th Avenue,approximately 25 miles north of Kalamazoo, Michigan. As currently contemplated,the project will include up to 2,500 slot machines, 75 table games, abuffet and specialty restaurants. Construction of the project includes theconversion of an existing 192,000 square-foot building into the casino andentertainment facility. Development of the gaming and entertainment project andoperation of Class III gaming is subject to certain governmental andregulatory approvals, including, but not limited to, the signing of a gamingcompact by the Governor of the State of Michigan, the DOI taking the land intotrust on behalf of Gun Lake and approval of the Management Agreement by theNIGC. On February 27, 2004, the DOI issued a Finding Of No SignificantImpact with respect to the proposed project. On May 13, 2005, the DOIpublished in the Federal Register a Notice of Final Agency Determination (the “Determination”)to take certain land into trust for the benefit of Gun Lake. The publicationcommenced a thirty-day period in which interested parties could seek judicialreview of the Determination. On June 13, 2005, Michigan GamblingOpposition filed a complaint (the “Complaint”) in the United States DistrictCourt, District of Columbia, seeking declaratory and injunctive relief againstthe DOI and officials of the DOI. The Complaint seeks judicial review of theDetermination. On July 27, 2005, Gun Lake filed a motion to intervene inthat lawsuit. On September 1, 2005, the District Court granted Gun Lake’smotion to intervene. On January 6, 2006, Gun Lake filed a motion forjudgment on the pleadings or, in the alternative, for summary judgment. Also onJanuary 6, 2006, the DOI filed a motion to dismiss or, in the alternative,for summary judgment. By May 2006, all responsive pleadings had been filedand the case was ready for consideration by the District Court. On October 27,2006, the Department of Justice filed a Notice with the District Courtindicating that the DOI planned to take the 146-acre site into trust on January 5,2007, if the plaintiffs did not seek injunctive relief or failed to persuadethe court to issue any relief precluding the DOI from doing so. The DOIsubsequently amended that date to March 5, 2007, in order to provide the Courtsufficient time to render its decision. The Court set oral arguments on theparties’ motions to dismiss or, in the alternative, for summary judgment for November 29,2006. Oral arguments were heard on that date. On February 23, 2007, theDistrict Court issued its decision in favor of the DOI and Gun Lake, findingthat there were no facts which would entitle plaintiffs to any relief on thefour issues raised in the Complaint, and granted the parties’ motion to discussor, in the alternative for summary judgment. As with all litigation, noassurances can be provided as to the outcome of that lawsuit. 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.

*Mechoopda Indian Tribe*

We have entered into Development and ManagementAgreements with the Mechoopda Indian Tribe of Chico Rancheria, California (the “MITCR”),a federally recognized Native American tribe. Pursuant to those agreements, wewill assist the MITCR in developing and operating a 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, we have agreed to arrange thefinancing for the ongoing development costs and construction of the facility.Funds advanced by us are expected to be repaid from the proceeds of thefacility financing or from the MITCR’s gaming revenues. As of December 31,2006, we have advanced approximately $8.6 million toward the development ofthis project, primarily to complete the environmental assessment and securereal estate for the project, which is included on our consolidated balancesheets. In addition, we have agreed to pay approximately $2.2 million 

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of payments upon achievingcertain milestones, which will not be reimbursed. As of December 31, 2006,$50,000 of these payments had been made and expensed in development expense asincurred. The Management Agreement has a term of seven years from the openingof the facility and provides for a management fee of 24% of the facility’s netincome. As currently contemplated, the facility will include approximately700 slot machines, 12 table games and dining and entertainmentamenities. Development of the facility is subject to certain governmental andregulatory approvals, including, but not limited to, negotiating a gamingcompact with the State of California, the DOI accepting land into trust onbehalf of the MITCR and approval of the Management Agreement by the NIGC. Priorto obtaining third-party financing, we will contribute significant financialsupport to the project. The timing of this type of project is difficult topredict and is dependent upon the receipt of the necessary governmental andregulatory approvals. There can be no assurances when or if these approvalswill be obtained.

*North Fork Rancheria of Mono Indian Tribe*

Wehave entered into Development and Management Agreements with the North ForkRancheria of Mono Indians (the “Mono”), a federally recognized Native Americantribe located near Fresno, California. Pursuant to those agreements, we willassist the Mono in developing and operating a gaming and entertainment facilityto be located in Madera County, California. We have purchased, for the benefitof the Mono, a 305-acre parcel of land located on Highway 99 north of thecity of Madera. Under the terms of the Development Agreement, we have agreed toarrange the financing for the ongoing development costs and construction of thefacility. Funds advanced by us are expected to be repaid from the proceeds ofthe project financing or from the Mono’s gaming revenues. As of December 31,2006, we have advanced approximately $6.3 million toward the developmentof this project, primarily to complete the environmental impact study andsecure real estate for the project, which is included on our consolidatedbalance sheets. In addition, we have agreed to pay approximately $1.3 millionof payments upon achieving certain milestones, which will not be reimbursed andwill be expensed as incurred. As of December 31, 2006, none of thesepayments had been made. The Management Agreement has a term of seven years fromthe opening of the facility and provides for a management fee of 24% of thefacility’s net income. As currently contemplated, the facility will include approximately2,000 slot machines, 60 table games, restaurants, a hotel andentertainment amenities. Development of the gaming and entertainment project issubject to certain governmental and regulatory approvals, including, but notlimited to, negotiating a gaming compact with the State of California, the DOIaccepting the land into trust on behalf of the Mono and approval of theManagement Agreement by the NIGC. Prior to obtaining third-party financing, wewill contribute significant financial support to the project. The timing ofthis type of project is difficult to predict, and is dependant upon the receiptof the necessary governmental and regulatory approvals. There can be noassurances when 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, 2006, we had$214.4 million of land held for development that consists primarily of sixsites that are owned or leased, which comprise 220 acres in the Las Vegasvalley, 188 acres in the Sacramento, California area near Thunder Valley and104 acres in Reno, Nevada. The primary gaming-entitled land that we own in theLas Vegas valley consists of 68 acres located at the intersection of DurangoRoad and the Southern Beltway/Interstate 215 in the southwest area of LasVegas, 49 acres also located in southwest Las Vegas at the intersection ofFlamingo Road and Interstate 215, 61 acres located on the southern end of LasVegas Boulevard at Cactus Avenue of which we lease and have an option topurchase 2.5 acres and 30 acres on Boulder Highway at the site formerly knownas the Castaways Hotel Casino and Bowling Center.

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We also have acquired orare under contract to acquire approximately 69 acres of land on which Wild WildWest is located and the surrounding area of which, approximately 50 acres havebeen acquired as of December 31, 2006. During the years ended December 31,2006 and 2005 we incurred and expensed approximately $1.1 million and $11.7million, respectively to terminate various leases related to this land. In2003, 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 ata purchase price of  approximately $36million. We have extended the date for the close of escrow to no later thanJanuary 2009. Additionally, the lease expense was reduced from $2.9million to $1.6 million per year beginning in July 2005. No amountsrelated to this purchase option have been recorded on our consolidated balancesheets.

**Regulation and Taxes**

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 industry represents a significant source oftax revenue, particularly to the State of Nevada and its counties andmunicipalities. From time to time, various state and federal legislators andofficials have proposed changes in tax law, or in the administration of suchlaw, affecting the gaming industry. The Nevada Legislature is presently insession and there is currently no proposed legislation to raise gaming taxes.

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.

**Description ofCertain Indebtedness and Capital Stock**

*Revolving Facility*

In December 2005, we increased our availabilityunder our revolving credit facility (the “Revolving Facility”) from $1.0billion 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 our assets. Borrowings under the Revolving Facility bearinterest at a margin above the Alternate Base Rate or the Eurodollar Rate (eachas defined in the Revolving Facility), as selected by us. The margin above suchrates, and the fee on the unfunded portions of the Revolving Facility, willvary quarterly based on our combined consolidated ratio of debt to AdjustedEBITDA (as defined in the Revolving Facility). As of December 31, 2006,the Borrowers’ margin above the Eurodollar Rate on borrowings under theRevolving Facility was 2.00%. The maximum margin for Eurodollar Rate borrowingsis 2.25%. The maximum margin for Alternate Base Rate borrowings is 1.00%. As ofDecember 31, 2006, the fee for the unfunded portion of the RevolvingFacility was 0.30%.

The Revolving Facilitycontains certain financial and other covenants, some of which were amended in June andSeptember 2006. These include a maximum funded debt to Adjusted EBITDAratio for the Borrowers combined of 4.00 to 1.00 for each quarter 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, 2006, the Borrowers’funded debt to Adjusted EBITDA ratio was 2.57 to 1.00 and the fixed chargecoverage ratio was 1.59 to 1.00. In addition, the Revolving Facility hasfinancial and other covenants, which require that the maximum consolidatedfunded debt to Adjusted EBITDA ratio can be no more than 7.00 to 1.00 through June 30,2007, which reduces to 6.75 to 1.00 on September 30, 2007 through June 30,2008, to 6.50 to 1.00 on September 30, 2008 through December 31,2008, to 5.75 to 1.00 on March 31, 2009 through December 31, 2009 andto 5.00 to 1.00 on March 31, 2010. Other covenants limit prepayments of 

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indebtednessor rent (including subordinated debt other than re-financings meeting certaincriteria), asset dispositions, dividends, indebtedness, stock repurchases andinvestments. As of December 31, 2006, our consolidated funded debt toAdjusted EBITDA ratio was 6.02 to 1.00. We have pledged the stock of all of ourmajor subsidiaries.

*Senior and SeniorSubordinated Notes*

On August 15, 2006, we issued $400.0 million of 73¤4%senior notes due August 15, 2016. On March 13, 2006, we issued $300.0million of 65¤8% senior subordinated notes due March 2018.Proceeds from the sale of the notes were used to reduce a portion of the amountoutstanding on our Revolving Facility.

During 2005, we redeemed the remaining $16.9 millionof outstanding 83¤8% senior notes due 2008 and $17.4million of outstanding 97¤8% senior subordinated notes due2010. 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, discounts and callpremium.

During the first quarter of 2004, we refinancedsubstantially all of our senior and senior subordinated notes. In connectionwith the refinancing, we completed tender offers and consent solicitations forapproximately $940.6 million of our senior and senior subordinated notesoutstanding. As a result, we recorded a loss on early retirement of debt ofapproximately $93.3 million during the year ended December 31, 2004 toreflect the write-off of the unamortized loan costs, unamortized discount, callpremium, tender fee and consent payments which were partially offset by thefair value of the interest rate swaps that were tied directly to the redeemedsenior and senior subordinated notes.

The indentures (the “Indentures”)governing our senior and senior subordinated notes (the “Notes”) containcertain customary financial and other covenants, which limit our and our subsidiaries’ability to incur additional debt. At December 31, 2006, our ConsolidatedCoverage Ratio (as defined in the Indentures) was 2.40 to 1.00. The Indenturesprovide that we may not incur additional indebtedness, other than specifiedtypes of indebtedness, unless the Consolidated Coverage Ratio is at least 2.00to 1.00. In the event our Consolidated Coverage Ratio is below 2.00 to 1.00,the covenant limits our ability to incur additional indebtedness for borrowingsunder the Revolving Facility not to exceed the greater of $200 million or1.5 times Operating Cash Flow (as defined 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.

*Interest Rate Swaps*

We have entered into various interest rate swaps withmembers of our bank group to manage interest expense. As of December 31, 2006,we have interest rate swaps with a combined notional amount of$550.0 million. We entered into a fair value hedge interest rate swap witha notional amount of $50.0 million tied directly to our 6% senior notesconverting a portion of our fixed-rate debt to a floating-rate based uponthree-month LIBOR rates, terminating in April 2012. This interest rateswap qualifies for the “shortcut” method allowed under SFAS 133, “Accountingfor Derivative Instruments and Hedging Activities” and as amended by SFAS 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 our balance sheet with an offsetting adjustment to the carryingvalue of the related debt. In accordance with SFAS 133, we recorded a liabilityof $2.2 million and $2.1 million as of December 31, 2006 and 2005,respectively, representing the fair value of this interest rate swap and acorresponding decrease in long-term debt, as this interest rate 

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swap is considered highlyeffective under the criteria established by SFAS 133. We paid a rate based onLIBOR, which approximated 7.1% as of December 31, 2006 and received afixed rate of 6.0%.

We have entered into two cash flow hedge interest rateswaps with a combined notional amount of $500.0 million tied directly to ourRevolving Facility converting a portion of our floating-rate debt to afixed-rate based on three-month LIBOR rates, terminating in December 2010.As of December 31, 2006, we paid an average fixed rate of 5.1% andreceived three-month LIBOR which approximated 5.4%. These interest rate swapsare designated and qualify as cash flow hedges resulting in the effectiveportion of the gain or loss reported as a component of other comprehensiveincome (loss) with an offsetting adjustment to the carrying value of therelated debt. For the years ended December 31, 2006 and 2005, we recordedother comprehensive loss of $0.6 million and $0.8 million, respectively,related to the change in market value of these interest rate swaps. As aresult, we recorded an increase in long-term debt of $1.4 million and $0.8million as of December 31, 2006 and 2005, respectively.

The difference betweenamounts received and paid under such agreements, as well as any costs or fees,is recorded as a reduction of, or an addition to, interest expense as incurredover the life of the swaps. The net effect of the interest rate swaps resultedin a reduction of interest expense of approximately $0.2 million, $2.1 millionand $7.3 million for the years ended December 31, 2006, 2005 and 2004,respectively.

*Green Valley RanchFinancing*

On February 16, 2007,Green Valley Ranch entered into a new $830 million credit facility (the “GreenValley Facility”). The Green Valley Facility includes a $550 million first lienterm loan due February 2014, a $250 million second lien term loan due August 2014and a $30 million revolver due February 2012. At the time of close, therevolver was unfunded. Proceeds from the Green Valley Facility were used torepay outstanding borrowings under the previous revolving credit facility andterm loan, as well as an equal distribution to the partners which totaledapproximately $570 million. The outstanding balance of the Green Valley Ranchrevolving credit facility as of December 31, 2006, was approximately$228.0 million.

*Common Stock*

We are authorized to issue up to 135 millionshares of our common stock, $0.01 par value per share, 80,507,427 shares wereissued and 23,245,751 shares were held in treasury as of December 31,2006. Each holder of the common stock is entitled to one vote for each shareheld of record on each matter submitted to a vote of stockholders. Holders of ourcommon stock have no cumulative voting, conversion, redemption or preemptiverights or other rights to subscribe for additional shares other than pursuantto the Rights Plan described below. Subject to any preferences that may begranted to the holders of our preferred stock, each holder of common stock isentitled to receive ratably, such dividends as may be declared by our Board ofDirectors out of funds legally available therefor, as well as any distributionsto the stockholders and, in the event of our liquidation, dissolution orwinding up is entitled to share ratably in all our assets remaining afterpayment of liabilities.

On February 14, 2007, we declared a quarterlycash dividend of $0.2875 per share to shareholders of record on February 26,2007 payable on March 12, 2007. During the year ended December 31,2006, we paid a quarterly cash dividend of $0.25 per share to shareholders ofrecord on February 10, 2006 and May 12, 2006 and $0.2875 per share toshareholders of record on August 11, 2006 and November 13, 2006 for atotal of $65.4 million.

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 for a total of $62.6 million.

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Under the Merger Agreement described in Note 16 to theConsolidated Financial Statements in this Annual Report on Form 10-K, we areprohibited from making any dividends except for normal quarterly dividends fromoperations until the consummation of the Merger.

*Preferred Stock*

We are authorized to issueup to 5 million shares of our preferred stock, $0.01 par value per shareof which none are issued. The Board of Directors, without further action by theholders of our 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, 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 Station or other corporate action.

*Treasury Stock*

During the year ended December 31,2006, we repurchased approximately 12.7 million shares of our common stock forapproximately $880.7 million. As of December 31, 2006, we hadacquired approximately 23.2 million shares at a cost of approximately$1.0 billion and are authorized to repurchase approximately 7.5 millionadditional shares of our common stock.

*Rights Plan*

On October 6, 1997, we declared a dividend of onepreferred share purchase right (a “Right”) for each outstanding share of commonstock. The dividend was paid on October 21, 1997. Each Right entitles theregistered holder to purchase from us one one-hundredth of a share of Series APreferred Stock, par value $0.01 per share (“Preferred Shares”) of Station at aprice of $40.00 per one one-hundredth of a Preferred Share, subject toadjustment. The Rights are not exercisable until the earlier of 10 daysfollowing a public announcement that a person or group of affiliated orassociated persons have acquired beneficial ownership of 15% or more of ouroutstanding common stock (“Acquiring Person”) or 10 business days (or suchlater date as may be determined by action of the Board of Directors prior tosuch time as any person or group of affiliated persons becomes an AcquiringPerson) following the commencement of, or announcement of an intention to makea tender offer or exchange offer, the consummation of which would result in thebeneficial ownership by a person or group of 15% or more of our outstandingcommon 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 we are acquired in a merger or other businesscombination transaction or 50% or more of our consolidated assets or earningpower are sold after a person or group has become an Acquiring Person, properprovision will be made so that each holder of a Right will thereafter have theright to receive, upon exercise thereof, that number of shares of common stockof the acquiring company, which at the time of such transaction will have amarket value of two times the exercise price of the Right. Because of thecharacteristics of the Rights in connection with a person or group ofaffiliated or associated 

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persons becoming anAcquiring Person, the Rights may have the effect of making an acquisition of Stationmore difficult and may discourage such an acquisition.

