UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549



FORM 10-K/A
Amendment No. 2

(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934for the fiscal year ended December 31, 2007ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934for the transition period from
 to
.


Commission file number 000-21640



STATION CASINOS, INC.(Exact name of registrant as specified in its charter)

Nevada(State or other jurisdiction of
incorporation or organization)

88-0136443(I.R.S. Employer
Identification No.)1505 South Pavilion Center Drive, Las Vegas, Nevada 89135(Address of principal executive offices, Zip Code)


Registrant's telephone number, including area code:(702) 495-3000

Securities
registered pursuant to Section 12(b) of the Act:None

Securities
registered pursuant to Section 12(g) of the Act:Common Stock, $0.01 par value

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
the Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý

Accelerated filer oNon-accelerated filer o
(Do not check if a smaller reporting company)

Smaller reporting company o


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

The aggregate market value of the voting stock held by non-affiliates (all persons other than executive officers or directors) of the registrant as of
June 29, 2007, the last trading day of the registrant's second quarter, based on the closing price per share of $86.80 as reported on the New York Stock Exchange was $3,833,703,499.

There
is no established public trading market for any of the common stock of the registrant as of November 7, 2007.

Documents Incorporated by Reference

None



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Explanatory Note

The registrant filed with the Securities and Exchange Commission (the "SEC") (i) an Annual Report on Form 10-K for the
year ended December 31, 2007 on March 5, 2008 (the "Initially Filed Form 10-K"), and (ii) an Amendment No. 1 on Form 10-K/A to the Initially Filed
Form 10-K on April 28, 2008 ("Amendment No. 1"). The registrant is filing this Amendment No. 2 on Form 10-K/A to amend and restate the following from Part II
of the Initially Filed Form 10-K ("Part II"):



We
are amending and restating Part II to recognize the acquisition of an interest rate swap, with an approximate fair value of $42.7 million, associated with
$1.36 billion of the Company's CMBS Loans, from Fertitta Colony Partners and eliminate the hedge accounting treatment related to such interest rate swap.

In
addition, as required by Rule 12b-5 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), new certifications by our principal executive officer and
principal financial officer are being filed or furnished as exhibits to this Amendment No. 2 on Form 10-K/A under Item 15 of Part IV hereof.

---





PART II

ITEM 6.    SELECTED FINANCIAL DATA (Restated)

The selected consolidated financial data presented below for the successor period from November 8, 2007 through
December 31, 2007 (the "Successor Period") and the period then ended, the predecessor period from January 1, 2007 through November 7, 2007 (the "Predecessor Period"), and as of
and for the fiscal years ended December 31, 2006, 2005, 2004, and 2003 have been derived from our consolidated financial statements which, except for 2004 and 2003, are contained elsewhere in
this Annual Report on Form 10-K/A. The selected consolidated financial data set forth below are qualified in their entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements, the notes thereto and other financial and statistical information included
elsewhere in this Annual Report on Form 10-K/A.

Successor

PredecessorPeriod from
November 8, 2007
Through
December 31,
2007

Period from
January 1, 2007
Through
November 7,
2007For the Year Ended December 31,2006(b)

2005

2004(c)

2003(d)As Restated(a)
(in thousands)

(in thousands)Operating Results:Net revenues

$
209,711

$
1,237,284

$
1,339,024

$
1,108,833

$
986,742

$
858,089Operating costs and expenses, excluding the following items (e):


461,661


937,745


980,813


772,927


721,957


655,844Development (f)


1,294


7,068


9,036


8,747


10,683


4,306Preopening (g)


251


1,880


29,461


6,560


848


Merger transaction costs (h)





156,500


2,526








Impairment loss (i)





16,631











18,868Management agreement/lease terminations (j)





3,825


1,053


14,654





Litigation settlement (k)

















38,000Operating (loss) income


(253,495
)

113,635


316,135


305,945


253,254


141,071Earnings from joint ventures


5,875


34,247


41,854


38,281


26,328


20,604Operating (loss) income and earnings from joint ventures


(247,620
)

147,882


357,989


344,226


279,582


161,675Loss on early retirement of debt (l)


(20,311
)







(1,278
)

(93,265
)

Change in fair value of derivative instrument (m)


(30,686
)













Interest expense, net


(66,019
)

(220,873
)

(178,537
)

(86,721
)

(81,088
)

(93,498
)(Loss) income before income taxes


(364,636
)

(72,991
)

179,452


256,227


105,229


68,177Income tax benefit (provision)


26,736


15,335


(69,240
)

(94,341
)

(38,879
)

(23,834
)Net (loss) income

$
(337,900
)
$
(57,656
)
$
110,212

$
161,886

$
66,350

$
44,343Balance Sheet Data:Total assets

$
8,988,666




$
3,716,696

$
2,929,043

$
2,045,584

$
1,745,972Long-term debt


5,171,149





3,468,828


1,944,328


1,338,213


1,168,957Stockholders' equity (deficit)


2,571,062





(186,858
)

630,814


488,921


339,939


1

---



---

2

---





ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Restated)

On November 7, 2007, the Company completed its merger (the "Merger") with FCP Acquisition Sub, a Nevada corporation ("Merger
Sub"), pursuant to which Merger Sub merged with and into the Company with the Company continuing as the surviving corporation. The Merger was completed pursuant to the Agreement and Plan of Merger
(the "Merger Agreement"), dated as of February 23, 2007 and amended as of May 4, 2007, among the Company, Fertitta Colony Partners LLC, a Nevada limited liability company ("FCP"),
and Merger Sub, as amended. By going private, the Merger provides the Company with greater operating flexibility, allowing management to concentrate on long-term growth, reduce its focus
on the quarter-to-quarter performance often emphasized by the public markets and pursue alternatives.