Prior to the execution of the Merger Agreementdescribed in Note 16 to the Consolidated Financial Statements in this AnnualReport on Form 10-K, the Special Committee took all action necessary to ensurethat FCP, Merger Sub and their respective Affiliates and Associates as well asExisting Equity Holders, each as defined in the rights agreement (the “RightsAgreement”), dated as of October 6, 1997, entered into by and between Stationand Continental Stock Transfer & Trust Company (“Continental”), areexcepted from the definition of Acquiring Person in the Rights Agreement onlyto the extent each is a Beneficial Owner (as defined in the Rights Agreement)by entering into an Amendment to the Rights Agreement on February 23, 2007 (the“Amendment”), as a result of the approval, execution and delivery of the MergerAgreement or consummation of the transactions contemplated thereby.

**Critical AccountingPolicies**

*SignificantAccounting Policies and Estimates*

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

*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 isrecorded as revenue with a corresponding offsetting amount included inpromotional allowances. The cost associated with complimentary food, beverage,rooms, entertainment and merchandise redeemed under the Programs is recorded incasino costs and expenses. We also record a liability for the estimated cost ofthe outstanding points under the Programs that we believe will ultimately beredeemed.

*Self-InsuranceReserves*

We are self insured up tocertain stop loss amounts for workers’ compensation and general liability costs.We are also self insured for major medical claims. Insurance claims andreserves include accruals of estimated settlements for known claims, as well asaccruals of estimates for claims incurred but not reported. In estimating theseaccruals, we consider historical loss experience and make judgments about theexpected levels of costs per claim. We believe our estimates of futureliability are reasonable based upon our methodology; however, changes in healthcare costs, accident frequency and severity and other factors could materiallyaffect the estimate for these liabilities.

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*Interest Rate Swaps*

From time to time we enter into interest rate swaps inorder to manage interest rate risks associated with our current and futureborrowings. As such, we have adopted SFAS 133, “Accounting for DerivativeInstruments and Hedging Activities” and as amended by SFAS 138 and 149, toaccount for our interest rate swaps. The pronouncements require us to recognizeour interest rate swaps as either assets or liabilities in the balance sheetsat fair value. The accounting for changes in fair value (i.e. gains or losses)of the interest rate swap agreements depends on whether is has been designatedand qualifies as part of a hedging relationship and further, on the type ofhedging relationship. Additionally, 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 a fair value hedge and qualify for the “shortcut” methodunder SFAS 133 and as amended by SFAS 138 and 149, allows for an assumption ofno ineffectiveness. As such there is no income statement impact from thechanges in the fair value of the hedging instrument. Instead, the fair value ofthe instrument is recorded as an asset or liability on our balance sheet withan offsetting adjustment to the carrying value of the related debt.

*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.

We evaluate our propertyand equipment and other long-lived assets for impairment in accordance withSFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. Forassets to be disposed of, we recognize the asset to be sold at the lower ofcarrying value or fair market value less costs of disposal. Fair market valuefor assets to be disposed of is generally estimated based on comparable assetsales, solicited offers or a discounted cash flow model. For assets to be heldand used, we review fixed assets for impairment whenever indicators ofimpairment exist. If an indicator of impairment exists, we compare theestimated 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. Our consolidated financial statements reflect all adjustments requiredby SFAS 144 as of December 31, 2006.

*Share-BasedCompensation*

Effective January 1, 2006, we adopted SFAS 123R, “Share-BasedPayment”, utilizing the modified prospective application. Under the modifiedprospective application, SFAS 123R applies to new awards and awards that wereoutstanding on December 31, 2005 that are subsequently modified,repurchased or cancelled. Under the modified prospective application,compensation cost recognized in the year ended December 31, 2006 includescompensation cost of all share-based payments granted prior to, but not yetvested as of January 1, 2006, based on the grant-date fair value estimatedin accordance with the original provisions of SFAS 123 and compensation costfor all share-based payments granted subsequent to January 1, 2006, basedon the grant-date fair value estimated in accordance with the provisions ofSFAS 123R. Accordingly, prior period amounts are not restated to reflect theimpact of adopting SFAS 123R under the modified prospective application.

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Prior to adopting SFAS 123R, we accounted forshare-based awards under APB Opinion 25, “Accounting for Stock Issued toEmployees”, which resulted in compensation expense recorded only for restrictedshare awards and for modification of outstanding unvested options. Uponadoption of SFAS 123R, we began recognizing compensation expense related tostock option awards that were previously disclosed as pro forma informationregarding net income and earnings per share. Compensation expense related torestricted stock awards continues to be expensed as under APB Opinion 25, withthe addition of estimated forfeitures.

*StockOptions**-*The fairvalue of each option grant is estimated on the date of grant using theBlack-Scholes option pricing model and expensed using the straight-lineapproach. Option valuation models require the input of highly subjectiveassumptions and changes in the assumptions used can materially affect the fairvalue estimate. Expected volatility and dividends are based on implied andhistorical factors related to our common stock. The expected term representsthe weighted-average time between grant date and exercise date and therisk-free interest rate is based on U.S. Treasury rates appropriate for theexpected term. We use historical data and projections to estimate expectedemployee behaviors related to option exercises and forfeitures. SFAS 123Rrequires that forfeitures be included as part of the grant date estimate. Theeffect of forfeitures related to previous SFAS 123 pro forma expense was notmaterial.  Additionally, we receive a taxdeduction for certain stock option exercises during the period the options areexercised, generally for the excess of the market price of the option exercisedover the exercise price of such options.

*RestrictedStock**-*The unearnedshare-based compensation related to restricted stock is amortized tocompensation expense over the period the restrictions lapse (generally five toten years). The share-based expense for these awards was determined based onthe market price of our stock at the date of grant applied to the total numberof shares that were anticipated to fully vest and then amortized over thevesting period. Upon adoption of SFAS 123R, we recognize compensation expensebased on our expectation of which restricted stock awards will vest over therequisite service period for such awards. Prior to implementing SFAS 123R, werecognized deferred compensation as a contra-equity account representing theamount of unrecognized restricted stock expense that was reduced as the expensewas recognized. Under the provisions of SFAS 123R, the previously recordeddeferred compensation was recorded against additional paid-in capital.

The recognition ofcompensation expense related to the issuance of restricted stock has notchanged with the adoption of SFAS 123R, except for the addition of the estimateof forfeitures, and such compensation expense continues to be expensed in thestatements of operations.

*Goodwill and OtherIntangibles*

In accordance with SFAS142, “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 during the fourth quarter of each fiscalyear. The underlying premise of this approach is that the value of an asset canbe measured by the present worth of the net economic benefit (cash receiptsless cash outlays) to be received over the life of the subject asset. The stepsfollowed in applying this approach include estimating the expected after-tax cashflows attributable to the respective property and converting these after-taxcash flows to present value through discounting. The discounting process uses arate of return, which accounts for both the time value of money and investmentrisk factors. The present value of the after-tax cash flows is then totaled toarrive at an indication of the fair value of the assets. If the fair value ofthe assets exceeds the carrying value, then impairment is measured based on thedifference between the calculated fair value and the carrying value. Ourconsolidated financial statements reflect all adjustments required by SFAS 142as of December 31, 2006.

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*Income Taxes*

We are subject to income taxes in the United States ofAmerica and file a consolidated federal income tax return. We account forincome taxes according to SFAS 109, “Accounting for Income Taxes”. SFAS 109requires the recognition of deferred tax assets, net of applicable reserves,related to net operating loss carryforwards and certain temporary differences.A valuation allowance is recognized if, based on the weight of availableevidence, it is more likely than not that some portion or all of the deferredtax 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 outcome of these examinations indetermining the adequacy of our provision for income taxes and our income taxliabilities. 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 IssuedAccounting Standards*

InSeptember 2006, the Financial Accounting Standards Board (“FASB”) issuedSFAS 158, “Employers’ Accounting for Defined Benefit Pension and OtherPostretirement Plans”. SFAS 158 applies to all plan sponsors who offer definedpostretirement benefit plans and requires an entity to:

·       Recognizein its balance sheet an asset for a defined benefit postretirement plan’soverfunded status or a liability for a plan’s underfunded status.

·       Measurea defined benefit postretirement plan’s assets and obligations that determineits funded status as of the end of the employer’s fiscal year.

·       Recognizechanges in the funded status of a defined benefit postretirement plan incomprehensive earnings in the year in which the changes occur.

SFAS 158 does not changethe amount of net periodic benefit cost included in net earnings. Therequirement to recognize the funded status of a defined benefit postretirementplan and the disclosure requirements are effective for fiscal years endingafter December 15, 2006 for public entities. Accordingly, we adopted SFAS158 in the fourth quarter of 2006 as it relates to the Supplemental ExecutiveRetirement Plan and Supplemental Management Retirement Plan resulting in therecognition of an additional noncurrent pension liability of$15.6 million, a noncurrent deferred tax asset of $5.4 million andaccumulated other comprehensive loss of $10.2 million as ofDecember 31, 2006. The requirement to measure plan assets and benefitobligations as of the date of the employer’s fiscal year end balance sheet iseffective for fiscal years ending after December 15, 2008. We currentlyutilize December 31 as the measurement date for the plan assets andbenefit obligations and therefore, comply with the requirement.

In September 2006, the FASB issued SFAS 157, “FairValue Measurements”. This statement defines fair value, establishes a frameworkfor measuring fair value for both assets and liabilities through a fair valuehierarchy and expands disclosure requirements. SFAS 157 is effective forfinancial statements issued for fiscal years beginning after November 15,2007 and interim periods within those fiscal years. We are evaluating SFAS 157and have not yet determined the impact the adoption will have on theconsolidated financial statements.

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In June 2006, the FASB issued Interpretation 48,“Accounting for Uncertainty in Income Taxes”, (“FIN 48”). This interpretation,among other things, creates a two step approach for evaluating uncertain taxpositions. Recognition (step one) occurs when an enterprise concludes that atax position, based solely on its technical merits, is more likely than not tobe sustained upon examination. Measurement (step two) determines the amount ofbenefit that more likely than not will be realized upon settlement.Derecognition of a tax position that was previously recognized would occur whena company subsequently determines that a tax position no longer meets the “morelikely than not” threshold of being sustained. FIN 48 specifically prohibitsthe use of a valuation allowance as a substitute for derecognition of taxpositions and it has expanded disclosure requirements. FIN 48 is effective forfiscal years beginning after December 15, 2006, in which the impact ofadoption should be accounted for as a cumulative-effect adjustment to thebeginning balance of retained earnings. We are evaluating FIN 48 and have notyet determined the impact the adoption will have, if any, on the consolidatedfinancial statements.

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

Market risk is the risk of loss arising from adversechanges in market rates and prices, such as interest rates, foreign currencyexchange rates and commodity prices. Our primary exposure to market risk isinterest rate risk associated with our long-term debt. We attempt to limit ourexposure to interest rate risk by managing the mix of our long-term fixed-rateborrowings and short-term borrowings under the Revolving Facility. 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. However, the amount of outstanding borrowings is expected tofluctuate and may be reduced from time to time. The Revolving Facility maturesin December 2010.

The following table provides information about ourlong-term debt at December 31, 2006 (see also “Description of CertainIndebtedness and Capital Stock”) (amounts in thousands):

| ** **                                                                  | ** ** | **Maturity  date** | ** ** | **Face  amount** | ** ** | **Carrying  value** | ** ** | **Estimated  fair value** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------|------------|------------------|------------|---------------------|------------|--------------------------------|------------|
| Revolving  Facility, weighted-average   interest rate of approximately 7.6% |       | December 2010 |       | $                | 2,000,000  |                | $          | 1,155,800                      |       | $ | 1,155,800 |   |
| 6% senior notes                                                             |       | April 2012    |       | 450,000          |       | 448,742             |       | 426,375                        |       |
| 73¤4%  senior notes                                                    |       | August 2016   |       | 400,000          |       | 400,000             |       | 404,000                        |       |
| 61¤2%  senior subordinated notes                                       |       | February 2014 |       | 450,000          |       | 450,000             |       | 401,625                        |       |
| 67¤8%  senior subordinated notes                                       |       | March 2016    |       | 700,000          |       | 707,427             |       | 626,500                        |       |
| 65¤8%  senior subordinated notes                                       |       | March 2018    |       | 300,000          |       | 298,568             |       | 258,375                        |       |
| Other debt,  weighted-average interest   rate of approximately 7.1%         |       | 2009-2026          |       | 9,196            |       | 9,196               |       | 9,196                          |       |
| Market value of  interest rate swaps                                        |       | 2010-2012          |       | (905             | )          | (905                | )          | (905                           | )          |
| Total                                                                       |       |               |       | $                | 4,308,291  |                | $          | 3,468,828                      |       | $ | 3,280,966 |   |

 

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.

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The following table provides information about ourfinancial instruments that are sensitive to changes in interest rates (amountsin thousands):

| ** **                                   | ** ** | **During the year ending December 31,** | ** ** |
|----------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                                   | ** ** | **2007**                                                         | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
| Long-term  debt (including current portion): |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed-rate                                   |       | $                                                                | —     |   | $ | — |   | $ | 5,334 |   | $ | — |   | $ | — |   | $ | 2,304,738 |   | $ | 2,310,072 |   |
| Average interest rate                        |       | —                                                           |       | — |   | 6.0 | % | — |   | — |   | 6.7 | % | 6.7 | % |
| Variable-rate                                |       | $                                                                | 341        |   | $ | 332 |   | $ | 102 |   | $ | 1,155,911 |   | $ | 120 |   | $ | 2,855 |   | $ | 1,159,661 |   |
| Average interest rate                        |       | 8.6                                                              | %          | 8.6 | % | 8.6 | % | 7.6 | % | 8.6 | % | 8.6 | % | 7.6 | % |
| Interest rate swaps:                         |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Notional amount                              |       | $                                                                | —     |   | $ | — |   | $ | — |   | $ | 500,000 |   | $ | — |   | $ | 50,000 |   | $ | 550,000 |   |
| Average payable rate                         |       | —                                                           |       | — |   | — |   | 5.1 | % | — |   | 7.1 | % | 5.3 | % |
| Average  receivable rate                     |       | —                                                           |       | — |   | — |   | 5.4 | % | — |   | 6.0 | % | 5.4 | % |

 

 

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**ITEM 8. FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA**

**INDEX TOCONSOLIDATED FINANCIAL STATEMENTS**

|                                                                 | ** ** | **Page** | ** ** |
|-----------------------------------------------------------------|------------|----------|------------|
| Reports of Independent Registered Public Accounting  Firm       |       |     | 57         |   |   |
| Consolidated Balance Sheets                                     |       |     | 59         |   |   |
| Consolidated Statements of Operations                           |       |     | 60         |   |   |
| Consolidated Statements of Stockholders’ (Deficit)  Equity |       |     | 61         |   |   |
| Consolidated Statements of Cash Flows                           |       |     | 62         |   |   |
| Notes to Consolidated Financial Statements                      |       |     | 63         |   |   |

 

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**Report of Independent Registered Public AccountingFirm**

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

We have audited the accompanying consolidated balancesheets of Station Casinos, Inc. and its subsidiaries (the “Company”) as ofDecember 31, 2006 and 2005, and the related consolidated statements ofoperations, stockholders’ (deficit) equity, and cash flows for each of thethree years in the period ended December 31, 2006. These financialstatements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour 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, 2006 and 2005, and theconsolidated results of its operations and its cash flows for each of the threeyears in the period ended December 31, 2006, in conformity with U.S.generally accepted accounting principles.

As discussed in Notes 11 and 13, in 2006 the Companyadopted Statement of Financial Accounting Standards No. 123(R), Share-BasedPayment, and Statement of Financial Accounting Standards No. 158, Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans.

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the effectiveness of the Company’sinternal control over financial reporting as of December 31, 2006, basedon criteria established in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our reportdated February 18, 2007, expressed an unqualified opinion thereon.

|                        | /s/ Ernst &  Young LLP |
|------------------------|---------------------------------|
| Las Vegas, Nevada      |                            |
| February 18, 2007 |                            |

 

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**Report ofIndependent Registered Public Accounting Firm**

**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 Casinos, Inc. and its subsidiaries (the “Company”)maintained effective internal control over financial reporting as of December 31,2006, 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, evaluatingmanagement’s assessment, testing and evaluating the design and operatingeffectiveness of internal control, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinion.

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles,and that receipts and expenditures of the company are being made only inaccordance with 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 31,2006, 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, 2006, 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, 2006 and2005, and the related consolidated statement of operations, stockholders’ (deficit)equity, and cash flows for each of the three years in the period ended December 31,2006 of the Company, and our report dated February 18, 2007 expressed an unqualified opinion thereon.

|                        | /s/ Ernst &  Young LLP |
|------------------------|---------------------------------|
| Las Vegas, Nevada      |                            |
| February 18, 2007 |                            |

 

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

| ** **                                                                                             | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                             | ** ** | **2006**              | ** ** | **2005** | ** ** |
| ASSETS                                                                                                 |       |                  |       |   |   |
| Current assets:                                                                                        |       |                  |       |   |   |
| Cash and cash equivalents                                                                              |       | $                     | 116,898    |   | $ | 85,552 |   |
| Receivables, net                                                                                       |       | 40,762                |       | 19,604 |   |
| Inventories                                                                                            |       | 9,676                 |       | 6,370 |   |
| Prepaid gaming tax                                                                                     |       | 21,519                |       | 17,942 |   |
| Prepaid expenses                                                                                       |       | 12,696                |       | 9,743 |   |
| Total current assets                                                                                   |       | 201,551               |       | 139,211 |   |
| Property and equipment, net                                                                            |       | 2,586,473             |       | 1,990,584 |   |
| Goodwill                                                                                               |       | 154,498               |       | 154,498 |   |
| Land held for  development                                                                             |       | 214,374               |       | 252,444 |   |
| Investments in  joint ventures                                                                         |       | 253,577               |       | 129,191 |   |
| Native American  development costs                                                                     |       | 181,153               |       | 165,244 |   |
| Other assets, net                                                                                      |       | 125,070               |       | 97,871 |   |
| Total assets                                                                                           |       | $                     | 3,716,696  |   | $ | 2,929,043 |   |
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY                                                    |       |                  |       |   |   |
| Current liabilities:                                                                                   |       |                  |       |   |   |
| Current portion of long-term debt                                                                      |       | $                     | 341        |   | $ | 108 |   |
| Accounts payable                                                                                       |       | 19,558                |       | 12,611 |   |
| Construction contracts payable                                                                         |       | 58,318                |       | 83,151 |   |
| Accrued expenses and other current liabilities                                                         |       | 173,689               |       | 132,895 |   |
| Total current liabilities                                                                              |       | 251,906               |       | 228,765 |   |
| Long-term debt, less current portion                                                                   |       | 3,468,487             |       | 1,944,220 |   |
| Deferred income  tax, net                                                                              |       | 109,788               |       | 79,015 |   |
| Other long-term  liabilities, net                                                                      |       | 73,373                |       | 46,229 |   |
| Total liabilities                                                                                      |       | 3,903,554             |       | 2,298,229 |   |
| Commitments and  contingencies                                                                         |       |                  |       |   |   |
| Stockholders’  (deficit) equity:                                                                  |       |                  |       |   |   |
| Common stock, par value $0.01; authorized  135,000,000 shares; 80,507,427 and 79,047,602 shares issued |       | 593                   |       | 578 |   |
| Treasury stock, 23,245,751 and 10,521,414 shares, at  cost                                             |       | (1,039,804            | )          | (159,128 | ) |
| Additional paid-in capital                                                                             |       | 582,739               |       | 627,352 |   |
| Deferred compensation - restricted stock                                                               |       | —                |       | (73,599 | ) |
| Accumulated other comprehensive (loss) income                                                          |       | (10,782               | )          | 24 |   |
| Retained earnings                                                                                      |       | 280,396               |       | 235,587 |   |
| Total stockholders’ (deficit) equity                                                              |       | (186,858              | )          | 630,814 |   |
| Total liabilities  and stockholders’ (deficit) equity                                             |       | $                     | 3,716,696  |   | $ | 2,929,043 |   |

 

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

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

| ** **                                               | ** ** | **For the years ended December 31,** | ** ** |
|----------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                               | ** ** | **2006**                                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| Operating revenues:                                      |       |                                                          |       |   |   |   |   |
| Casino                                                   |       | $                                                             | 969,147    |   | $ | 825,995 |   | $ | 730,584 |   |
| Food and beverage                                        |       | 211,579                                                       |       | 146,774 |   | 140,332 |   |
| Room                                                     |       | 82,431                                                        |       | 61,238 |   | 57,057 |   |
| Other                                                    |       | 70,245                                                        |       | 52,550 |   | 42,008 |   |
| Management fees                                          |       | 99,485                                                        |       | 95,144 |   | 84,618 |   |
| Gross revenues                                           |       | 1,432,887                                                     |       | 1,181,701 |   | 1,054,599 |   |
| Promotional allowances                                   |       | (93,863                                                       | )          | (72,868 | ) | (67,857 | ) |
| Net revenues                                             |       | 1,339,024                                                     |       | 1,108,833 |   | 986,742 |   |
| Operating costs and expenses:                            |       |                                                          |       |   |   |   |   |
| Casino                                                   |       | 348,659                                                       |       | 286,503 |   | 273,816 |   |
| Food and beverage                                        |       | 152,300                                                       |       | 102,970 |   | 100,548 |   |
| Room                                                     |       | 29,962                                                        |       | 21,094 |   | 21,053 |   |
| Other                                                    |       | 26,244                                                        |       | 17,799 |   | 16,820 |   |
| Selling, general and  administrative                     |       | 230,278                                                       |       | 181,670 |   | 172,923 |   |
| Corporate                                                |       | 63,066                                                        |       | 57,619 |   | 47,189 |   |
| Development                                              |       | 9,036                                                         |       | 8,747 |   | 10,683 |   |
| Depreciation and  amortization                           |       | 131,094                                                       |       | 101,356 |   | 85,807 |   |
| Loss on asset disposals,  net                            |       | 1,736                                                         |       | 3,916 |   | 3,801 |   |
| Preopening                                               |       | 29,461                                                        |       | 6,560 |   | 848 |   |
| Lease terminations                                       |       | 1,053                                                         |       | 14,654 |   | — |   |
|                                                     |       | 1,022,889                                                     |       | 802,888 |   | 733,488 |   |
| Operating income                                         |       | 316,135                                                       |       | 305,945 |   | 253,254 |   |
| Earnings from joint  ventures                            |       | 41,861                                                        |       | 38,885 |   | 26,524 |   |
| Operating income and  earnings from joint ventures       |       | 357,996                                                       |       | 344,830 |   | 279,778 |   |
| Other expense:                                           |       |                                                          |       |   |   |   |   |
| Interest expense, net                                    |       | (171,729                                                      | )          | (80,378 | ) | (76,799 | ) |
| Interest and other  expense from joint ventures          |       | (6,815                                                        | )          | (6,947 | ) | (4,485 | ) |
| Loss on early retirement  of debt                        |       | —                                                        |       | (1,278 | ) | (93,265 | ) |
|                                                     |       | (178,544                                                      | )          | (88,603 | ) | (174,549 | ) |
| Income before income  taxes                              |       | 179,452                                                       |       | 256,227 |   | 105,229 |   |
| Income tax provision                                     |       | (69,240                                                       | )          | (94,341 | ) | (38,879 | ) |
| Net income                                               |       | $                                                             | 110,212    |   | $ | 161,886 |   | $ | 66,350 |   |
|   Earnings per common share:                   |       |                                                          |       |   |   |   |   |
|   Basic                                        |       | $                                                             | 1.90       |   | $ | 2.46 |   | $ | 1.03 |   |
|   Diluted                                      |       | $                                                             | 1.85       |   | $ | 2.40 |   | $ | 1.00 |   |
|   Weighted average common shares  outstanding: |       |                                                          |       |   |   |   |   |
|   Basic                                        |       | 57,969                                                        |       | 65,707 |   | 64,362 |   |
|   Diluted                                      |       | 59,671                                                        |       | 67,588 |   | 66,264 |   |
| Dividends paid per common share                          |       | $                                                             | 1.08       |   | $ | 0.92 |   | $ | 0.69 |   |

 

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

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**STATION CASINOS, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY(amounts in thousands)**

| ** **                                                 | ** ** | ** ** | ** ** | ** **   | ** ** | ** **              | ** ** | **Deferred**            | ** ** | **Accumulated**        | ** ** | ** **   | ** ** | ** **                | ** ** |
|------------------------------------------------------------|------------|------------|------------|--------------|------------|-------------------------|------------|-------------------------|------------|------------------------|------------|--------------|------------|---------------------------|------------|
| ** **                                                 | ** ** | ** ** | ** ** | ** **   | ** ** | **Additional**          | ** ** | **compensation -** | ** ** | **other**              | ** ** | ** **   | ** ** | **Total**                 | ** ** |
| ** **                                                 | ** ** | **Common** | ** ** | **Treasury** | ** ** | **paid - in** | ** ** | **restricted**          | ** ** | **comprehensive**      | ** ** | **Retained** | ** ** | **stockholders’**    | ** ** |
| ** **                                                 | ** ** | **stock**  | ** ** | **stock**    | ** ** | **capital**             | ** ** | **stock**               | ** ** | **(loss) income** | ** ** | **earnings** | ** ** | **(deficit) equity** | ** ** |
| 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, net            |       |       | —     |         |       | —                  |       |                    | —     |                   |       |         | —     |                      |       |   | 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, net            |       |       | —     |         |       | —                  |       |                    | —     |                   |       |         | —     |                      |       |   | 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 |   |   |
| SFAS 123R adoption reclass                                 |       |       | —     |         |       | —                  |       |                    | (73,599    | )                      |       |         | 73,599     |                      |       |   | — |   |   |   | — |   |   |   | — |   |   |
| Exercise of stock options                                  |       |       | 1          |         |       | —                  |       |                    | 4,706      |                   |       |         | —     |                      |       |   | — |   |   |   | — |   |   |   | 4,707 |   |   |
| Issuance of restricted stock, net                          |       |       | 14         |         |       | —                  |       |                    | (14        | )                      |       |         | —     |                      |       |   | — |   |   |   | — |   |   |   | — |   |   |
| Share-based compensation expense                           |       |       | —     |         |       | —                  |       |                    | 24,294     |                   |       |         | —     |                      |       |   | — |   |   |   | — |   |   |   | 24,294 |   |   |
| Purchase of treasury stock, at cost (12.7 million  shares) |       |       | —     |         |       | (880,676                | )          |                    | —     |                   |       |         | —     |                      |       |   | — |   |   |   | — |   |   |   | (880,676 | ) |   |
| Interest rate swap market value adjustment, net            |       |       | —     |         |       | —                  |       |                    | —     |                   |       |         | —     |                      |       |   | (636 | ) |   |   | — |   |   |   | (636 | ) |   |
| Adoption of SFAS 158, net                                  |       |       | —     |         |       | —                  |       |                    | —     |                   |       |         | —     |                      |       |   | (10,170 | ) |   |   | — |   |   |   | (10,170 | ) |   |
| Dividends paid                                             |       |       | —     |         |       | —                  |       |                    | —     |                   |       |         | —     |                      |       |   | — |   |   |   | (65,403 | ) |   |   | (65,403 | ) |   |
| Net income                                                 |       |       | —     |         |       | —                  |       |                    | —     |                   |       |         | —     |                      |       |   | — |   |   |   | 110,212 |   |   |   | 110,212 |   |   |
| Balances,  December 31, 2006                          |       |       | $          | 593          |       |                    | $          | (1,039,804              | )          |                   | $          | 582,739      |       |                      |       | $ | — |   |   |   | $ | (10,782 | ) |   |   | $ | 280,396 |   |   |   | $ | (186,858 | ) |   |

 

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

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

| ** **                                                                                   | ** ** | **For the years ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2006**                                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| Cash flows from operating activities:                                                        |       |                                                          |       |   |   |   |   |
| Net income                                                                                   |       | $                                                             | 110,212    |   | $ | 161,886 |   | $ | 66,350 |   |
| Adjustments to reconcile net income to net cash  provided by operating   activities:         |       |                                                          |       |   |   |   |   |
| Depreciation and  amortization                                                               |       | 131,094                                                       |       | 101,356 |   | 85,807 |   |
| Tax benefit from exercise  of stock options                                                  |       | —                                                        |       | 31,803 |   | 62,643 |   |
| Excess tax benefit from  exercise of stock options                                           |       | (3,145                                                        | )          | — |   | — |   |
| Share-based compensation                                                                     |       | 24,294                                                        |       | 12,669 |   | 9,676 |   |
| Earnings from joint  ventures                                                                |       | (35,046                                                       | )          | (31,938 | ) | (22,039 | ) |
| Distributions of earnings  from joint ventures                                               |       | 890                                                           |       | 11,867 |   | 815 |   |
| Amortization of debt  discount and issuance costs                                            |       | 4,731                                                         |       | 3,262 |   | 2,945 |   |
| Loss on early retirement  of debt                                                            |       | —                                                        |       | 1,278 |   | 93,265 |   |
| Changes in assets and liabilities:                                                           |       |                                                          |       |   |   |   |   |
| Receivables, net                                                                             |       | (21,158                                                       | )          | 1,848 |   | 6,772 |   |
| Inventories and prepaid  expenses                                                            |       | (9,836                                                        | )          | (4,419 | ) | (2,488 | ) |
| Deferred income tax                                                                          |       | 38,739                                                        |       | 59,481 |   | (28,174 | ) |
| Accounts payable                                                                             |       | 6,947                                                         |       | 2,260 |   | (10,087 | ) |
| Accrued expenses and  other current liabilities                                              |       | 39,589                                                        |       | 19,885 |   | (9,619 | ) |
| Other, net                                                                                   |       | 6,062                                                         |       | 5,653 |   | 6,545 |   |
| Total adjustments                                                                            |       | 183,161                                                       |       | 215,005 |   | 196,061 |   |
| Net cash provided by  operating activities                                                   |       | 293,373                                                       |       | 376,891 |   | 262,411 |   |
| Cash flows from investing activities:                                                        |       |                                                          |       |   |   |   |   |
| Capital expenditures                                                                         |       | (754,988                                                      | )          | (830,805 | ) | (382,035 | ) |
| Proceeds from sale of  land, property and equipment                                          |       | 18,002                                                        |       | 22,143 |   | 28,090 |   |
| Investments in joint  ventures, net                                                          |       | (39,759                                                       | )          | (1,295 | ) | 1,587 |   |
| Construction contracts  payable                                                              |       | (24,833                                                       | )          | 46,853 |   | 36,298 |   |
| Native American  development costs                                                           |       | (15,909                                                       | )          | (111,900 | ) | (22,243 | ) |
| Other, net                                                                                   |       | (18,774                                                       | )          | (10,323 | ) | 374 |   |
| Net cash used in  investing activities                                                       |       | (836,261                                                      | )          | (885,327 | ) | (337,929 | ) |
| Cash flows from financing activities:                                                        |       |                                                          |       |   |   |   |   |
| Borrowings (payments)  under bank facility with maturity dates less than   three months, net |       | 825,800                                                       |       | 278,500 |   | (75,500 | ) |
| Payments under bank  facility, maturity dates greater than three months                      |       | —                                                        |       | — |   | (50,000 | ) |
| Purchase of treasury  stock                                                                  |       | (880,676                                                      | )          | (21,414 | ) | (3,180 | ) |
| Exercise of stock options                                                                    |       | 1,562                                                         |       | 18,957 |   | 54,993 |   |
| Excess tax benefit from  exercise of stock options                                           |       | 3,145                                                         |       | — |   | — |   |
| Redemption of senior and  senior subordinated notes                                          |       | —                                                        |       | (34,272 | ) | (1,028,815 | ) |
| Proceeds from the  issuance of senior and senior subordinated notes, net                     |       | 698,500                                                       |       | 358,250 |   | 1,248,214 |   |
| Payment of dividends                                                                         |       | (65,403                                                       | )          | (62,643 | ) | (44,346 | ) |
| Debt issuance costs                                                                          |       | (8,660                                                        | )          | (11,381 | ) | (19,429 | ) |
| Other, net                                                                                   |       | (34                                                           | )          | (426 | ) | (274 | ) |
| Net cash provided by  financing activities                                                   |       | 574,234                                                       |       | 525,571 |   | 81,663 |   |
| Cash and cash  equivalents:                                                                  |       |                                                          |       |   |   |   |   |
| Increase in cash and cash  equivalents                                                       |       | 31,346                                                        |       | 17,135 |   | 6,145 |   |
| Balance, beginning of  year                                                                  |       | 85,552                                                        |       | 68,417 |   | 62,272 |   |
| Balance, end of year                                                                         |       | $                                                             | 116,898    |   | $ | 85,552 |   | $ | 68,417 |   |
| Supplemental cash flow  disclosures:                                                         |       |                                                          |       |   |   |   |   |
| Cash paid for interest,  net of $29,638, $22,287 and $6,968 capitalized                      |       | $                                                             | 137,464    |   | $ | 75,424 |   | $ | 62,832 |   |
| Cash paid (received) for  income taxes, net                                                  |       | $                                                             | 34,283     |   | $ | 3,036 |   | $ | (2,558 | ) |
| Supplemental disclosure  of non-cash items:                                                  |       |                                                          |       |   |   |   |   |
| Capital expenditures  financed by debt                                                       |       | $                                                             | 1,788      |   | $ | — |   | $ | — |   |
| Land contributed to joint  ventures, net                                                     |       | $                                                             | 50,708     |   | $ | — |   | $ | — |   |
| Investment in MPM                                                                            |       | $                                                             | —     |   | $ | 3,467 |   | $ | — |   |

 

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

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

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

*Basis ofPresentation and Organization*

Station Casinos, Inc.(the “Company”, “Station”, “we”, “our”, “ours” or “us”), a Nevada corporation,is a gaming and entertainment company that currently owns and operates ninemajor hotel/casino properties (one of which is 50% owned) under the Station andFiesta brand names and seven smaller casino properties (two of which are 50%owned), in the Las Vegas metropolitan area, as well as manages a casino for aNative American tribe. The accompanying consolidated financial statementsinclude the accounts of Station and its wholly owned subsidiaries and MPMEnterprises, LLC (which is 50% owned by Station and required to beconsolidated). Investments in all other 50% or less owned affiliated companiesare accounted for under the equity method. All significant intercompanyaccounts 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 equivalentsinclude cash on hand at our properties, as well as investments purchased withan original maturity of 90 days or less.