As
a result of the Merger, 24.1% of the issued and outstanding shares of non-voting common stock of the Company are owned by Fertitta Partners LLC, a Nevada limited
liability company ("Fertitta Partners"), which is owned by affiliates of Frank J. Fertitta III, Chairman and Chief Executive Officer of Station, affiliates of Lorenzo J. Fertitta, Vice Chairman and
President of Station, affiliates of Blake L. Sartini and Delise F. Sartini, and certain officers and other members of management of the Company. The remaining 75.9% of the issued and outstanding
shares of non-voting common stock of the Company are owned by FCP Holding, Inc., a Nevada
corporation ("FCP HoldCo") and a wholly-owned subsidiary of FCP. FCP is owned by an affiliate of Colony Capital, LLC ("Colony") and affiliates of Frank J. Fertitta III and Lorenzo J.
Fertitta. Substantially simultaneously with the consummation of the Merger, shares of voting common stock of Station were issued for nominal consideration to FCP VoteCo LLC, a Nevada limited
liability company ("FCP VoteCo"), which is owned equally by Frank J. Fertitta III, Lorenzo J. Fertitta and Thomas J. Barrack, Jr., Chairman and Chief Executive Officer of Colony.

At
the effective time of the Merger, each outstanding share of our common stock, including any rights associated therewith (other than shares of our common stock owned by FCP, Merger
Sub, FCP HoldCo, Fertitta Partners or any wholly-owned subsidiary of the Company or shares of our common stock held in treasury by us) was cancelled and converted into the right to receive $90 in
cash, without interest. Following the consummation of the Merger, the Company is privately owned through FCP HoldCo, Fertitta Partners and FCP VoteCo. Station common stock ceased trading on the New
York Stock Exchange at market close on November 7, 2007, and will no longer be listed on any exchange or quotation system. The Company's voting common stock is registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended.

The
Merger resulted in a greater than 50% change in control of the Company and was a "business combination" for accounting purposes, requiring that FCP, Fertitta Partners, FCP VoteCo and
their respective owners (the "Investors"), pursuant to Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", record the acquired assets and assumed liabilities
at their fair market values as of the acquisition date, resulting in a new basis of accounting. As a result of the Securities and Exchange Commission's rules and guidance regarding
"push-down" accounting, the Investors' new accounting basis in our assets and liabilities is reflected in our consolidated financial statements to the extent that the Investors paid cash
for the non-voting stock of the Company as of the consummation of the Merger. The accompanying consolidated statements of operations, stockholders' equity (deficit) and cash flows for 2007
are presented for two periods: January 1, 2007 through November 7, 2007 (the "Predecessor Period") and November 8, 2007 through December 31, 2007 (the "Successor Period").
The Predecessor Period reflects the historical accounting basis in our assets and liabilities, while the Successor Period reflects the push down of the Investors' new basis to our consolidated
financial statements.

The
following discussion and analysis should be read in conjunction with "Selected Financial Data" and the consolidated financial statements and notes thereto included elsewhere in this
Annual Report on Form 10-K/A.

3

---



Results of Operations (Restated)

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

Successor

Predecessor

2007
Combined (a)



PredecessorPeriod from
November 8,
2007 Through
December 31,
2007

Period from
January 1,
2007 Through
November 7,
2007

Year ended
December 31,
2007

Percent
change

Year ended
December 31,
2006

Percent
change

Year ended
December 31,
2005Net revenuestotal

$
209,711

$
1,237,284

$
1,446,995


8.1
%
$
1,339,024


20.8
%
$
1,108,833Major Las Vegas Operations (b)


192,489


1,117,190


1,309,679


10.1
%

1,189,099


22.8
%

968,017Management fees (c)


9,708


78,077


87,785


(11.8
)%

99,485


4.6
%

95,144Other Operations and Corporate (d)


7,514


42,017


49,531


(1.8
)%

50,440


10.4
%

45,672Operating (loss) incometotal

$
(253,495
)
$
113,635

$
(139,860
)

(144.2
)%
$
316,135


3.3
%
$
305,945Major Las Vegas Operations (b)


39,793


264,413


304,206


4.6
%

290,924


(4.1
)%

303,383Management fees (c)


9,708


78,077


87,785


(11.8
)%

99,485


4.6
%

95,144Other Operations and Corporate (d)


(302,996
)

(228,855
)

(531,851
)

(616.1
)%

(74,274
)

19.8
%

(92,582
)Cash flows provided by (used in):Operating activities

$
18,689

$
273,473

$
292,162


(0.4
)%
$
293,373


(22.2
)%
$
376,891Investing activities


(4,323,965
)

(530,418
)

(4,854,383
)

(480.5
)%

(836,261
)

5.5
%

(885,327
)Financing activities


4,302,933


238,782


4,541,715


690.9
%

574,234


9.3
%

525,571


---



Consolidated net revenues for 2007 Combined increased 8.1% to $1.45 billion as compared to $1.34 billion for the year
ended December 31, 2006. Year over year net revenues increased primarily due to revenue increases at our Major Las Vegas Operations, which were offset by decreased management fees.