*Inventories*

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

*Fair Value ofFinancial instruments*

The carrying value of ourcash and cash equivalents, receivables and accounts payable approximates fairvalue primarily because of the short maturities of these instruments. Theestimated fair value of our long-term debt is based on quoted market prices onor about December 31, 2006, for our debt securities that are publiclytraded. For debt with short-term maturities, the fair value approximates thecarrying amount.

*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.

We evaluate our property and equipment and otherlong-lived assets for impairment in accordance with Statement of Financial AccountingStandard (“SFAS”) 144, “Accounting for the Impairment or 

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

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

Disposalof Long-Lived Assets”. For assets to be disposed of, we recognize the asset tobe sold at the lower of carrying value or fair market value less costs ofdisposal. Fair market value for assets to be disposed of is generally estimatedbased on comparable asset sales, solicited offers or a discounted cash flowmodel. For assets to be held and used, we review fixed assets for impairmentwhenever indicators of impairment exist. If an indicator of impairment exists,we compare the estimated future cash flows of the asset, on an undiscountedbasis, to the carrying value of the asset. If the undiscounted cash flowsexceed the carrying value, no impairment is indicated. If the undiscounted cashflows do not exceed the carrying value, then an impairment is measured based onfair value compared to carrying value, with fair value typically based on adiscounted cash flow model. Our consolidated financial statements reflect alladjustments required by SFAS 144 as of December 31, 2006.

*Capitalization of Interest*

We capitalize interestcosts associated with debt incurred in connection with major constructionprojects. Interest capitalization ceases once the project is substantiallycomplete or no longer undergoing construction activities to prepare it for itsintended use. When no debt is specifically identified as being incurred inconnection with such construction projects, we capitalize interest on amountsexpended on the project at our weighted average cost of borrowings. Interestcapitalized was approximately $29.6 million, $22.3 million and$7.0 million for the years ended December 31, 2006, 2005 and 2004,respectively.

*Goodwill*

In accordance with SFAS142, “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 during the fourth quarter of each fiscalyear. The underlying premise of this approach is that the value of an asset canbe measured by the present worth of the net economic benefit (cash receiptsless cash outlays) to be received over the life of the subject asset. The stepsfollowed in applying this approach include estimating the expected after-taxcash flows attributable to the respective property and converting theseafter-tax cash flows to present value through discounting. The discountingprocess uses a rate of return, which accounts for both the time value of moneyand investment risk factors. The present value of the after-tax cash flows isthen totaled to arrive at an indication of the fair value of the assets. If thefair value of the assets exceeds the carrying value, then impairment ismeasured based on the difference between the calculated fair value and thecarrying value. We have determined there to be no impairment during 2004, 2005and 2006.

*Native American Development Costs*

We incur certain costs associatedwith development and management agreements entered into with Native AmericanTribes (the “Tribe”). In accordance with SFAS 67, “Accounting for Costs andInitial Rental Operations of Real Estate Projects”, costs for the acquisitionand related development of the land and the casino facilities are capitalizedas long-term assets until such time as the assets are transferred to the Tribeat which time a long term receivable is recognized.

In accordance with SFAS 34, “Capitalization ofInterest Costs”, we capitalize interest to the project once a “Notice of Intent”(or the equivalent) to transfer the land into trust, signifying that activities

64

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

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

are in progress to preparethe asset for its intended use, has been issued by the United States Departmentof the Interior (“DOI”).

We earn a return on the costs incurred for theacquisition and development of the projects based upon the costs incurred overthe development period of the project. In accordance with SFAS 66, “Accountingfor Sales of Real Estate”, we recognize the return when the facility iscomplete and collectability of the receivable is assured. Due to theuncertainty surrounding the estimated cost to complete and the collectabilityof the stated return, we defer the return until the gaming facility is completeand transferred to the Tribe and the resulting receivable has been repaid. Repaymentof the resulting advances would be from a refinancing by the Tribe or from thecash flow from the gaming facility or both.

On a quarterly basis, weevaluate the Native American Development Costs for impairment in accordancewith SFAS 144. We review the Native American Costs 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 amount 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 amount, with fair value typically based on a discountedcash flow model. The consolidated financial statements reflect all adjustmentsrequired by SFAS 144 as of December 31, 2006.

*Debt Issuance Costs*

Debt issuance costsincurred in connection with the issuance of long-term debt are capitalized and amortizedto interest expense over the expected terms of the related debt agreements andare included in other assets on our consolidated balance sheets.

*Advertising*

We expense advertisingcosts the first time the advertising takes place. Advertising expense, which isgenerally included in selling, general and administrative expenses on theaccompanying consolidated statement of operations were approximately $19.1million, $13.5 million and $13.6 million for the years ended December 31,2006, 2005 and 2004, respectively.

*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 31,2006, 2005 and 2004, we incurred preopening expenses of $29.5 million,$6.6 million and $0.8 million, respectively, primarily related to thedevelopment of Red Rock which opened on April 18, 2006.

*Interest Rate Swaps*

From time to time we enter into interest rate swaps inorder to manage interest rate risks associated with our current and futureborrowings. As such, we have adopted SFAS 133, “Accounting for DerivativeInstruments and Hedging Activities” and as amended by SFAS 138 and 149, toaccount for interest rate 

65

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

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

swaps. The pronouncementsrequire us to recognize the interest rate swaps as either assets or liabilitiesin the balance sheets at fair value. The accounting for changes in fair value(i.e. gains or losses) of the interest rate swap agreements depends on whetherit has been designated and qualifies as part of a hedging relationship andfurther, on the type of hedging relationship. Additionally, the differencebetween amounts received and paid under such agreements, as well as any costsor fees, is recorded as a reduction of, or an addition to, interest expense asincurred over the life of the 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 of operations.

Derivative instrumentsthat are designated as fair value hedges and qualify for the “shortcut” methodunder SFAS 133 (and as amended by SFAS 138 and 149) allow for an assumption ofno ineffectiveness. As such there is no income statement impact from thechanges in the fair value of the hedging instrument. Instead, the fair value ofthe instrument is recorded as an asset or liability on our balance sheet withan offsetting adjustment to the carrying value of the related debt (see Note8).

*Revenues andPromotional Allowances*

We recognize as casino revenues the net win fromgaming activities, which is the difference between gaming wins and losses. Allother revenues are recognized as the service is provided. Additionally, ourBoarding Pass and Amigo Club player rewards programs (the “Programs”) allowcustomers to redeem points earned from their gaming activity at all Station andFiesta properties for complimentary food, beverage, rooms, entertainment andmerchandise. At the time redeemed, the retail value of complimentaries underthe Programs is recorded as revenue with a corresponding offsetting amountincluded in promotional allowances. The cost associated with complimentaryfood, beverage, rooms, entertainment and merchandise redeemed under the Programsis recorded in casino costs and expenses. The estimated departmental costs ofproviding such promotional allowances are included in casino costs and expensesand consist of the following (amounts in thousands):

| ** **        | ** ** | **For the years ended December 31,** | ** ** |
|-------------------|------------|---------------------------------------------------------------|------------|
| ** **        | ** ** | **2006**                                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| Food and beverage |       | $                                                             | 82,270     |   | $ | 62,424 |   | $ | 59,391 |   |
| Room              |       | 5,794                                                         |       | 3,786 |   | 3,489 |   |
| Other             |       | 3,832                                                         |       | 3,414 |   | 2,891 |   |
| Total             |       | $                                                             | 91,896     |   | $ | 69,624 |   | $ | 65,771 |   |

 

We also record a liabilityfor the estimated cost of the outstanding points under the Programs that webelieve will ultimately be redeemed.

*Related PartyTransactions*

We have entered into various related partytransactions, which consist primarily of lease payments related to groundleases at Boulder Station and Texas Station and the purchase of certain assets.The expenses related to these related party ground lease transactions wereapproximately $6.2 million, $5.9 million and $5.7 million for theyears ended December 31, 2006, 2005 and 2004, respectively. In February 2005,we purchased approximately 96 acres of gaming-entitled property in Reno, Nevadafor 

66

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

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

$15.1 million from BlakeL. Sartini, the brother-in-law of Frank J. Fertitta III, Chief Executive Officer,and Lorenzo J. Fertitta, President. Additionally, we have purchased tickets toevents held by Zuffa, LLC which is the parent company of the Ultimate FightingChampionship and is owned by Frank J. Fertitta III and Lorenzo J. Fertitta. Forthe year ended December 31, 2006, ticket purchases totaled approximately$0.3 million.

*Earnings Applicableto Common Stock*

In accordance with the provisions of SFAS 128, “EarningsPer Share”, basic EPS is computed by dividing net income applicable to commonstock by the weighted average common shares outstanding, excluding unvestedrestricted stock, during the period. Diluted EPS reflects the additionaldilution for all potentially dilutive securities such as stock options andunvested restricted stock.

The weightedaverage number of common shares used in the calculation of basic and diluted earningsper share consisted of the following (amounts in thousands):

| ** **                                                                                                             | ** ** | **For the years ended December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                                                             | ** ** | **2006**                                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| Weighted average  common shares outstanding (used in calculation of basic earnings per  share)                    |       | 57,969                                                        |       | 65,707 |   | 64,362 |   |
| Potential  dilution from the assumed exercise of stock options and unvested restricted  stock                          |       | 1,702                                                         |       | 1,881 |   | 1,902 |   |
| Weighted average common  and common equivalent shares outstanding (used in calculation of diluted  earnings per share) |       | 59,671                                                        |       | 67,588 |   | 66,264 |   |

 

*Share-BasedCompensation*

Effective January 1, 2006, we adopted SFAS 123R, “Share-BasedPayment”, utilizing the modified prospective application. Under the modifiedprospective application, SFAS 123R applies to new awards and awards that wereoutstanding on December 31, 2005 that are subsequently modified,repurchased or cancelled. Under the modified prospective application,compensation cost recognized in the year ended December 31, 2006 includescompensation cost of all share-based payments granted prior to, but not yetvested as of January 1, 2006, based on the grant-date fair value estimatedin accordance with the original provisions of SFAS 123 and compensation costfor all share-based payments granted subsequent to January 1, 2006, basedon the grant-date fair value estimated in accordance with the provisions ofSFAS 123R. Accordingly, prior period amounts are not restated to reflect theimpact of adopting SFAS 123R under the modified prospective application.

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

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

Prior to adopting SFAS 123R, we accounted forshare-based awards under APB Opinion 25, “Accounting for Stock Issued toEmployees”, which resulted in compensation expense recorded only for restrictedshare awards and for modification of outstanding unvested options. Uponadoption of SFAS 123R, we began recognizing compensation expense related tostock option awards that were previously disclosed as pro forma informationregarding net income and earnings per share. Compensation expense related torestricted stock awards continues to be expensed as under APB Opinion 25, withthe addition of estimated forfeitures.

*StockOptions**-*The fairvalue of each option grant is estimated on the date of grant using theBlack-Scholes option pricing model and expensed using the straight-lineapproach. Option valuation models require the input of highly subjectiveassumptions and changes in the assumptions used can materially affect the fairvalue estimate. Expected volatility and dividends are based on implied andhistorical factors related to our common stock. The expected term representsthe weighted-average time between grant date and exercise date and therisk-free interest rate is based on U.S. Treasury rates appropriate for theexpected term. We use historical data and projections to estimate expectedemployee behaviors related to option exercises and forfeitures. SFAS 123Rrequires that forfeitures be included as part of the grant date estimate. Theeffect of forfeitures related to previous SFAS 123 pro forma expense was notmaterial.

We receive a tax deduction for certain stock optionexercises during the period the options are exercised, generally for the excessof the market price of the option exercised over the exercise price of suchoptions. In accordance with SFAS 123R, for the year ended December 31,2006, we reported the tax benefit from the exercise of stock options asfinancing cash flows rather than operating cash flows as reported prior to theadoption of SFAS 123R. For the year ended December 31, 2006, we reported$3.1 million of excess tax benefit.

*RestrictedStock**-*The unearnedshare-based compensation related to restricted stock is amortized tocompensation expense over the period the restrictions lapse (generally five toten years). The share-based expense for these awards was determined based onthe market price of our stock at the date of grant applied to the total numberof shares that were anticipated to fully vest and then amortized over thevesting period. Upon adoption of SFAS 123R, we recognize compensation expensebased on our expectation of which restricted stock awards will vest over therequisite service period for such awards. Prior to implementing SFAS 123R, werecognized deferred compensation as a contra-equity account representing theamount of unrecognized restricted stock expense that was reduced as the expensewas recognized. Under the provisions of SFAS 123R, the previously recordeddeferred compensation was recorded against additional paid-in capital.

The recognition ofcompensation expense related to the issuance of restricted stock has notchanged with the adoption of SFAS 123R, except for the addition of the estimateof forfeitures, and such compensation expense continues to be expensed in thestatements of operations. During the year ended December 31, 2006, incomebefore income tax and net income were reduced by approximately $2.2 million and$1.4 million, respectively, as a result of adopting SFAS 123R, and basicearnings per share and diluted earnings per share were reduced by $0.03 and$0.02, respectively, reflecting compensation expense related to stock optionawards that were previously not recognized in the financial statements due to ourprior application of APB Opinion 25.

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

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

*Operating Segments*

SFAS 131, “Disclosuresabout Segments of an Enterprise and Related Information”, requires separatefinancial information be disclosed for all operating segments of a business. Webelieve we meet the “economic similarity” criteria established by SFAS 131, andas a result, we aggregate all of our properties into one operating segment. Allof our properties offer the same products, cater to the same customer base, areall located in the greater Las Vegas, Nevada area, have the same regulatory andtax structure, share the same marketing techniques and are all directed by acentralized management structure.

*Recently IssuedAccounting Standards*

In September 2006,the Financial Accounting Standards Board (“FASB”) issued SFAS 158, “Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans”. SFAS158 applies to all plan sponsors who offer defined postretirement benefit plansand requires an entity to:

·        Recognizein its balance sheet an asset for a defined benefit postretirement plan’soverfunded status or a liability for a plan’s underfunded status.

·        Measurea defined benefit postretirement plan’s assets and obligations that determine itsfunded status as of the end of the employer’s fiscal year.

·        Recognizechanges in the funded status of a defined benefit postretirement plan incomprehensive earnings in the year in which the changes occur.

SFAS 158 does not change the amount of net periodicbenefit cost included in net earnings. The requirement to recognize the fundedstatus of a defined benefit postretirement plan and the disclosure requirementsare effective for fiscal years ending after December 15, 2006 for publicentities. Accordingly, we adopted SFAS 158 in the fourth quarter of 2006 as itrelates to the Supplemental Executive Retirement Plan and SupplementalManagement Retirement Plan, resulting in the recognition of an additionalnoncurrent pension liability of $15.6 million, a noncurrent deferred tax assetof $5.4 million and accumulated other comprehensive loss of $10.2 million as ofDecember 31, 2006. The requirement to measure plan assets and benefitobligations as of the date of the employer’s fiscal year end balance sheet iseffective for fiscal years ending after December 15, 2008. We currentlyutilize December 31 as the measurement date for the plan assets andbenefit obligations and therefore, comply with the requirement. See Note 13 foradditional information required to be disclosed in accordance with SFAS 158.

In September 2006, the FASB issued SFAS 157, “FairValue Measurements”. This statement defines fair value, establishes a frameworkfor measuring fair value for both assets and liabilities through a fair valuehierarchy and expands disclosure requirements. SFAS 157 is effective forfinancial statements issued for fiscals years beginning after November 15,2007 and interim periods within those fiscal years. We are evaluating SFAS 157and have not yet determined the impact the adoption will have on theconsolidated financial statements.

In June 2006, the FASB issued Interpretation No. 48,“Accounting for Uncertainty in Income Taxes”, (“FIN 48”). This interpretation,among other things, creates a two step approach for evaluating uncertain taxpositions. Recognition (step one) occurs when an enterprise concludes that atax position, based solely on its technical merits, is more-likely-than-not tobe sustained upon examination. Measurement (step two) 

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

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

determinesthe amount of benefit that more-likely-than-not will be realized uponsettlement. Derecognition of a tax position that was previously recognized wouldoccur when a company subsequently determines that a tax position no longermeets the more-likely-than-not threshold of being sustained. FIN 48specifically prohibits the use of a valuation allowance as a substitute forderecognition of tax positions and it has expanded disclosure requirements. FIN48 is effective for fiscal years beginning after December 15, 2006, inwhich the impact of adoption should be accounted for as a cumulative-effectadjustment to the beginning balance of retained earnings. We are evaluating FIN48 and have not yet determined the impact the adoption will have, if any, onthe consolidated financial statements.

*Reclassifications*

Certain amounts in the December 31,2005 and 2004 consolidated financial statements have been reclassified toconform to the December 31, 2006 presentation. These reclassifications hadno effect on the previously reported net income.

**2. Receivables**

Components of receivables are as follows (amounts inthousands):

| ** **                              | ** ** | **December 31,** | ** ** |
|-----------------------------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Casino                                  |       | $                     | 12,882     |   | $ | 5,696 |   |
| Hotel                                   |       | 6,475                 |       | 2,997 |   |
| Management fees                         |       | 9,459                 |       | 8,523 |   |
| Income tax                              |       | 7,100                 |       | 156 |   |
| Due from  unconsolidated joint ventures |       | 1,988                 |       | 1,436 |   |
| Other                                   |       | 6,190                 |       | 2,462 |   |
|                                    |       | 44,094                |       | 21,270 |   |
| Allowance for  doubtful accounts        |       | (3,332                | )          | (1,666 | ) |
| Receivables, net                        |       | $                     | 40,762     |   | $ | 19,604 |   |

 

**3. Property and Equipment**

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

| ** **                                 | ** ** | ** **                           | ** ** | **December 31,** | ** ** |
|--------------------------------------------|------------|--------------------------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | **Estimated life (years)** | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Land                                       |       |                                 | —     |                  |       | $ | 312,714 |   | $ | 230,856 |   |
| Buildings and  improvements                |       |                                 | 10-45      |                  |       | 2,034,613 |   | 1,027,936 |   |
| Furniture,  fixtures and equipment         |       |                                 | 3-7        |                  |       | 745,457 |   | 531,459 |   |
| Construction in  progress                  |       |                                 | —     |                  |       | 148,296 |   | 729,892 |   |
|                                       |       |                                 |       |                  |       | 3,241,080 |   | 2,520,143 |   |
| Accumulated  depreciation and amortization |       |                                 |       |                  |       | (654,607 | ) | (529,559 | ) |
| Property and  equipment, net               |       |                                 |       |                  |       | $ | 2,586,473 |   | $ | 1,990,584 |   |

 

At December 31, 2006and 2005, substantially all our property and equipment is pledged as collateralfor long-term debt.

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

**4. Land Held forDevelopment**

As of December 31, 2006, we had$214.4 million of land held for development that consists primarily of sixsites that are owned or leased, which comprise 220 acres in the Las Vegasvalley, 188 acres in the Sacramento, California area near Thunder Valley and104 acres in Reno, Nevada. The primary gaming-entitled land that we own in theLas Vegas valley consists of 68 acres located at the intersection of DurangoRoad and the Southern Beltway/Interstate 215 in the southwest area of LasVegas, 49 acres also located in southwest Las Vegas at the intersection ofFlamingo Road and Interstate 215, 61 acres located on the southern end of LasVegas Boulevard at Cactus Avenue of which we lease and have an option topurchase 2.5 acres and 30 acres on Boulder Highway at the site formerly knownas the Castaways Hotel Casino and Bowling Center.

We also have acquired or are under contract to acquireapproximately 69 acres of land on which Wild Wild West is located and thesurrounding area, of which approximately 50 acres have been acquired as of December 31,2006. During the years ended December 31, 2006 and 2005 we incurred andexpensed approximately $1.1 million and $11.7 million, respectively, toterminate various leases related to this land. In 2003, we exercised our optionto purchase 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 approximately$36 million. We have extended the date for the close of escrow to no later thanJanuary 2009. Additionally, the lease expense was reduced from $2.9million to $1.6 million per year beginning in July 2005. No amountsrelated to this purchase option have been recorded on our consolidated balancesheets at December 31, 2006 and 2005.

Our decision whether to proceed with any new gaming ordevelopment opportunity is dependent upon future economic and regulatoryfactors, the availability of acceptable financing and competitive and strategicconsiderations. As many of these considerations are beyond our control, noassurances can be made that we will be able to proceed with any particularproject.

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

**5. Investments in JointVentures**

Wehave various investments in 50% owned joint ventures, and a 6.7% investment ina joint venture that owns the Palms Casino Resort in Las Vegas, Nevada, whichare accounted for under the equity method. Under the equity method, originalinvestments are recorded at cost and adjusted by our share of earnings, lossesand distributions of the joint ventures. The investment balance also includesinterest capitalized during the construction period. Investments in jointventures consist of the following (amounts in thousands):

| ** **                     | ** ** | **December 31,** | ** ** |
|--------------------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Green Valley  Ranch (50.0%)    |       | $                     | 135,271    |   | $ | 104,290 |   |
| Aliante Station  (50.0%)       |       | 56,812                |       | — |   |
| Rancho Road  (50.0%)           |       | 28,285                |       | — |   |
| Palms Casino  Resort (6.7%)    |       | 18,089                |       | 17,886 |   |
| Sunset GV (50.0%)              |       | 8,029                 |       | — |   |
| Barley’s (50.0%)          |       | 3,580                 |       | 3,619 |   |
| The Greens  (50.0%)            |       | 3,511                 |       | 3,396 |   |
| Investments in  joint ventures |       | $                     | 253,577    |   | $ | 129,191 |   |

 

Summarizedbalance sheet information for the joint ventures is as follows (amounts inthousands):

| ** **                                    | ** ** | **December 31,** | ** ** |
|-----------------------------------------------|------------|-----------------------|------------|
| ** **                                    | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Current assets                                |       | $                     | 90,581     |   | $ | 67,436 |   |
| Property and  equipment and other assets, net |       | 1,394,021             |       | 835,171 |   |
| Current  liabilities                          |       | 103,551               |       | 74,393 |   |
| Long-term  debt and other liabilities         |       | 628,788               |       | 384,289 |   |
| Stockholders’ equity                     |       | 752,263               |       | 443,925 |   |
|                                               |            |                       |            |  |  |  |  |

 

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

| ** **                       | ** ** | **For the years ended December 31,** | ** ** |
|----------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                       | ** ** | **2006**                                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net revenues                     |       | $                                                             | 499,111    |   | $ | 437,618 |   | $ | 385,838 |   |
| Operating costs  and expenses    |       | 392,689                                                       |       | 341,021 |   | 302,135 |   |
| Operating income                 |       | 106,422                                                       |       | 96,597 |   | 83,703 |   |
| Interest and  other expense, net |       | 22,931                                                        |       | 14,368 |   | 10,069 |   |
| Net income                       |       | $                                                             | 83,491     |   | $ | 82,229 |   | $ | 73,634 |   |

 

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

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

The operating earningsfrom these joint ventures are shown as a separate line item on our consolidatedstatements of operations after operating income. In addition, interest andother expense from these joint ventures are shown as a separate component underother expense in our consolidated statements of operations. The following tableidentifies the total equity earnings from joint ventures (amounts inthousands):

| ** **                                      | ** ** | **For the years ended December 31,** | ** ** |
|-------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2006**                                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| Operating  earnings from joint ventures         |       | $                                                             | 41,861     |   | $ | 38,885 |   | $ | 26,524 |   |
| Interest and  other expense from joint ventures |       | (6,815                                                        | )          | (6,947 | ) | (4,485 | ) |
| Net earnings from  joint ventures               |       | $                                                             | 35,046     |   | $ | 31,938 |   | $ | 22,039 |   |

 

**6. Management Fees**

We manage Thunder Valleyon behalf of the United Auburn Indian Community (“UAIC”) and receive a managementfee equal to 24% of net income (as defined in the management agreement). We arealso the managing partner for Green Valley Ranch, Barley’s and The Greens andreceive 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. Ourmanagement fees are included in net revenues on our consolidated statements ofoperations.

*United AuburnIndian Community*

We have entered into aDevelopment Services Agreement and a Management Agreement with the UAIC. Ourseven-year Management Agreement was approved by the National Indian GamingCommission (the “NIGC”) and expires in June 2010. Pursuant to thoseagreements, and in compliance with a Memorandum of Understanding entered intoby the UAIC and Placer County, California, we developed, with the UAIC, ThunderValley, a gaming and entertainment facility on approximately 49 acres locatedapproximately seven miles north of Interstate 80 on Highway 65, in PlacerCounty, California, near Sacramento, which opened on June 9, 2003.

**7. Accrued Expenses andOther Current Liabilities**

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

| ** **                                            | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------|------------|-----------------------|------------|
| ** **                                            | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Accrued payroll  and related                          |       | $                     | 47,210     |   | $ | 53,523 |   |
| Accrued interest  payable                             |       | 66,466                |       | 35,932 |   |
| Accrued gaming  and related                           |       | 32,645                |       | 26,052 |   |
| Other accrued  expenses and current liabilities       |       | 27,368                |       | 17,388 |   |
| Total accrued  expenses and other current liabilities |       | $                     | 173,689    |   | $ | 132,895 |   |

** **

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

**8. Long-term Debt**

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

| ** **                                                                                                                                                                                                                                                 | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                 | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Revolving credit  facility, $2.0 billion limit at December 31, 2006, due December 16,  2010, interest at a margin above the Alternate Base Rate or the  Eurodollar Rate (7.6% and 5.8% at December 31, 2006 and 2005,  respectively)   |       | $                     | 1,155,800  |   | $ | 330,000 |   |
| 6% senior notes,  interest payable semi-annually, principal due April 1, 2012, callable  April 1, 2008, net of unamortized discount of $1.3 million and $1.5  million at December 31, 2006 and 2005, respectively                           |       | 448,742               |       | 448,542 |   |
| 73¤4%  senior notes, interest payable semi-annually, principal due August 15,  2016, callable August 15, 2011                                                                                                                               |       | 400,000               |       | — |   |
| 61¤2%  senior subordinated notes, interest payable semi-annually, principal  due February 1, 2014, callable February 1, 2009                                                                                                           |       | 450,000               |       | 450,000 |   |
| 67¤8%  senior subordinated notes, interest payable semi-annually, principal  due March 1, 2016, callable March 1, 2009, net of unamortized  premium of $7.4 million and $8.0 million at December 31, 2006 and 2005,  respectively |       | 707,427               |       | 708,003 |   |
| 65¤8%  senior subordinated notes, interest payable semi-annually, principal due  March 15, 2018, callable March 15, 2011, net of unamortized  discount of $1.4 million at December 31, 2006                                            |       | 298,568               |       | — |   |
| Other long-term  debt, weighted-average interest of 7.1% and 6.4% at December 31, 2006  and 2005, respectively, maturity dates ranging from 2009 to 2026                                                                                              |       | 9,196                 |       | 9,244 |   |
| Total long-term debt                                                                                                                                                                                                                                       |       | 3,469,733             |       | 1,945,789 |   |
| Current portion  of long-term debt                                                                                                                                                                                                                         |       | (341                  | )          | (108 | ) |
| Market value of  interest rate swaps                                                                                                                                                                                                                       |       | (905                  | )          | (1,461 | ) |
| Total long-term  debt, net                                                                                                                                                                                                                                 |       | $                     | 3,468,487  |   | $ | 1,944,220 |   |

 

*Revolving Facility*

In December 2005, we increased our availabilityunder our revolving credit facility (the “Revolving Facility”) from $1.0billion 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 our assets. Borrowings under the Revolving Facility bearinterest at a margin above the Alternate Base Rate or the Eurodollar Rate (eachas defined in the Revolving Facility), as selected by us. The margin above suchrates, and the fee on the unfunded portions of the Revolving Facility, willvary quarterly based on our combined consolidated ratio of debt to AdjustedEBITDA (as defined in the Revolving Facility). As of December 31, 2006,the Borrowers’ margin above the Eurodollar Rate on borrowings under theRevolving Facility was 2.00%. The maximum margin for Eurodollar Rate borrowingsis 2.25%. The maximum margin for Alternate Base Rate borrowings is 1.00%. As ofDecember 31, 2006, the fee for the unfunded portion of the RevolvingFacility was 0.30%.

The Revolving Facility contains certain financial andother covenants, some of which were amended in June and September 2006.These include a maximum funded debt to Adjusted EBITDA ratio for the 

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

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

Borrowerscombined of 4.00 to 1.00 for each quarter and a minimum fixed charge coverageratio for the preceding four quarters for the Borrowers combined of 1.25 to1.00 for each quarter. As of December 31, 2006, the Borrowers’ funded debtto Adjusted EBITDA ratio was 2.57 to 1.00 and the fixed charge coverage ratiowas 1.59 to 1.00. In addition, the Revolving Facility has financial and othercovenants, which require that the maximum consolidated funded debt to AdjustedEBITDA ratio can be no more than 7.00 to 1.00 through June 30, 2007, whichreduces to 6.75 to 1.00 on September 30, 2007 through June 30, 2008,to 6.50 to 1.00 on September 30, 2008 through December 31, 2008, to5.75 to 1.00 on March 31, 2009 through December 31, 2009 and to 5.00to 1.00 on March 31, 2010. Other covenants limit prepayments ofindebtedness or rent (including subordinated debt other than re-financingsmeeting certain criteria), asset dispositions, dividends, indebtedness, stockrepurchases and investments. As of December 31, 2006, our consolidatedfunded debt to Adjusted EBITDA ratio was 6.02 to 1.00. We have pledged thestock of all of our major subsidiaries.

*Senior and SeniorSubordinated Notes*

On August 15, 2006, we issued $400.0 million of 73¤4%senior notes due August 15, 2016. On March 13, 2006, we issued $300.0million of 65¤8% senior subordinated notes due March 2018.Proceeds from the sale of the notes were used to reduce a portion of the amountoutstanding on our Revolving Facility.

During 2005, we redeemed the remaining $16.9 millionof outstanding 83¤8% senior notes due 2008and $17.4 million of outstanding 97¤8% senior subordinated notes due2010. 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, discounts and callpremium.

During the first quarter of 2004, we refinancedsubstantially all of our senior and senior subordinated notes. In connectionwith the refinancing, we completed tender offers and consent solicitations forapproximately $940.6 million of our senior and senior subordinated notesoutstanding. As a result, we recorded a loss on early retirement of debt of approximately$93.3 million during the year ended December 31, 2004 to reflect thewrite-off of the unamortized loan costs, unamortized discount, call premium,tender fee and consent payments which were partially offset by the fair valueof the interest rate swaps that were tied directly to the redeemed senior andsenior subordinated notes.

The indentures (the “Indentures”)governing our senior and senior subordinated notes (the “Notes”) containcertain customary financial and other covenants, which limit our and oursubsidiaries’ ability to incur additional debt. At December 31, 2006, ourConsolidated Coverage Ratio (as defined in the Indentures) was 2.40 to 1.00.The Indentures provide that we may not incur additional indebtedness, otherthan specified types of indebtedness, unless the Consolidated Coverage Ratio isat least 2.00 to 1.00. In the event our Consolidated Coverage Ratio is below2.00 to 1.00, the covenant limits our ability to incur additional indebtednessfor borrowings under the Revolving Facility not to exceed the greater of$200 million or 1.5 times Operating Cash Flow (as defined in theIndentures) for the four most recent quarters, plus $15 million. TheIndentures also give the holders of the Notes the right to require us to purchasethe Notes at 101% of the principal amount of the Notes plus accrued interestthereon upon a Change of Control and Rating Decline (each as defined in theIndentures) of the Company. In addition, the indenture governing the seniornotes contains a limitation on liens we can incur.

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

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

The estimated fair value of our long-term debt at December 31,2006 was approximately $3.3 billion, compared to the book value ofapproximately $3.5 billion. At December 31, 2005, the estimated fair valueof our long-term debt was approximately $1.96 billion, compared to thebook value of $1.95 billion. The estimated fair value amounts were basedon quoted market prices on or about December 31, for our debt securitiesthat are publicly traded. For the Revolving Facility, the fair valueapproximates the carrying amount of the debt due to short-term maturities ofthe individual components of the debt.

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

| **Years ending December 31,** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|------------|------------|------------|------------|
| 2007                                         |       | $          | 341        |       |
| 2008                                         |       | 332        |       |
| 2009                                         |       | 5,437      |       |
| 2010                                         |       | 1,155,911  |       |
| 2011                                         |       | 120        |       |
| Thereafter                                   |       | 2,307,592  |       |
| Total                                        |       | $          | 3,469,733  |       |

 

*Interest Rate Swaps*

We have entered into various interest rate swaps withmembers of our bank group to manage interest expense. As of December 31, 2006,we have interest rate swaps with a combined notional amount of$550.0 million. We entered into a fair value hedge interest rate swap witha notional amount of $50.0 million tied directly to our 6% senior notesconverting a portion of our fixed-rate debt to a floating-rate based uponthree-month LIBOR rates, terminating in April 2012. This interest rateswap qualifies for the “shortcut” method allowed under SFAS 133 and as amendedby SFAS 138 and 149, which allows for an assumption of no ineffectiveness. Assuch, there is no income statement impact from changes in the fair value of thehedging instrument. Instead, the fair value of the instrument is recorded as anasset or liability on our balance sheet with an offsetting adjustment to thecarrying value of the related debt. In accordance with SFAS 133, we recorded aliability of $2.2 million and $2.1 million as of December 31, 2006 and2005, respectively, representing the fair value of this interest rate swap anda corresponding decrease in long-term debt, as this interest rate swap isconsidered highly effective under the criteria established by SFAS 133. We paida rate based on LIBOR, which approximated 7.1% as of December 31, 2006 andreceived a fixed rate of 6.0%.

We have entered into two cash flow hedge interest rateswaps with a combined notional amount of $500.0 million tied directly to ourRevolving Facility converting a portion of our floating-rate debt to afixed-rate based on three-month LIBOR rates, terminating in December 2010.As of December 31, 2006, we paid an average fixed rate of 5.1% andreceived three-month LIBOR which approximated 5.4%. These interest rate swapsare designated and qualify as cash flow hedges resulting in the effectiveportion of the gain or loss reported as a component of other comprehensiveincome (loss) with an offsetting adjustment to the carrying value of therelated debt. For the years ended December 31, 2006 and 2005, we recordedother comprehensive loss of $0.6 million and $0.8 million, respectively,related to the change in market value of these interest rate swaps. As aresult, we recorded an increase in long-term debt of $1.4 million and $0.8million as of December 31, 2006 and 2005, respectively.

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

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

The difference betweenamounts received and paid under such agreements, as well as any costs or fees,is recorded as a reduction of, or an addition to, interest expense as incurredover the life of the swaps. The net effect of the interest rate swaps resultedin a reduction of interest expense of approximately $0.2 million, $2.1 millionand $7.3 million for the years ended December 31, 2006, 2005 and 2004,respectively.