Combined
net revenues from our Major Las Vegas Operations increased 10.1% to $1.31 billion for 2007 Combined as compared to $1.19 billion for the year ended
December 31, 2006. The increase is a result of a full year of operations at Red Rock, which opened on April 18, 2006, the completion of the phase II master-planned expansion at
Red Rock in December 2006, which included an additional 400 rooms, the completion of the phase III expansion at Red Rock in April 2007, which included a 72-lane bowling center, as
well as the completion of expansions at Santa Fe Station in December 2006 and Fiesta Henderson in August 2006, offset by decreases at several of our other Major Las Vegas Operations due to

4

---



a
weakened economy. Combined net revenues from our Major Las Vegas Operations, excluding Red Rock, decreased approximately 1% during 2007 Combined as compared to the year ended December 31,
2006.

Consolidated
net revenues for the year ended December 31, 2006 increased 20.8% to $1.34 billion as compared to $1.11 billion for the year ended December 31,
2005. Year over year net revenues increased primarily due to the opening of Red Rock on April 18, 2006. Combined net revenue from our Major Las Vegas Operations increased 22.8% to
$1.19 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 our Major Las Vegas Operations, excluding Red Rock, remained virtually unchanged for the year ended December 31, 2006 as compared to the year ended December 31,
2005.



Consolidated operating income decreased significantly in 2007 Combined as compared to the year ended December 31, 2006. The
decrease is primarily a result of $156.5 million in merger transaction costs incurred during 2007 Combined related to the Merger described above, as compared to $2.5 million during the
year ended December 31, 2006. 2007 Combined was also impacted
by $288.1 million of share-based compensation expense related to equity-based awards granted upon the consummation of the Merger and a $16.6 million impairment loss. In addition,
operating income for the year ended December 31, 2006 was impacted by $29.5 million of preopening expenses as compared to $2.1 million during 2007 Combined. Excluding these items,
operating income for 2007 Combined decreased approximately 7.1% while operating margin decreased 3.6 percentage points, as compared to the year ended December 31, 2006. These decreases
are primarily related to increased operating and depreciation expenses at Red Rock, Fiesta Henderson and Santa Fe Station related to the recent expansions, the addition of amortization expense related
to definite-lived intangible assets recorded in conjunction with the Merger and a decrease in gaming revenues at several of our other Major Las Vegas Operations due to a weakened economy, offset by
improving operating margins at Red Rock.

Consolidated
operating income increased 3.3% in the year 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 same periods. The increase in the consolidated operating income is a result of increased consolidated net revenues as noted above offset by operating expenses for 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. The decrease in operating
margin was the result of lower operating margins at Red Rock.



Effective January 1, 2006, we adopted SFAS 123R, "Share-Based Payment", utilizing the modified prospective application.
Under the modified prospective application, SFAS 123R applies to new awards and awards that were outstanding 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 and subsequent periods includes compensation cost of 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 the original provisions of SFAS 123 and
compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of
SFAS 123R. Accordingly, prior period amounts are not restated to reflect the impact of adopting SFAS 123R under the modified prospective application.

The
recognition of compensation expense related to the issuance of restricted stock did not change with the adoption of SFAS 123R, except for the addition of the estimate of
forfeitures, and such compensation expense continued to be expensed in the consolidated statements of operations. During the year ended December 31, 2006, income before income tax and net
income were reduced by approximately $2.2 million and $1.4 million, respectively, as a result of adopting SFAS 123R.

5

---



The
following table highlights our various sources of revenues and expenses as compared to prior years (dollars in thousands):

Successor

Predecessor

2007 Combined (a)



PredecessorPeriod from
November 8,
2007 Through
December 31,
2007

Period from
January 1,
2007 Through
November 7,
2007

Year ended
December 31,
2007

Percent
change

Year ended
December 31,
2006

Percent
change

Year ended
December 31,
2005Casino revenues

$
151,867

$
879,097

$
1,030,964


6.4
%
$
969,147


17.3
%
$
825,995Casino expenses


60,946


331,009


391,955


12.4
%

348,659


21.7
%

286,503Margin








62.0
%




64.0
%




65.3
%Food and beverage revenues

$
37,885

$
210,698

$
248,583


17.5
%
$
211,579


44.2
%
$
146,774Food and beverage expenses


27,236


149,998


177,234


16.4
%

152,300


47.9
%

102,970Margin








28.7
%




28.0
%




29.8
%Room revenues

$
14,926

$
97,514

$
112,440


36.4
%
$
82,431


34.6
%
$
61,238Room expenses


5,548


32,103


37,651


25.7
%

29,962


42.0
%

21,094Margin








66.5
%




63.7
%




65.6
%Other revenues

$
12,543

$
64,800

$
77,343


10.1
%
$
70,245


33.7
%
$
52,550Other expenses


4,363


24,586


28,949


10.3
%

26,244


47.4
%

17,799Selling, general and administrative expenses

$
37,567

$
217,596

$
255,163


10.8
%
$
230,278


26.8
%
$
181,670Percent of net revenues








17.6
%




17.2
%




16.4
%Corporate expense

$
292,955

$
47,541

$
340,496


462.4
%
$
60,540


5.1
%
$
57,619Percent of net revenues








23.5
%




4.5
%




5.2
%Earnings from joint ventures

$
5,875

$
34,247

$
40,122


(4.1
)%
$
41,854


9.3
%
$
38,281


---

Casino.Casino revenues increased 6.4% for 2007 Combined as compared to the year ended December 31, 2006, due to the same factors affecting the combined net
revenues for our Major Las Vegas Operations noted above. Casino expenses increased 12.4% over the same period primarily due to a full year of operations at Red Rock, which includes approximately 3,000
slot machines and 60 table games, the completion of the phase II master-planned expansion at Santa Fe Station in December 2006, which included 400 additional slot machines and a remodeled and
expanded race and sports book, and to a lesser extent, completion of the phase II master-planned expansion at Fiesta Henderson in August 2006, which included an additional 350 slot machines and
a remodeled and expanded sports book.