**9. Commitments andContingencies**

***Leases***

*Boulder StationLease*

We entered into a groundlease for 27 acres of land on which Boulder Station is located. We lease thisland from KB 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 Station andLorenzo J. Fertitta, Vice Chairman and President of Station. The lease has amaximum term of 65 years, ending in June 2058. The lease provides formonthly payments of $183,333 through June 2008. In July 2008, andevery 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. Our leasehold interest in theproperty is subject to a lien to secure borrowings under the RevolvingFacility.

*Texas Station Lease*

We entered into a groundlease for 47 acres of land on which Texas Station is located. We lease thisland from Texas Gambling Hall & Hotel, Inc., a company owned bythe Related Lessor. The lease has a maximum term of 65 years, ending in July 2060.The lease provides for monthly rental payments of $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, we have an option, exercisable at five-yearintervals with the next option in May 2010, to purchase the land at fairmarket value. Our leasehold interest in the property is subject to a lien tosecure borrowings under the Revolving Facility.

*Wild Wild WestLease*

We exercised our option to purchase the 19-acreparcel of land on which Wild Wild West is located in 2003 which was to occur inJuly 2005 at a purchase price of $36 million. We have extended the datefor the close of escrow to no later than January 2009. Additionally, thelease expense was reduced from $2.9 million to $1.6 million per year beginningin July 2005. No amounts related to this purchase option have beenrecorded on our consolidated balance sheets at December 31, 2006 and 2005.

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

**9. Commitments andContingencies (Continued)**

*Operating Leases*

Welease several parcels of land, buildings and equipment used in our operations.Leases on various parcels ranging from 2.5 acres to 47 acres have termsexpiring between January 2009 and August 2103. Future minimum leasepayments required under these operating leases and other noncancelableoperating leases are as follows (amounts in thousands):

| Years ending December 31, | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------------------|------------|------------|------------|------------|------------|
| 2007                                     |       | $          | 10,382     |       |
| 2008                                     |       | 10,408     |       |
| 2009                                     |       | 7,981      |       |
| 2010                                     |       | 7,818      |       |
| 2011                                     |       | 7,818      |       |
| Thereafter                               |       | 320,098    |       |
| Total                                    |       | $          | 364,505    |       |

 

Rent expense totaled approximately $12.4 million,$12.8 million and $14.9 million for the years ended December 31,2006, 2005 and 2004, respectively.

***Las Vegas Development***

*Red Rock*

In August 2006, we began a $60 million to $65million phase III master-planned expansion of Red Rock, which includes abowling center and an expansion of the west parking garage. Construction of thebowling center is expected to be completed in the second quarter of 2007, whilethe parking garage expansion is expected to be completed in the third quarterof 2007. Approximately $22.7 million had been incurred as of December 31,2006.

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. Pursuant to the terms of theoperating agreement, we owned 80% of the joint venture and Cloobeck Molaskyowned 20%. In June 2006, we notified Cloobeck Molasky that the jointventure had been dissolved based on the terms of the operating agreement. As ofDecember 31, 2006, we cancelled the residential project resulting in awrite-off of approximately $2.5 million, which is included in loss on assetdisposals, net on our consolidated statement of operations.

*Santa Fe StationExpansion*

In October 2005, webegan a $130 million phase III master-planned expansion at Santa Fe Stationwhich included an additional parking garage, a buffet, additional slotmachines, a remodeled and expanded race and sports book, a meeting and banquetfacility and a new center bar. The entire project included approximately125,000 square-feet of additional space and was completed during the fourthquarter 2006, with the exception of the center bar which is still under construction. Approximately $127.8 million had beenincurred on the expansion as of December 31, 2006.

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

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

*Fiesta HendersonExpansion*

In October 2005, we began a $75 million phase IImaster-planned expansion at Fiesta Henderson which included a parking garage,additional slot machines, a remodeled and expanded race and sports book and amulti-screen movie theater complex. Construction of the project was completedin August 2006, with the exception of the movie theater complex which is stillunder construction. Approximately $56.2 million had been incurred on theexpansion as of December 31, 2006.

*Green Valley RanchExpansion*

In October 2006, weopened an additional parking garage, a new race and sports book, a new pokerroom and two new restaurants as part of the $115 million phase IIImaster-planned expansion at Green Valley Ranch. An entertainment lounge isstill under construction. Approximately $98.1 million had been incurred on theexpansion as of December 31, 2006.

*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. Thefirst phase of Aliante Station is expected to include a hotel, casino, multiplefull-service restaurants and a multi-screen movie theater complex. Constructionon Aliante Station began in February 2007. Pursuant to the terms of theagreement, in January 2006, we contributed a 54 acre site located on LoseeRoad in North Las Vegas, Nevada, as well as approximately $2.2 million, for our50% ownership in the joint venture. During the year ended December 31,2006, we contributed an additional $4.0 million to fund design and developmentcosts.

*Rancho Road*

In December, 2006, weentered into an amended and restated operating agreement with FBLV HoldingCompany LLC (“FBLV”). Pursuant to the amended and restated operating agreement,the parties contributed, approximately 52 acres (with approximately 20 acrescontributed by us for our 50% ownership and approximately 32 acres contributedby FBLV for their 50% ownership) of improved and unimproved real propertylocated along Rancho Road behind Palace Station in Las Vegas, Nevada into ajoint venture. It is anticipated that the joint venture will develop, constructand manage, pursuant to a master development plan, a mixed-use residential,retail and entertainment (excluding non-restricted gaming) project on all or aportion of such property. The timing, cost and scope of the project have yet tobe determined.

***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 

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

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

agreements, we will assistthe FIGR in developing and operating a gaming and entertainment project to belocated in Sonoma County, California. The FIGR selected us to assist them indesigning, developing and financing their project and, upon opening, we willmanage the facility on behalf of the FIGR. The Management Agreement has a termof seven years from the opening of the facility and we will receive amanagement fee equal to 24% of the facility’s net income. We will also receivea development fee equal to 2% of the cost of the project upon the opening ofthe facility.

In August 2003, we entered into an option topurchase 360 acres of land just west of the Rohnert Park city limits in SonomaCounty, California. In August 2005, we purchased 180 acres of the optionedproperty and an additional 90 acres. In March 2006, we purchased anadditional 4.7 acres adjacent to the previously acquired property. The propertypurchased 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, we will contribute significant financialsupport to the project. As of December 31, 2006, we have advancedapproximately $132.3 million toward the development of this project,primarily to complete the environmental impact study and secure real estate forthe project, which is included on our consolidated balance sheets. Fundsadvanced by us are expected to be repaid from the proceeds of the projectfinancing or from the FIGR’s gaming revenues. In addition, we have agreed topay approximately $11.3 million upon achieving certain milestones, whichwill not be reimbursed. As of December 31, 2006, approximately$2.0 million of these payments had been made and expensed in developmentexpense as incurred. The timing of this type of project is difficult to predictand is dependent upon the receipt of the necessary governmental and regulatoryapprovals. There can be no assurances when or if these approvals will beobtained.

*Gun Lake Tribe*

On November 13, 2003, 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 which MPMagreed to assist Gun Lake in developing and operating a gaming andentertainment project to be located in Allegan County, Michigan. OnJuly 29, 2005, MPM and Gun Lake entered into amended and restatedDevelopment and Management Agreements. 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, 2006, approximately$2.0 million of these payments had been made and expensed in developmentexpense as incurred. An additional $12.0 million in total may be paid byus in years six and seven of the amended and restated Management Agreement,subject to certain contingencies. Under the terms of the amended and restated DevelopmentAgreement, we have agreed to arrange financing for the ongoing developmentcosts and construction of the project. As of December 31, 2006, we haveadvanced approximately $34.0 million toward the development of this project,primarily to complete the environmental assessment and secure real estate forthe project, which is included on our consolidated balance sheets. Fundsadvanced by us are expected to be repaid from the proceeds of the projectfinancing or from Gun Lake’s gaming revenues. The amended and restated 

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

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

Management Agreement has aterm of seven years from the opening of the facility and provides for amanagement fee of 30% of the project’s net income to be paid to MPM. Pursuantto the terms of the MPM Operating Agreement, our portion of the management feeis 50% of the first $24 million of management fees earned, 83% of the next$24 million of management fees and 93% of any management fees in excess of$48 million.

The proposed project will be located on approximately146 acres on Highway 131 near 129th Avenue, approximately 25 miles north ofKalamazoo, Michigan. As currently contemplated, the project will include slotmachines, table games, a buffet and specialty restaurants. Construction of theproject includes the conversion of an existing 192,000 square-foot buildinginto the casino and entertainment facility. Development of the gaming andentertainment 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 taking 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 judgment on the pleadings or, in the alternative, forsummary judgment. Also on January 6, 2006, the DOI filed a motion todismiss or, in the alternative, for summary judgment. By May 2006, allresponsive pleadings had been filed and the case was ready for consideration bythe District Court. On October 27, 2006, the Department of Justice filed aNotice with the District Court indicating that the DOI planned to take the 146-acresite into trust on January 5, 2007, if the plaintiffs did not seekinjunctive relief or failed to persuade the court to issue any reliefprecluding the DOI from doing so. The DOI subsequently amended that date toMarch 5, 2007, in order to provide the Court sufficient time to render itsdecision. The Court set oral arguments on the parties’ motions to dismiss or,in the alternative, for summary judgment for November 29, 2006. Oralarguments were heard on that date. On February 23, 2007, the District Courtissued its decision in favor of the DOI and Gun Lake, finding that there wereno facts which would entitle plaintiffs to any relief on the four issues raisedin the Complaint, and granted the parties’ motion to discuss or, in thealternative for summary judgment. As with all litigation, no assurances can beprovided as to the outcome of that lawsuit. Prior to obtaining third-partyfinancing, we will contribute significant financial support to the project. Thetiming of this type of project is difficult to predict and is dependent uponthe receipt of the necessary governmental and regulatory approvals. There canbe no assurances when or if these approvals will be obtained.

*Mechoopda IndianTribe*

We have entered into Development and ManagementAgreements with the Mechoopda Indian Tribe of Chico Rancheria, California (the “MITCR”),a federally recognized Native American tribe. Pursuant to those agreements, wewill assist the MITCR in developing and operating a gaming and entertainmentfacility to be located on approximately 650 acres in Butte County, California,at the intersection of State 

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

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

Route 149 and Highway 99,approximately 10 miles southeast of Chico, California and 80 miles north ofSacramento, California. Under the terms of the Development Agreement, we haveagreed 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, 2006, we have advanced approximately $8.6million toward the development of this project, primarily to complete theenvironmental assessment 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, 2006, $50,000 of these paymentshad been made and expensed in development expense as incurred. The ManagementAgreement has a term of seven years from the opening of the facility andprovides for a management fee of 24% of the facility’s net income. As currentlycontemplated, the facility will include slot machines, table games and diningand entertainment amenities. Development of the facility is subject to certaingovernmental and regulatory approvals, including, but not limited to,negotiating a gaming compact with the State of California, the DOI acceptingland into trust on behalf of the MITCR and approval of the Management Agreementby the NIGC. Prior to obtaining third-party financing, we will contributesignificant financial support to the project. The timing of this type ofproject is difficult to predict and is dependent upon the receipt of thenecessary governmental and regulatory approvals. There can be no assuranceswhen or if these approvals will be obtained.

*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 purchased, for the benefit of the Mono, a 305-acreparcel 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, 2006, we have advancedapproximately $6.3 million toward the development of this project,primarily to complete the environmental impact study and secure real estate forthe project, which is included on our consolidated balance sheets. In addition,we have agreed to pay approximately $1.3 million of payments upon achievingcertain milestones, which will not be reimbursed and will be expensed asincurred. As of December 31, 2006, 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 will include slot machines, tablegames, restaurants, a hotel and entertainment amenities. Development of thegaming and entertainment project is subject to certain governmental andregulatory approvals, including, but not limited to, negotiating a gamingcompact with the State of California, the DOI accepting the land into trust onbehalf of the Mono and approval of the Management Agreement by the NIGC. Priorto obtaining third-party financing, we will contribute significant financialsupport to the project. The timing of this type of project is difficult topredict, and is dependant upon the receipt of the necessary governmental andregulatory approvals. There can be no assurances when or if these approvalswill be obtained.

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

**10. Stockholders’ Equity**

*Common Stock*

We are authorized to issue up to 135 millionshares of our common stock, $0.01 par value per share, 80,507,427 shares whichwere issued and 23,245,751 shares which were held in treasury as of December 31,2006. Each holder of the common stock is entitled to one vote for each shareheld of record on each matter submitted to a vote of stockholders. Holders ofthe common stock have no cumulative voting, conversion, redemption orpreemptive rights or other rights to subscribe for additional shares other thanpursuant to the Rights Plan described below. Subject to any preferences thatmay be granted to the holders of our preferred stock, each holder of commonstock is entitled to receive ratably, such dividends as may be declared by theBoard of Directors out of funds legally available therefore, as well as anydistributions to the stockholders and, in the event of our liquidation,dissolution or winding up is entitled to share ratably in all our assetsremaining after payment of liabilities.

During the year ended December 31, 2006, we paida quarterly cash dividend of $0.25 per share to shareholders of record on February 10,2006 and May 12, 2006 and $0.2875 per share to shareholders of record on August 11,2006 and November 13, 2006 for a total of $65.4 million.

During the year ended December 31,2005, we 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 for atotal of $62.6 million. During the year ended December 31, 2004, we paid aquarterly 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, 2004for a total of $44.3 million.

*Preferred Stock*

We are authorized to issue up to 5 million sharesof our preferred stock, $0.01 par value per share of which none are issued. TheBoard of Directors, without further action by the holders of common stock, mayissue shares of preferred stock in one or more series and may fix or alter therights, preferences, privileges and restrictions, including the voting rights,redemption provisions (including sinking fund provisions), dividend rights, dividendrates, liquidation rates, liquidation preferences, conversion rights and thedescription and number of shares constituting any wholly unissued series ofpreferred stock. Except as described above, the Board of Directors, withoutfurther stockholder approval, may issue shares of preferred stock with rightsthat could adversely affect the rights of the holders of common stock. Theissuance of shares of preferred stock under certain circumstances could havethe effect of delaying or preventing a change of control of Station or othercorporate action.

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

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

*Treasury Stock*

During the year ended December 31,2006, we repurchased approximately 12.7 million shares of our common stock forapproximately $880.7 million. As of December 31, 2006, we hadacquired approximately 23.2 million shares at a cost of approximately$1.0 billion and are authorized to repurchase approximately 7.5 millionadditional shares of our common stock.

*Other ComprehensiveIncome*

SFAS 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, 2006, 2005 and 2004, we recorded themark-to-market valuation of our interest rate swaps and our 50% interest in themark-to-market valuation of the interest rate swaps at Green Valley Ranch, aswell as the adjustment to initially apply SFAS 158 for the year ended December 31,2006, as other comprehensive income. Comprehensive income was computed asfollows (amounts in thousands):

| ** **                                                   | ** ** | **For the years ended December 31,** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                   | ** ** | **2006**                                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net income                                                   |       | $                                                             | 110,212    |   | $ | 161,886 |   | $ | 66,350 |   |
| Mark-to-market  valuation of interest rate swaps, net of tax |       | (636                                                          | )          | 635 |   | 723 |   |
| Adoption of SFAS  158, net of tax                            |       | (10,170                                                       | )          | — |   | — |   |
| Comprehensive  income                                        |       | $                                                             | 99,406     |   | $ | 162,521 |   | $ | 67,073 |   |

 

Effective December 31,2006, we adopted SFAS 158 and recognized an additional noncurrent pensionliability of $15.6 million, a noncurrent deferred tax asset of $5.4 million andaccumulated other comprehensive loss of $10.2 million in the accompanyingconsolidated financial statements. See Note 13 for additional information.

*Rights Plan*

On October 6, 1997, we declared a dividend of onepreferred share purchase right (a “Right”) for each outstanding share of commonstock. The dividend was paid on October 21, 1997. Each Right entitles theregistered holder to purchase from us one one-hundredth of a share of Series APreferred Stock, par value $0.01 per share (“Preferred Shares”) of Station at aprice of $40.00 per one one-hundredth of a Preferred Share, subject toadjustment. The Rights are not exercisable until the earlier of 10 daysfollowing a public announcement that a person or group of affiliated or associatedpersons have acquired beneficial ownership of 15% or more of our outstandingcommon stock (“Acquiring Person”) or 10 business days (or such later date asmay be determined by action of the Board of Directors prior to such time as anyperson or group of affiliated persons becomes an Acquiring Person) followingthe commencement of, or announcement of an intention to make a tender offer orexchange offer, the consummation of which would result in the beneficialownership by a person or group of 15% or more 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’ 

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

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

dividend,liquidation and voting rights, the value of one one-hundredth interest in aPreferred Share purchasable upon exercise of each Right should approximate thevalue of one common share. In the event that any person or group of affiliatedor associated persons becomes an Acquiring Person, the proper provisions willbe made so that each holder of a Right, other than Rights beneficially owned bythe Acquiring Person (which will thereafter become void), will thereafter havethe right to receive upon exercise that number of shares of common stock havinga market value of two times the exercise price of the Right. In the event thatwe are acquired in a merger or other business combination transaction or 50% ormore of our consolidated assets or earning power are sold after a person orgroup 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 ofStation more difficult and may discourage such an acquisition.