Casino
revenues and expenses increased 17.3% and 21.7%, respectively, for the year ended December 31, 2006 as compared to the year ended December 31, 2005. The increase in
casino revenues and casino expenses was primarily due to the opening of Red Rock in April 2006. Red Rock opened with approximately 3,200 slots machines and 60 table games.

Food and Beverage.Food and beverage revenues increased 17.5% for 2007 Combined as compared to the year ended December 31, 2006, due to a full year of
operations at Red Rock, which included the addition of nine restaurants at opening, and the addition of an Asian-themed full service restaurant at Red Rock in July 2007, as well as the completion of a
500-seat Feast Buffet and a 200-seat barbeque restaurant

6

---



at
Santa Fe Station in December 2006 and April 2007, respectively. Food covers increased 6.3% for 2007 Combined as compared to the year ended December 31, 2006, primarily due to the opening of
the additional restaurants noted above. The average guest check increased 6.0% for 2007 Combined as compared to the year ended December 31, 2006, primarily due to increases in select menu
prices and the addition of the Feast Buffet and barbeque restaurant at Santa Fe Station. Food and beverage expenses increased 16.4% for 2007 Combined as compared to the year ended December 31,
2006, due to the same factors affecting food and beverage revenue discussed above. Food and beverage net operating margin increased 0.7 percentage points for the same period due to improved
operating results at Red Rock offset by lower than normal operating margins experienced at Santa Fe Station due to the recent opening of the Feast Buffet in December 2006 and the barbeque restaurant
in April 2007.

Food
and beverage revenues increased 44.2% for the year ended December 31, 2006 as compared to the year ended December 31, 2005, as a result of the opening of Red Rock in
April 2006. Food covers increased 20.6% and average guest check increased 14.8% for the year ended December 31, 2006 as compared to the year ended December 31, 2005. Food and beverage
expenses increased 47.9% primarily due to the opening of Red Rock as noted above.

Room.Room revenues increased 36.4% for 2007 Combined as compared to the year ended December 31, 2006. Room expenses increased 25.7% for 2007 Combined as
compared to the year ended December 31, 2006. The increase in both room revenue and expense is primarily due to the opening of Red Rock in April 2006 with over 400 rooms and the opening of over
400 additional rooms at Red Rock in December 2006. Room operating margin for 2007 Combined increased 2.8 percentage points over the year ended December 31, 2006 due primarily to Red Rock
as noted above. Room occupancy decreased to 90% for 2007 Combined from 95% for the year ended December 31, 2006. The average daily room rate increased to $93 for 2007 Combined from $73 for the
year ended December 31, 2006, primarily due to increased room rates at our Major Las Vegas Operations, including an increase of Red Rock's average daily room rate to $180 for 2007 Combined from
$169 for the year ended December 31, 2006.

Room
revenues increased 34.6% for the year ended December 31, 2006 as compared to the year ended December 31, 2005. Room expenses increased 42.0% for the year 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 400 hotel rooms. Room occupancy was 95% for the
year ended December 31, 2006, as compared to 96% for the year ended December 31, 2005. The average daily 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 average daily room rate of $169 for the year ended December 31, 2006 at Red Rock.

Other.Other revenues primarily include income from gift shops, bowling, entertainment, leased outlets and the spa. Other revenues increased 10.1% for 2007
Combined as compared to the year ended December 31, 2006. The increase in other revenues is primarily due to the opening of Red Rock in April 2006 with a full-service spa and
several leased outlets including a 16-screen movie theater complex and the opening of a 72-lane bowling center in April 2007.

Other
revenues increased 33.7% for the year ended December 31, 2006 as compared to the year ended December 31, 2005. The increase in other revenues is primarily due to the
opening of Red Rock with the amenities noted above.

Management Fees.We manage Thunder Valley on behalf of the United Auburn Indian Community (the "UAIC") and receive a management fee equal to 24% of net income (as
defined in the management agreement). In addition, we are the managing partner for Green Valley Ranch, Barley's, The Greens and Renata's 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% of EBITDA from Barley's, The Greens and Renata's. For 2007 Combined,
management fees decreased to $87.8 million as compared to $99.5 million for the year ended December 31, 2006 primarily due to our portion of expenses at Thunder Valley related to
litigation and California Compact Referendum laws of

7

---



approximately
$3.1 million. Management fees increased to $99.5 million for the year ended December 31, 2006 as compared to $95.1 million for the year ended
December 31, 2005 primarily due to improved results at both Green Valley Ranch and Thunder Valley.

Selling, General and Administrative ("SG&A").SG&A expenses increased 10.8% for 2007 Combined as
compared to the year ended December 31, 2006, primarily due to the opening of Red Rock in April 2006 and the recently completed expansions at Red Rock, Santa Fe Station and Fiesta Henderson.
SG&A as a percentage of net revenues increased to 17.6% in 2007 Combined as compared to 17.2% in the year ended December 31, 2006.

SG&A
as a percentage 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&A expenses
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. The increase is primarily related to
the opening of Red Rock in April 2006.

Corporate Expense.Corporate expenses increased to approximately $340.5 million for 2007 Combined as compared to approximately $60.5 million for the
year ended December 31, 2006. The increase is primarily due to $287.1 million of share-based compensation expense related to equity-based awards granted upon the consummation of the
Merger, which was offset by a reduction in corporate incentive compensation.

Corporate
expense increased to approximately $60.5 million for the year ended December 31, 2006 as compared to approximately $57.6 million for the year ended
December 31, 2005. The increase is primarily due to stock option expense as a result of adopting SFAS 123R (see "Share-Based Compensation"), and additional restricted stock awards offset
by lower cash bonuses.

Development Expense.Development expense includes costs to identify potential gaming opportunities, the internal costs incurred to bring the Native American
projects currently under contract to fruition and other development opportunities, which include payroll, travel and legal expenses. Development expenses for 2007 Combined and the years ended
December 31, 2006 and 2005 were $8.4 million, $9.0 million and $8.7 million, respectively.

Depreciation and Amortization.Depreciation and amortization increased 28.8% to approximately $168.8 million for 2007 Combined as compared to
$131.1 million for the year ended December 31, 2006. This increase was due primarily to additional depreciation expense from the opening of Red Rock in April 2006, as well as the
completion of recent expansions at Red Rock, Santa Fe Station and Fiesta Henderson and the completion of the corporate office building in September 2007. In addition, we recorded approximately
$799.1 million in definite-lived intangible assets in connection with the Merger which are subject to amortization. Amortization expense of approximately $11.3 million associated with
these intangibles was recorded during 2007 Combined.

Depreciation
increased 29.3% to approximately $131.1 million for the year ended December 31, 2006 as compared to $101.4 million for the year ended
December 31, 2005. This increase was due primarily to the opening of Red Rock in April 2006, the completion of portions of the phase II master-planned expansion at Fiesta Henderson in
August 2006 and the remodel of the buffet at Sunset Station in December 2005.

Preopening Expense.We incurred preopening expenses of approximately $2.1 million, $29.5 million and $6.6 million during 2007 Combined and the
years ended December 31, 2006 and 2005, respectively. Preopening expenses incurred during 2007 Combined were primarily related to projects under development. Preopening expenses incurred during
the years ended December 31, 2006 and 2005 were primarily related to the development of Red Rock which opened in April 2006.

8

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Merger Transaction Costs.During 2007 Combined, the Company recorded approximately $156.5 million in costs related to the Merger. These costs include
approximately $31.6 million of accounting, investment banking, legal and other costs associated with the Merger and $124.9 million of expense related to the accelerated vesting and
buyout of employee stock options and restricted stock awards upon consummation of the Merger.

Impairment Loss.During 2007 Combined, we recorded an impairment loss of approximately $16.6 million. Included in the impairment loss is $8.0 million
related to the impairment of goodwill at Magic Star and Gold Rush as a result of a recent third-party business valuation and $8.6 million related to the write-down of the corporate
office building prior to its sale-leaseback transaction.

Management agreement/lease terminations.During 2007 Combined, we incurred approximately $3.8 million in management agreement/lease termination expense
primarily due to the termination of the management agreement related to Cherry nightclub at Red Rock. During the years 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 to the current Wild Wild West property.

Earnings From Joint Ventures.We own a 50% interest in various joint ventures including Green Valley Ranch, and a 6.7% interest in a joint venture that owns the
Palms Casino Resort. We recorded our share of the earnings from these joint ventures of $40.1 million, $41.9 million and $38.3 million for 2007 Combined and the years ended
December 31, 2006 and 2005, respectively. The decrease in our share of earnings from joint ventures in 2007 Combined as compared to the year ended December 31, 2006 is primarily the
result of our 50% portion of costs related to terminating a management agreement and a lease agreement at Green Valley Ranch of approximately $1.9 million. The increase in earnings from joint
ventures for the year ended December 31, 2006 as compared to the year ended December 31, 2005 is primarily due to improved results at Green Valley Ranch as a result of the completion of
various portions of the phase III master-planned expansion in October 2006.

Interest Expense.Interest expense, net of capitalized interest, increased 50.6% to $258.6 million in 2007 Combined as compared to $171.7 million in
the year ended December 31, 2006. Gross interest expense increased approximately $75.1 million due to an increase in our long-term debt of approximately $1.8 billion
in 2007 Combined, and an increase in the weighted average cost of debt to 7.1% from 6.7% for 2007 Combined and the year ended December 31, 2006, respectively. Capitalized interest decreased
approximately $10.2 million for 2007 Combined primarily due to the completion of Red Rock in April 2006. In conjunction with the Merger, we incurred significant indebtedness at increased
interest rates and as such we expect interest expense to be higher in future periods.

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

Interest and Other Expense from Joint Ventures.For 2007 Combined and the years ended December 31, 2006 and 2005, we recorded $28.2 million,
$6.8 million and $6.3 million, respectively, in interest and other expense related to our unconsolidated joint ventures. The increase in expense during 2007 Combined as compared to the
prior periods is due to the new $830 million credit facility at Green Valley Ranch entered into on February 16, 2007, which resulted in an increase in debt of approximately
$582.8 million in the year ended December 31, 2007, as well as an $0.8 million charge for a loss on early retirement of debt related to the prior credit facility.