**11. Share-BasedCompensation**

In May 2005, the stockholders approved and weadopted 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”).Individuals eligible to receive Awards under the 2005 Plan include employees,directors and independent contractors of the Company and its subsidiaries andother entities controlled by us. However, incentive stock options may begranted only to an employee of ours or a subsidiary of ours. Upon adoption ofthe 2005 Plan, no additional grants of awards will be made under the followingplans of Station (the “Prior Plans”): (i) the Incentive Stock Option Plan,(ii) the Compensatory Stock Option Plan, (iii) the Restricted SharePlan, (vi) the Non-employee Director Stock Option Plan, (v) the 1999Compensatory 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.

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

**11. Share-BasedCompensation (Continued)**

Summarized information forthe 2005 Plan and Prior Plans, collectively, is as follows:

| ** **                                     | ** ** | **Options** | ** ** | **Weighted  average  exercise  price** | ** ** | **Restricted  Shares** | ** ** | **Weighted  average  grant date  fair value** | ** ** | **Total** | ** ** |
|------------------------------------------------|------------|-------------|------------|----------------------------------------|------------|------------------------|------------|---------------------------------------------------------|------------|-----------|------------|
| Outstanding at  December 31, 2005         |       | 2,314,182   |       |                                   | $          | 12.12                  |       |                                                    | 2,124,594  |      |       | $ | 37.24 |   |   | 4,438,776 |   |
| Granted                                        |       | —      |       |                                   | —     |                   |       | 1,374,100                                               |       |      | $          | 68.21 |   |   | 1,374,100 |   |
| Exercised/Lapsed                               |       | (120,325    | )          |                                   | $          | 12.99                  |       |                                                    | (436,740   | )         |       | $ | 30.13 |   |   | (557,065 | ) |
| Canceled                                       |       | (6,750      | )          |                                   | $          | 15.26                  |       |                                                    | (34,600    | )         |       | $ | 55.17 |   |   | (41,350 | ) |
| Outstanding at  December 31, 2006         |       | 2,187,107   |       |                                   | $          | 12.07                  |       |                                                    | 3,027,354  |      |       | $ | 52.12 |   |   | 5,214,461 |   |
| Exercisable at  December 31, 2006         |       | 2,069,407   |       |                                   | $          | 11.81                  |       |                                                    |       |      |       |   |   |   |   |   |
| Available for grant at  December 31, 2006 |       |        |       |                                   |       |                   |       |                                                    |       |      |       |   |   | 1,108,632 |   |

 

*Stock Options*

No stock options were granted since 2003 resulting inno assumptions for dividend yield, expected volatility, risk-free interest rateor expected term of option for 2006, 2005 or 2004.

We use historical data and projections to estimateexpected employee behaviors related to option exercises and forfeitures. SFAS123R requires that forfeitures be included as part of the grant date estimate. Theeffect of forfeitures related to previous SFAS 123 pro forma expense was notmaterial. At December 31, 2006, there was $0.4 million of unrecognizedcompensation expense related to share-based payments which is expected to berecognized over a weighted-average period of one year. Based on stock optionsoutstanding at December 31, 2006, we estimate $0.3 million of expense in2007 and virtually zero thereafter. The remaining weighted average contractualterm for options outstanding at December 31, 2006 is 4.6 years and 4.5years for options exercisable at December 31, 2006.

The intrinsic value of a stock option is the amount bywhich the market value of the underlying stock exceeds the exercise price ofthe stock option. At December 31, 2006, the aggregate intrinsic value ofstock options outstanding was $152.2 million and the aggregate intrinsic valueof stock options exercisable was $144.6 million. Total intrinsic value of stockoptions exercised was $6.9 million, $87.4 million and $176.3 million for theyears ended December 31, 2006, 2005 and 2004, respectively.

Net cash proceeds from theexercise of stock options were $1.6 million, $19.0 million and $55.0 millionfor the years ended December 31, 2006, 2005 and 2004, respectively. Theactual income tax benefit realized from stock option exercises was $3.1million, $31.8 million and $62.6 million for the same periods, respectively.

*Restricted Stock*

As of December 31, 2006, we have unearnedshare-based compensation of $143.4 million associated with restricted stockawards which is expected to be recognized over a weighted-average period of 5.3years. During the years ended December 31, 2006, 2005 and 2004, we granted1,374,100, 137,000, 1,420,413, respectively, of restricted stock awards at aweighted-average grant date fair value of $68.21, $66.33 and $46.39 for thesame periods. The total fair value of restricted shares that vested for theyears ended December 31, 2006, 2005 and 2004 was $32.4 million, $30.5million and $15.9 million, respectively.

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

**11.Share-Based Compensation (Continued)**

The following tablerepresents where reported share-based compensation expense was classified inthe accompanying consolidated statements of operations (amounts in thousands):

| ** **                                  | ** ** | **For the years   ended December 31,** | ** ** |
|---------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                  | ** ** | **2006**                                                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| Casino expense                              |       | $                                                               | 359        |   | $ | 229 |   | $ | 156 |   |
| Food & beverage expense            |       | 44                                                              |       | 56 |   | 84 |   |
| Room expense                           |       | 12                                                              |       | 1 |   | 12 |   |
| Selling, general & administrative  |       | 2,567                                                           |       | 1,787 |   | 1,741 |   |
| Corporate                                   |       | 18,163                                                          |       | 8,534 |   | 6,332 |   |
| Development                                 |       | 2,327                                                           |       | 1,485 |   | 1,283 |   |
| Preopening                                  |       | 223                                                             |       | 367 |   | 33 |   |
| Total share-based  compensation             |       | 23,695                                                          |       | 12,459 |   | 9,641 |   |
| Tax benefit                                 |       | (8,293                                                          | )          | (4,361 | ) | (3,374 | ) |
| Total share-based  compensation, net of tax |       | $                                                               | 15,402     |   | $ | 8,098 |   | $ | 6,267 |   |

 

Had compensation expensefor the 2005 Plan and Prior Plans been determined in accordance withSFAS 123, the effect on our net income and basic and diluted earnings percommon share would have been as follows (amount in thousands, except per sharedate):

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

 

**12. Executive CompensationPlans**

We have employmentagreements with certain of our executive officers. These contracts provide for,among other things, an annual base salary, supplemental long-term disabilityand supplemental life insurance benefits in excess of our normal coverage foremployees. In addition, we have adopted a Supplemental Executive RetirementPlan for our Chief Executive Officer and President and a SupplementalManagement Retirement Plan for certain key executives as selected by theGovernance and Compensation Committee of our Board of Directors. Otherexecutive plans include a Deferred Compensation Plan and a Long-Term Stay-OnPerformance Incentive Plan.

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

**13.Retirement Plans**

Effective as of November 30, 1994, we adopted theSupplemental Executive Retirement Plan (the “SERP”), which is an unfundeddefined benefit plan for the Chief Executive Officer and President as soleparticipants. On January 21, 2005, Station amended the SERP (the “SERPAmendment”). The purpose of the SERP Amendment was to (i) increase theEarly Retirement Date (as defined in the SERP) for participants from age 45 toage 50, (ii) increase the Normal Retirement Date (as defined in the SERP)for the participants from age 55 to age 60, (iii) add the President of theCompany as a participant, and (iv) include the average annual bonus (inaddition to base salary) earned by participants for the three most recentfiscal years in determining Final Annual Compensation (as defined in the SERP).

Effective as of November 30,1994, we adopted the Supplemental Management Retirement Plan (the “SMRP”),which is an unfunded defined benefit plan. Certain key executives (other thanthe Chief Executive Officer and President) as selected by the Governance andCompensation Committee are able to participate in the SMRP.

88

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

**13. Retirement Plans(Continued)**

Areconciliation of the beginning and ending balances of the pension benefitobligation and fair value of the plan assets and the funded status is asfollows (in thousands):

| ** **                                                        | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                        | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Change in pension  benefit obligation:                            |       |                  |       |   |   |
| Benefit obligation at beginning of year                           |       | $                     | 28,491     |   | $ | 17,563 |   |
| Service cost                                                      |       | 2,070                 |       | 1,336 |   |
| Interest cost                                                     |       | 1,680                 |       | 1,087 |   |
| Net actuarial (gain) loss                                         |       | (1,851                | )          | 8,505 |   |
| Benefit obligation at end of year                                 |       | $                     | 30,390     |   | $ | 28,491 |   |
| Funded status of  the plan (underfunded)                          |       | $                     | (30,390    | ) | $ | (28,491 | ) |
| Unrecognized net actuarial loss                                   |       | —                |       | 5,639 |   |
| Unrecognized actuarial loss                                       |       | —                |       | 12,916 |   |
| Net amount recognized                                             |       | $                     | (30,390    | ) | $ | (9,936 | ) |
| Amounts  recognized in the consolidated balance sheet consist of: |       |                  |       |   |   |
| Accrued pension  costs                                            |       | $                     | (14,744    | ) | $ | (9,936 | ) |
| Accumulated other  comprehensive loss                             |       | (15,646               | )          | — |   |
| Net amount recognized                                             |       | $                     | (30,390    | ) | $ | (9,936 | ) |
| Weighted average assumptions:                                     |       |                  |       |   |   |
| Discount rate                                                     |       | 5.50                  | %          | 5.75 | % |
| Salary rate increase                                              |       | 5.00                  | %          | 4.00 | % |

 

Thecomponents of the net periodic pension benefit cost consist of the following(in thousands):

| ** **                          | ** ** | **For the years ended December 31,** | ** ** |
|-------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                          | ** ** | **2006**                                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| Service cost                        |       | $                                                             | 2,070      |   | $ | 1,336 |   | $ | 763 |   |
| Interest cost                       |       | 1,680                                                         |       | 1,087 |   | 621 |   |
| Amortization of  prior service cost |       | 312                                                           |       | 312 |   | 58 |   |
| Amortization  actuarial losses      |       | 746                                                           |       | 259 |   | 195 |   |
| Net periodic pension cost           |       | $                                                             | 4,808      |   | $ | 2,994 |   | $ | 1,637 |   |
| Curtailment charge                  |       | —                                                        |       | 96 |   | (436 | ) |
| Total pension  cost                 |       | $                                                             | 4,808      |   | $ | 3,090 |   | $ | 1,201 |   |

 

*401(k) Plan*

We have a definedcontribution 401(k) plan, which covers all employees who meet certain ageand length of service requirements and allows an employer contribution up to50% of the first 4% of each participating employee’s compensation. Planparticipants can elect to defer before tax compensation through payrolldeductions. These deferrals are regulated under Section 401(k) of theInternal Revenue Code. Our matching contribution was approximately$2.8 million, $2.2 million and $2.0 million for the years ended December 31,2006, 2005 and 2004, respectively.

89

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

**14. Income Taxes**

We file a consolidated federal income tax return. Theprovision for income taxes for financial reporting purposes was $69.2 million,$94.3 million and $38.9 million for the years ended December 31, 2006,2005 and 2004, respectively.

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

| ** **          | ** ** | **For the years ended December 31,** | ** ** |
|---------------------|------------|---------------------------------------------------------------|------------|
| ** **          | ** ** | **2006**                                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| Current             |       | $                                                             | 30,753     |   | $ | 31,864 |   | $ | 10,187 |   |
| Deferred            |       | 38,487                                                        |       | 62,477 |   | 28,692 |   |
| Total income  taxes |       | $                                                             | 69,240     |   | $ | 94,341 |   | $ | 38,879 |   |

 

Theincome tax provision differs from that computed at the federal statutorycorporate tax rate as follows:

| ** **                                                             | ** ** | **For the years ended December 31,** | ** ** |
|------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                             | ** ** | **2006**                                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| Federal statutory  rate                                                |       |                                                          | 35.0       | % |   |   | 35.0 | % |   |   | 35.0 | % |   |
| Lobbying and  political                                                |       |                                                          | 0.3        |   |   |   | 0.2 |   |   |   | 0.4 |   |   |
| Fines and  penalties                                              |       |                                                          | —     |   |   |   | — |   |   |   | 0.6 |   |   |
| Meals and  entertainment                                               |       |                                                          | —     |   |   |   | — |   |   |   | 0.1 |   |   |
| Credits earned,  net                                                   |       |                                                          | (0.5       | ) |   |   | (0.3 | ) |   |   | (0.6 | ) |   |
| Nondeductible officers  compensation                                   |       |                                                          | 3.4        |   |   |   | 1.7 |   |   |   | 2.4 |   |   |
| Reduction in  liability based on conclusion of an IRS examination |       |                                                          | —     |   |   |   | — |   |   |   | (1.1 | ) |   |
| Other, net                                                             |       |                                                          | 0.4        |   |   |   | 0.2 |   |   |   | 0.1 |   |   |
| Effective tax  rate                                                    |       |                                                          | 38.6       | % |   |   | 36.8 | % |   |   | 36.9 | % |   |

 

We recorded $3.1 million, $31.8 million and$62.6 million as an increase to contributed capital for certain taxbenefits from employee share-based compensation for the years endedDecember 31, 2006, 2005 and 2004, respectively.

90

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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,** | ** ** |
|----------------------------------------------------------|------------|-----------------------|------------|
| ** **                                               | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Deferred tax  assets:                                    |       |                  |       |   |   |
| Accrued vacation, bonuses and group insurance            |       | $                     | 5,187      |   | $ | 6,394 |   |
| Preopening and other costs, net of amortization          |       | 700                   |       | 1,051 |   |
| Accrued benefits                                         |       | 26,305                |       | 15,752 |   |
| FICA credits                                             |       | —                |       | 3,961 |   |
| Minimum tax credit carryover                             |       | —                |       | 22,712 |   |
| Other deferred tax assets                                |       | 8,295                 |       | 5,237 |   |
| Total deferred  tax assets                               |       | $                     | 40,487     |   | $ | 55,107 |   |
| Deferred tax  liabilities:                               |       |                  |       |   |   |
| Prepaid expenses and other                               |       | $                     | (16,573    | ) | $ | (12,373 | ) |
| Temporary differences related to property and  equipment |       | (122,295              | )          | (112,641 | ) |
| Amortization                                             |       | (14,670               | )          | (9,880 | ) |
| Total deferred  tax liabilities                          |       | $                     | (153,538   | ) | $ | (134,894 | ) |
| Net                                                      |       | $                     | (113,051   | ) | $ | (79,787 | ) |

 

We did not record avaluation allowance at December 31, 2006 or 2005 relating to recorded taxbenefits because all benefits are more likely than not to be realized.

**15.Legal Matters**

Station 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 impactingStation. Station believes that the plaintiffs’ claims are without merit anddoes not expect that the lawsuits will have a material adverse effect on the financialposition or results of operations.

*Litigation Relating to the Merger*

On December 4, 2006,we announced that we had received a proposal from Fertitta Colony Partners,LLC, (“FCP”) to acquire all of our outstanding common stock for $82 per sharein cash.

On December 4, 2006, Helen Roessler filed a purportedclass action complaint in the District Court of Clark County, Nevada (the“District Court”), Case No. A532367, against the Company, our Board ofDirectors and Fertitta Colony Partners LLC (“FCP”).  The complaint alleges that the defendantsbreached their fiduciary duties and challenges the proposed transaction asinadequate and unfair to the Company’s public stockholders.  The complaint seeks, among other relief,class certification of the lawsuit and an injunction against the proposedtransaction.  Three similar putativeclass actions were subsequently filed in the District Court:  Goldman v. Station Casinos, Inc., et al.,Case No. A532395, filed on December 4, 2006, Traynor v. Station Casinos,Inc., et al., Case No. A532407, filed on December 4, 2006, and Filhaber v.Station Casinos, Inc., et al., Case No. A532499, filed on December 5, 2006.  (The four above-referenced actions arecollectively referred to as the “Initial Lawsuits.”)

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

**15. LegalMatters (Continued)**

On January 2, 2007, David Griffiths filed a purportedclass action complaint in the District Court against the Company, our Board ofDirectors, Delise F. Sartini, Blake L. Sartini, Colony Capital, LLC (“ColonyCapital”), Colony Capital Acquisitions, LLC (“Colony Acquisitions”) andFCP.  The complaint alleges that theCompany’s Board of Directors breached their fiduciary duties and the remainingdefendants aided and abetted the alleged breaches of fiduciary duties inconnection with the proposed transaction. The complaint seeks, among other relief, class certification of the lawsuit,an injunction against the proposed transaction, declaratory relief, theimposition of a constructive trust upon the defendants, and an award ofattorneys’ fees and expenses to plaintiffs.

On January 4, 2007, the District Court consolidatedthe Initial Lawsuits under the heading In Re Station Casino’s ShareholderLitigation and appointed lead counsel and liason counsel in connectiontherewith.  On January 29, 2007,plaintiff Griffiths filed a motion to vacate the District Court’s orderappointing lead counsel and to establish a briefing schedule on motions toappoint lead plaintiff and lead counsel. A hearing on that motion has been scheduled for March 5, 2007.

On February 14, 2007, the West Palm BeachFirefighters’ Pension Fund filed a purported class and derivative actioncomplaint in District Court against the Company’s Board of Directors, Thomas J.Barrack, Jr., Delise Sartini, Blake Sartini, Colony Capital, ColonyAcquisitions, FCP, Deutsche Bank Trust Company Americas and German AmericanCapital Corporation.  The complaintalleges, among other things, that the Company breached its fiduciary duties andthe remaining defendants aided and abetted the alleged breaches of fiduciaryduty in connection with the proposed transaction.  The complaint seeks, among other relief,class certification of the lawsuit, an injunction against the proposedtransaction unless and until the Company adopts and implements a fair saleprocess, the disclosure of all material information to the Company’sstockholders, the imposition of a constructive trust upon the defendants, andan award of attorneys’ fees and expenses to plaintiffs.