9

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Change in Fair Value of Derivative Instrument.During the Successor Period, we recorded a loss of $30.7 million for the change in fair value of our
$1.36 billion notional amount interest rate swap not designated as a hedge for accounting purposes. There was no such loss in prior periods.

Loss on Early Retirement of Debt.During 2007 Combined, in conjunction with the Merger, we terminated our then existing revolving facility resulting in a loss on
early retirement of debt of $20.3 million, which includes the write-off of unamortized loan costs as well as costs to terminate our then existing interest rate swaps.

During
2005, we redeemed the remaining $16.9 million of outstanding 83/8% senior notes due 2008 and $17.4 million of outstanding 97/8% senior
subordinated notes due 2010. As a result of these redemptions, we recorded a loss on early retirement of debt of approximately $1.3 million to reflect the write-off of the
unamortized loan costs, unamortized discount and call premium.

Liquidity and Capital Resources

The following liquidity and capital resources discussion contains certain forward-looking statements with respect to our business,
financial condition, results of operations, dispositions, acquisitions, expansion projects and our subsidiaries, which involve risks and uncertainties that cannot be predicted or quantified, and
consequently, actual results may differ materially from those expressed or implied herein. Such risks and uncertainties include, but are not limited to, financial market risks, the ability to maintain
existing management, integration of acquisitions, competition within the gaming industry, the cyclical nature of the hotel business and gaming business, economic conditions, regulatory matters and
litigation and other risks described in our filings with the Securities and Exchange Commission. In addition, construction projects such as Aliante Station entail significant risks, including
shortages of materials or skilled labor, unforeseen regulatory problems, work stoppages, weather interference, floods and unanticipated cost increases. The anticipated costs and construction periods
are based on budgets, conceptual design documents and construction schedule estimates. There can be no assurance that the budgeted costs or construction period will be met. All forward-looking
statements are based on our current expectations and projections about future events.

In
connection with the Merger on November 7, 2007, we received $2.71 billion in cash equity contributions, $2.475 billion from the issuance of the CMBS Loans (see
"Description of Certain Indebtedness and Capital StockCMBS Loans") and entered into a $900 million Credit Agreement with initial borrowings of $510 million (see "Description
of Certain Indebtedness and Capital StockCredit Agreement"). In addition, we paid $4.17 billion for the Merger consideration payment for each outstanding share of our common stock,
$1.38 billion to terminate our then existing revolving credit facility and $12.2 million to terminate interest rate swaps tied to such revolving credit facility.

During
2007 Combined, we generated cash flows from operating activities of $292.2 million. In addition, we received approximately $70 million from the
sale-leaseback of the corporate office building. At December 31, 2007, we had total available borrowings of $900 million under our Credit Agreement, which was reduced by
borrowings of $543.1 million and various letters of credit totaling approximately $11.9 million, leaving approximately $345.0 million available as of December 31, 2007. We
had $96.4 million in cash and cash equivalents as of December 31, 2007, virtually all of which is used for the day-to-day operations of our casinos.

During
2007 Combined, total capital expenditures were $585.9 million, of which approximately $297.2 million was for the purchase of land, approximately $66.3 million
was for the construction of the new corporate office building, approximately $89.7 million related to master-planned expansions at Red Rock, approximately $23.7 million was related to
the phase II master-planned expansion at Fiesta Henderson, approximately $12.2 million was for the phase III master-planned expansion at Santa Fe and approximately
$96.8 million was related to maintenance and various other projects. In addition to capital expenditures, we paid approximately $19.5 million in reimbursable advances for our Native
American development projects (see "Future Development"), approximately $49.1 million in common stock dividends, approximately $110.2 million to repurchase 1.3 million shares of
our common stock and approximately $103.8 million was contributed to various joint ventures.

10

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Our primary cash requirements for 2008 are expected to include (i) principal and interest payments on indebtedness, (ii) maintenance and other capital expenditures,
(iii) other strategic land purchases, (iv) equity contributions to joint ventures, (v) payments to our existing and potential Native American projects and (vi) payments for
design and development costs of future projects.

We
believe that cash flows from operations, available borrowings under the Credit Agreement, the Land Loan (see "Description of Certain Indebtedness and Capital StockLand
Loan") and existing cash balances will be adequate to satisfy our anticipated uses of capital during 2008. However, we are continually evaluating our financing needs. Although recent developments in
the financial markets have had an effect through the U.S. economy, including limiting access to capital markets to certain borrowers at reasonable rates, if more attractive financing alternatives, or
expansion, development or acquisition opportunities become available to us, we may amend our financing plans assuming such financing would be permitted under our existing debt agreements (see
"Description of Certain Indebtedness and Capital Stock") and other applicable agreements.



As of December 31, 2007, we have certain off-balance sheet arrangements that affect our financial condition,
liquidity and results of operations, which include interest rate swaps with a combined notional amount of $1.36 billion (see "Description of Certain Indebtedness and Capital
StockInterest Rate Swaps") and a completion guarantee
related to the financing at Aliante Station (see "Description of Certain Indebtedness and Capital StockAliante Station Financing").

The
following table summarizes our contractual obligations and commitments (amounts in thousands):

Contractual obligationsLong-term
debt (a)

Operating
leases (b)

Other long-term
obligations (c)

Total contractual
cash obligationsPayments due by year2008

$
392,906

$
10,466

$
45,600

$
448,9722009


402,432


8,968


89,994


501,3942010


393,048


8,968


21,553


423,5692011


393,124


8,410


16,468


418,0022012


3,767,677


7,316


11,776


3,786,769Thereafter


2,208,957


313,618


601


2,523,176Total

$
7,558,144

$
357,746

$
185,992

$
8,101,882


---

As
further discussed in Note 17 to the Consolidated Financial Statements in this Annual Report on Form 10-K/A, we adopted the provisions of FIN 48 on
January 1, 2007. We had $3.3 million of unrecognized tax benefits as of December 31, 2007. Due to the inherent uncertainty of the underlying tax positions, it is not possible to
assign the liability as of December 31, 2007 to any particular years in the table.

11

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Future DevelopmentLas Vegas



In December 2005, we entered into an agreement with the Greenspun Corporation to develop Aliante Station, a hotel and casino in the
Aliante master-planned community located in North Las Vegas, Nevada. We are developing and will manage the facility, to be located on a gaming-entitled 40-acre site on the northeast corner
of Interstate 215 and Aliante Parkway, which was contributed by the Greenspun Corporation for their 50% ownership in the joint venture. We will receive a management fee equal to 2% of the property's
revenues and approximately 5% of EBITDA. The first phase of Aliante Station is expected to include 201 hotel rooms, approximately 2,600 slot machines, multiple full-service restaurants and
a multi-screen movie theater complex. Construction on Aliante Station began in February 2007 and is expected to be completed by the end of 2008 at a cost of approximately $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 joint venture. As of
December 31, 2007, we have contributed an additional $79.5 million to fund design and development costs.



In December 2006, we entered into an amended and restated operating agreement with FBLV Holding Company LLC ("FBLV"). Pursuant
to the amended and restated operating agreement, the parties contributed approximately 52 acres (with approximately 20 acres contributed by us for our 50% ownership and approximately 32 acres
contributed by FBLV for their 50% ownership) of improved and unimproved real property located along Rancho Road south of Palace Station in Las Vegas, Nevada into a joint venture. It is anticipated
that the joint venture will develop, construct and manage, pursuant to a master development plan, a mixed-use residential, retail and entertainment project on all or a portion of such
property. The timing, cost and scope of the project have yet to be determined. As of December 31, 2007, we have contributed an additional $24.7 million to fund the acquisition of
additional property and design and development costs.



We have entered into Development and Management Agreements with the Federated Indians of Graton Rancheria (the "FIGR"), a federally
recognized Native American tribe. Pursuant to those agreements, we will assist the FIGR in developing and operating a gaming and entertainment project to be located in Sonoma County, California. The
FIGR selected us to assist them in designing, developing and financing their project and, upon opening, we will manage the facility on behalf of the FIGR. The Management Agreement has a term of seven
years from the opening of the facility and we will receive a management fee equal to 24% of the facility's net income. We will also receive a development fee equal to 2% of the cost of the project
upon the opening of the facility.

In
October 2003, the FIGR entered into a Memorandum of Understanding with the City of Rohnert Park. In August 2005, we purchased 270 acres of land just west of the Rohnert Park city
limits in Sonoma County, California. In March 2006, we purchased an additional 4.7 acres adjacent to the previously acquired property. The property purchased is approximately one-quarter
mile from Highway 101 and approximately 43 miles from downtown San Francisco. Development of the gaming and entertainment project is subject to certain governmental and regulatory approvals,
including, but not limited to, negotiating a gaming compact with the State of California, the United States Department of the Interior ("DOI") accepting a portion of the land into trust on behalf of
the FIGR and approval of the Management Agreement by the NIGC. Prior to obtaining third-party financing, we will contribute significant financial support to the project. As of December 31,
2007, we have advanced approximately $140.3 million toward

12

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the
development of this project, primarily to complete the environmental impact study and secure real estate for the project, which is included on our consolidated balance sheets. Funds advanced by us
are expected to be repaid from the proceeds of the project financing or from the FIGR's gaming revenues. In addition, we have agreed to pay approximately $11.3 million upon achieving certain
milestones, which will not be reimbursed. As of December 31, 2007, approximately $2.0 million of these payments had been made and were expensed in development expense as incurred. The
timing of this type of project is difficult to predict and is dependent upon the receipt of the necessary governmental and regulatory approvals. There can be no assurances when or if these approvals
will be obtained.



On November 13, 2003, we agreed to purchase a 50% interest in MPM Enterprises, LLC, a Michigan limited liability company
("MPM"). Concurrently with our agreement to purchase that interest, MPM and the Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians, a
federally recognized Native American tribe commonly referred to as the Gun Lake Tribe ("Gun Lake"), entered into amended Development and Management Agreements, pursuant to which MPM agreed to assist
Gun Lake in developing and operating a gaming and entertainment project to be located in Allegan County, Michigan. On July 29, 2005, MPM and Gun Lake entered into amended and restated
Development and Management Agreements. We have agreed to pay $6.0 million for our 50% interest in MPM, which is payable upon achieving certain milestones and is not reimbursable. As of
December 31, 2007, approximately $2.0 million of these payments had been made and were expensed in development expense as incurred. An additional $12.0 million in total may be
paid by us in years six and seven of the amended and restated Management Agreement, subject to certain contingencies. Under the terms of the amended and restated Development Agreement, we have agreed
to arrange financing for the ongoing development costs and construction of the project. As of December 31, 2007, we have advanced approximately $38.3 million toward the development of
this project, primarily to complete the environmental assessment and secure real estate for the project, which is included on our consolidated balance sheets. Funds advanced by us are expected to be
repaid from the proceeds of the project financing or from Gun Lake's gaming revenues. The amended and restated Management Agreement has a term of seven years from the opening of the facility and
provides for a management fee of 30% of the project's net income to be paid to MPM. Pursuant to the
terms of the MPM Operating Agreement, our portion of the management fee is 50% of the first $24 million 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 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, a buffet and specialty restaurants. Construction of the project includes the conversion of an existing 192,000
square-foot building into the casino and entertainment facility. Development of the gaming and entertainment project and operation of Class III gaming is subject to certain
governmental and regulatory approvals, including, but not limited to, the signing of a gaming compact by the Governor of the State of Michigan, the DOI taking the land into trust on behalf of Gun Lake
and approval of the Management Agreement by the NIGC.