The Company believes that all of the above-referencedactions are without merit and intends to vigorously defend such actions.

**16.Subsequent Events**

*Green Valley Ranch Financing*

On February 16, 2007,Green Valley Ranch entered into a new $830 million credit facility (the “GreenValley Facility”). The Green Valley Facility includes a $550 million first lienterm loan due February 2014, a $250 million second lien term loan due August 2014and a $30 million revolver due February 2012. At the time of close, therevolver was unfunded. Proceeds from the Green Valley Facility were used torepay outstanding borrowings under the previous revolving credit facility andterm loan, as well as an equal distribution to the partners which totaledapproximately $570 million.

*Merger Agreement (unaudited)*

On February 23, 2007, weentered into an Agreement and Plan of Merger (the “Merger Agreement”) withFertitta Colony Partners LLC, a Nevada limited liability company (“FCP”), andFCP Acquisition Sub, a Nevada corporation and a wholly-owned subsidiary of FCP(“Merger Sub”).  Pursuant to the terms ofthe Merger Agreement, Merger Sub will be merged with and into the Company, andas a result the Company will continue as the surviving corporation and as adirect or indirect wholly-owned subsidiary of FCP (the “Merger”).  FCP is owned by FC Investor, LLC, a Delawarelimited liability company and a wholly-owned subsidiary of Colony CapitalAcquisitions, LLC (the “Sponsor”), Frank J. Fertitta III, the Chairman and 

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

**16. Subsequent Events(Continued)**

Chief Executive Officer of the Company, and Lorenzo J.Fertitta, the Vice Chairman and President of the Company.

At the effective time ofthe Merger, each outstanding share of our common stock, including any rightsassociated therewith, other than shares owned by us, FCP and Merger Sub, willbe cancelled and converted into the right to receive $90 in cash, withoutinterest.

Our Board of Directors,acting upon the unanimous recommendation of a special committee comprisedentirely of independent directors (the “Special Committee”), has approved theMerger Agreement and has recommended that our stockholders vote in favor of theMerger Agreement.

Frank J. Fertitta, LorenzoJ. Fertitta, Blake L. Sartini and Delise F. Sartini (the “RolloverStockholders”) have agreed to contribute a portion of their shares of ourCommon Stock to FCP and, subject to specified exceptions, to vote their sharesof Common Stock in favor of the Merger pursuant to a voting agreement enteredinto on February 23, 2007, by and among the Rollover Stockholders, the Companyand FCP. 

The Merger Agreement provides that, upon terminationunder specified circumstances related to a competing acquisition proposal, theCompany would be required to pay a termination fee of $160 million to FCP,except in the case of a termination resulting from a superior proposal receivedwithin 30 business days following the execution of the Merger Agreement, inwhich case the termination fee payable to FCP will be $106 million.  If the Company’s stockholders do not approvethe Merger under certain circumstances, the Company must reimburse FCP forreasonable out-of-pocket fees and expenses (including reasonable legal fees andexpenses) incurred by FCP, Merger Sub and their respective affiliates inconnection with the transactions contemplated by the Merger Agreement.  The Company’s reimbursement of FCP’s expenseswould reduce the amount of any required termination fee that becomes payable bythe Company.  The Merger Agreementfurther provides that upon termination under specified circumstances related toa breach of any representation, warranty, covenant or agreement on the part ofFCP or Merger Sub or failure to obtain gaming approvals, FCP would be requiredto pay to the Company a reverse termination fee of $160 million or a regulatorytermination fee of $106 million, respectively. Pursuant to a limited guarantee, dated as of February 23, 2007,affiliates of the Sponsor guaranteed the payment of the reverse terminationfee, the regulatory termination fee and amounts arising from indemnificationand expense reimbursement obligations of FCP or Merger Sub under the MergerAgreement, up to $175 million in the aggregate. 

FCP has obtained equity and debt financing commitmentsfor the transactions contemplated by the Merger Agreement, the proceeds ofwhich will be used by FCP to pay the aggregate merger consideration and relatedfees and expenses of the transactions contemplated by the Merger Agreement. Inconnection with the debt financing commitments, the Company and certain of itssubsidiaries (the “Operating Subs”) entered into a purchase and sale agreementwith a newly created wholly-owned subsidiary of the Company (“NewCo”), pursuantto which the Operating Subs’ interests in certain real property will be sold toNewCo and leased back to the Company and the Operating Subs (the “Sale andLeaseback Transaction”). The Sale and Leaseback Transaction was approved by theSpecial Committee of the Board of Directors, which obtained a fairness opinionin connection therewith. The closing of the Sale and Leaseback Transaction iscontingent upon the consummation of the Merger. Consummation of the Merger isnot subject to a 

93

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

**16.Subsequent Events (Continued)**

financing condition but issubject to various other conditions to closing, including approval of theMerger by our stockholders and regulatory approvals.  The Merger is expected to be completed by thefourth quarter of 2007.

We are prohibited from making any dividends except fornormal quarterly dividends from operations until the consummation of theMerger.

If the Merger Agreement isconsummated, all stock options under the 2005 Plan and Prior Plans will becomevested and all related unrecognized compensation cost will be recognized duringthe period in which the Merger is consummated.

**17.Quarterly Financial Information (Unaudited)**

| ** **                             | ** ** | **Net  revenues**                                                                  | ** ** | **Operating  income** | ** ** | **Income   before  income  taxes** | ** ** | **Net  income  applicable  to  common  stock** | ** ** | **Diluted  earnings  per  common  share** | ** ** |
|----------------------------------------|------------|------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------------------------|------------|------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                             | ** ** | **(amounts in thousands, except per share amounts)** | ** ** |
| **Year ended December 31,  2006** |       |                                                                               |       |                  |       |                                    |       |                                           |       |                                      |       |   |   |   |   |   |   |
| First quarter (a)                      |       | $                                                                                  | 292,470    |                  |       | $                                       | 79,102     |                                           |       | $                                         | 65,641     |   |   | $ | 41,122 |   |   |   | $ | 0.62 |   |   |
| Second quarter (b)                     |       | 341,791                                                                            |       |                  | 76,588     |                                    |       | 43,680                                         |       |                                      | 26,793     |   |   |   | 0.44 |   |   |
| Third quarter                          |       | 345,968                                                                            |       |                  | 76,983     |                                    |       | 32,036                                         |       |                                      | 19,229     |   |   |   | 0.34 |   |   |
| Fourth quarter (c)                     |       | 358,795                                                                            |       |                  | 83,462     |                                    |       | 38,095                                         |       |                                      | 23,068     |   |   |   | 0.41 |   |   |
| **Year ended December 31,  2005** |       |                                                                               |       |                  |       |                                    |       |                                           |       |                                      |       |   |   |   |   |   |   |
| First quarter (d)                      |       | $                                                                                  | 273,460    |                  |       | $                                       | 74,639     |                                           |       | $                                         | 64,001     |   |   | $ | 40,640 |   |   |   | $ | 0.59 |   |   |
| Second quarter (e)                     |       | 273,968                                                                            |       |                  | 76,774     |                                    |       | 64,458                                         |       |                                      | 40,609     |   |   |   | 0.58 |   |   |
| Third quarter (f)                      |       | 276,337                                                                            |       |                  | 75,424     |                                    |       | 61,841                                         |       |                                      | 38,960     |   |   |   | 0.56 |   |   |
| Fourth quarter (g)                     |       | 285,068                                                                            |       |                  | 79,108     |                                    |       | 65,927                                         |       |                                      | 41,677     |   |   |   | 0.61 |   |   |

 

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(a)           Includes preopening expense ofapproximately $14.1 million and lease terminations of approximately $0.5million.

(b)           Includes preopening expense ofapproximately $13.6 million.

(c)            Includes preopening expense ofapproximately $2.0 million and lease terminations of approximately $0.6million.

(d)          Includes preopening expense ofapproximately $0.6 million, lease terminations of approximately $8.1 millionand loss on early retirement of debt of approximately $0.7 million.

(e)           Includes preopening expense ofapproximately $1.2 million and lease terminations of approximately $3.6million.

(f)             Includes preopening expense ofapproximately $1.7 million and loss on early retirement of debt of approximately$0.6 million.

(g)           Includes preopening expense of approximately $3.1million and lease terminations of approximately $3.0 million.

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

None.

**ITEM 9A.**        CONTROLSAND PROCEDURES

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

*Management’s Reporton Internal Control Over Financial Reporting*

The management of the Company is responsible forestablishing and maintaining adequate internal control over financialreporting. The Company’s internal control system was designed to providereasonable assurance to the Company’s management and board of directorsregarding the preparation and fair presentation of published financialstatements.

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

Management assessed the effectiveness of the company’sinternal control over financial reporting as of December 31, 2006. Inmaking this assessment, it used the criteria set forth by the Committee ofSponsoring Organizations of the Treadway Commission (COSO) in *Internal Control—Integrated Framework*. Based on ourassessment we believe that, as of December 31, 2006, the Company’sinternal control over financial reporting is effective based on those criteria.

The Company’s independentauditors have issued an audit report on our assessment of the company’sinternal control over financial reporting. This report appears on page 58.

**ITEM 9B. OTHERINFORMATION**

None.

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**PART III**

**ITEM 10.**         DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

There is incorporated byreference the information appearing in the section entitled “Directors,Executive Officers and Corporate Governance” in the Registrant’s definitiveProxy Statement to be made publicly available with the Securities and ExchangeCommission.

**ITEM 11.**         EXECUTIVECOMPENSATION

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

**ITEM 12.**         SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS

There is incorporated byreference the information appearing in the section entitled “Security Ownershipof Certain Beneficial Owners and Management and Related Stockholder Matters” inthe Registrant’s definitive Proxy Statement to be made publicly available withthe Securities and Exchange Commission.

**ITEM 13.**         CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

There is incorporated byreference the information appearing in the sections entitled “CertainRelationships and Related Transactions, and Director Independence” in theRegistrant’s definitive Proxy Statement to be made publicly available with theSecurities and Exchange Commission.

**ITEM 14.**         PRINCIPALACCOUNTING FEES AND SERVICES

There is incorporated byreference the information appearing in the section entitled “PrincipalAccounting Fees and Services” in the Registrant’s definitive Proxy Statement tobe made publicly available with the Securities and Exchange Commission.

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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 31,2006 and 2005

Years Ended December 31, 2006, 2005 and 2004

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** |
|------------------|------------|-----------------|
| 2                | .1         |            | Agreement and Plan of Merger, dated February 23,  2007, by and among Station Casinos, Inc., Fertitta Colony Partners LLC and  FCP Acquisition Sub. (Incorporated herein by reference to the Company’s Form  8-K dated February 23, 2007) |
| 2                | .2         |            | Voting Agreement, dated February 23, 2007, by and  among Station Casinos, Inc., Fertitta Colony Partners LLC and Rollover  Stockholders. (Incorporated herein by reference to the Company’s Form 8-K  dated February 23, 2007) |
| 2                | .3         |            | Purchase and Sale Agreement, dated February 23,  2007, by and among NewCo and Operating Subs. (Incorporated herein by  reference to the Company’s Form 8-K dated February 23, 2007) |
| 2                | .4         |            | Limited Guarantee, dated February 23, 2007, from  Colony to Station Casinos, Inc. (Incorporated herein by reference to the  Company’s Form 8-K dated February 23, 2007) |
| 2                | .5         |            | Amendment to Rights Agreement, dated February 23,  2007, by and among Station Casinos, Inc. and Continental. (Incorporated  herein by reference to the Company’s Form 8-K dated February 23, 2007) |
| 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) |

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| 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  |   | Form of 65¤8%  Subordinated Notes of the Registrant (March 2006 Issue). (Included in  Exhibit 4.8 which is incorporated herein by reference to the Company’s  Quarterly Report of Form 10-Q for the period ended March 31,  2006)                             |
| 4  | .8  |   | Indenture dated as of  March 13, 2006 between the Registrant and Law Debenture Trust Company of  New York as Trustee. (Incorporated herein by reference to the Company’s  Quarterly Report on Form 10-Q for the period ended March 31,  2006)                                |
| 4  | .9  |   | Form of 73⁄4% Senior  Notes of the Registrant (August 2006 Issue). (Included in  Exhibit 4.10 which is incorporated herein by reference to the Company’s  Form 8-K dated August 2, 2006)                                                                        |
| 4  | .10 |   | Indenture dated as of  August 1, 2006 between the Registrant and Law Debenture Trust Company of  New York as Trustee. (Included in Exhibit 4.10 which is incorporated  herein by reference to the Company’s Form 8-K dated August 2,  2006)                             |
| 4  | .11 |   | 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. | 12  |   | Amendment No. 1 to  the Third Amended and Restated Loan Agreement. (Incorporated herein by  reference to the Company’s Form 8-K dated June 28, 2006)                                                                                                                         |
| 4. | 13  |   | Amendment No. 2 to  the Third Amended and Restated Loan Agreement. (Incorporated herein by  reference to the Company’s Form 8-K dated September 26, 2006)                                                                                                                    |
| 4  | .14 |   | Rights Agreement dated  October 6, 1997 between the Company and Continental Stock Transfer and  Trust Company, as Rights Agent. (Incorporated herein by reference to the  Company’s Form 8-K dated October 9, 1997)                                                          |
| 4  | .15 |   | 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  | .16 |   | 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)                                        |

98

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| 10 | .5  |   | Lease Amendment  No. 1, dated December 23, 1996 between Boulder Station, Inc.  and KB Enterprises. (Incorporated herein by reference to the Company’s Annual  Report on Form 10-K for the period ended December 31, 2005)                                                  |
|----|-----|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10 | .6  |   | Second Amendment to  Ground Lease and Sublease, dated January 7, 1997, by and between KB  Enterprises, as landlord and Boulder Station, Inc. (Incorporated herein  by reference to the Company’s Annual Report on Form 10-K for the  period ended December 31, 2005)            |
| 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. (Incorporated herein by reference  to the Company’s Annual Report on Form 10-K for the period ended  December 31, 2005)                                 |
| 10 | .11 |   | Second Amendment to  Ground Lease, dated January 7, 1997, by and between Texas Gambling  Hall & Hotel, Inc. as landlord and Registrant. (Incorporated  herein by reference to the Company’s Annual Report on Form 10-K  for the period ended December 31, 2005)        |
| 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)                                                              |
| 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)                               |

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| 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)    |
| 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)                                                                                    |

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| 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)                                                                                               |
| 10 | .41 |   | Operating Agreement  dated December 16, 2005, among Aliante Holding, LLC, G.C. Aliante, LLC and  Aliante Station, LLC, a wholly-owned subsidiary of the Registrant.                                                                                                                                                                                                                      |
| 10 | .42 |   | Amended and Restated  Operating Agreement of Aliante Gaming, LLC dated January 6, 2006 among  Aliante Gaming, LLC, a wholly-owned subsidiary of the Registrant, Aliante  Holding, LLC and Aliante Station, LLC.                                                                                                                                                                          |
| 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

101

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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: February 28, 2007 | By:                   | /s/ FRANK J. FERTITTA III |
|                          | * *              | Frank J. Fertitta  III*Chairman of the Board and Chief Executive  Officer (Principal Executive Officer)* |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the Registrant and in the capacities and on the datesindicated.

|                                    | **Signature** | ** **                                                                                         | ** ** | ** **             | **Title** | ** ** | ** ** | ** ** | **Date** | ** ** |
|------------------------------------|---------------|----------------------------------------------------------------------------------------------------|------------|------------------------|-----------|------------|------------|------------|----------|------------|
|                               |          |                                                                                               |       |                   |
| /s/ Frank  J. Fertitta III         |          | Chairman of the Board  and Chief Executive                                                         |       | February 28, 2007 |
| Frank  J. Fertitta III             |          | Officer (Principal Executive Officer)                                                              |       |                   |
|                               |          |                                                                                               |       |                   |
| /s/ Lorenzo  J. Fertitta           |          | Vice Chairman, President  and Director                                                             |       | February 28, 2007 |
| Lorenzo  J. Fertitta               |          |                                                                                               |       |                   |
|                               |          |                                                                                               |       |                   |
| /s/ Glenn  C. Christenson          |          | Executive Vice  President, Chief Financial                                                         |       | February 28, 2007 |
| Glenn  C. Christenson              |          | Officer, Chief  Administrative Officer and Treasurer (Principal Financial and Accounting  Officer) |       |                   |
|                               |          |                                                                                               |       |                   |
| /s/ Lowell  H. Lebermann, Jr. |          | Director                                                                                           |       | February 28, 2007 |
| Lowell  H. Lebermann, Jr.     |          |                                                                                               |       |                   |
|                               |          |                                                                                               |       |                   |
| /s/ James  E. Nave                 |          | Director                                                                                           |       | February 28, 2007 |
| James  E. Nave                     |          |                                                                                               |       |                   |
|                               |          |                                                                                               |       |                   |
| /s/ Lee  S. Isgur                  |          | Director                                                                                           |       | February 28, 2007 |
| Lee  S. Isgur                      |          |                                                                                               |       |                   |
|                               |          |                                                                                               |       |                   |
| /s/ Robert  E. Lewis               |          | Director                                                                                           |       | February 28, 2007 |
| Robert E. Lewis                    |          |                                                                                               |       |                   |

 

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