On
February 27, 2004, the DOI issued a Finding 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 Agency Determination (the "Determination") to take certain land into trust for the benefit of Gun Lake. The publication commenced a thirty-day period in which interested
parties could seek judicial review of the Determination. On June 13, 2005, Michigan Gambling Opposition filed a complaint (the "Complaint") in the United States District Court, District of
Columbia, seeking declaratory and injunctive relief against the DOI and officials of the DOI. The Complaint seeks judicial review of the Determination. On July 27, 2005, Gun Lake filed a motion
to intervene in that lawsuit. On September 1, 2005, the District Court granted Gun Lake's motion to intervene. On January 6, 2006, Gun Lake filed a motion for judgment on the pleadings
or, in the alternative, for summary judgment. Also on January 6, 2006, the DOI filed a motion to

13

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dismiss
or, in the alternative, for summary judgment. By May 2006, all responsive pleadings had been filed and the case was ready for consideration by the District Court. On October 27, 2006,
the Department of Justice filed a Notice with the District Court indicating 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 persuade the court to issue any relief precluding the DOI from doing so. The DOI subsequently amended that date to March 5, 2007, in order to provide the
Court sufficient time to render its decision. The Court set oral arguments on the parties' 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, the District Court issued its decision in favor of the DOI and Gun Lake, finding that there were no facts which would entitle plaintiffs to any
relief on the four issues raised in the Complaint, and granted the parties' motion to discuss or, in the alternative for summary judgment (the "Dispositive Motions"). On March 1, 2007, the
plaintiffs filed a motion for stay pending appeal with the District Court. On March 5, 2007, the District Court granted the plaintiffs' motion for stay pending appeal, thereby precluding the
DOI from taking the site into trust for the benefit of Gun Lake until the District Court's decision granting the Dispositive Motions has been reviewed on appeal. On March 22, 2007, plaintiffs
filed a notice of appeal of the District Court's decision granting the Dispositive Motions with the United States Court of Appeals for the District of Columbia Circuit. On May 21, 2007, the
plaintiffs filed their appellate brief. On July 6, 2007, the DOI and Gun Lake filed their responsive briefs. On July 30, 2007, the plaintiffs filed their reply brief. Oral arguments were
heard on October 19, 2007. The parties are currently waiting for the appellate court to render its decision. As with all litigation, no assurances can be provided as to the outcome of this
lawsuit.

On
March 9, 2007, Gun Lake and the State of Michigan entered into a tribal-state Class III gaming compact. The compact is subject to approval by the Michigan Legislature
and, if approved, will regulate gaming at Gun Lake's proposed gaming and entertainment project to be developed on the site. On August 8, 2007, the Michigan House of Representatives ratified the
compact. No assurances can be provided as to whether the Michigan Senate will approve the compact. Prior to obtaining third-party financing, we will contribute significant financial support to the
project. The timing of this type of project is difficult to predict and is dependent upon the receipt of the necessary governmental and regulatory approvals. There can be no assurances when or if
these approvals will be obtained.



We have entered into Development and Management Agreements with the Mechoopda Indian Tribe of Chico Rancheria, California (the
"MITCR"), a federally recognized Native American tribe. Pursuant to those agreements, we will assist the MITCR in developing and operating a gaming and entertainment facility to be located on a
portion of an approximately 650-acre site in Butte County, California, at the intersection of State Route 149 and Highway 99, approximately 10 miles southeast of Chico, California and 80
miles north of Sacramento, California. Under the terms of the Development Agreement, we have agreed to arrange the financing for the ongoing development costs and construction of the facility. Funds
advanced by us are expected to be repaid from the proceeds of the project financing or from the MITCR's gaming revenues. As of December 31, 2007, we have advanced approximately
$9.8 million toward the development of this project, primarily to complete the environmental assessment and secure real estate for the project, which is included on our consolidated balance
sheets. In addition, we have agreed to pay approximately $2.2 million of payments upon achieving certain milestones, which will not be reimbursed. As of December 31, 2007, $50,000 of
these payments had been made and were expensed in development expense as incurred. The Management Agreement has a term of seven years 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 will include approximately 700 slot machines, 12 table games and dining and entertainment amenities. Development of the
facility is subject to certain governmental and regulatory approvals, including, but not limited to, negotiating a gaming compact with the State of California, the DOI accepting land into trust on
behalf of the MITCR and approval of the Management Agreement by the NIGC. Prior to obtaining third-party financing, we will contribute significant financial support to the project. The timing

14

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of
this type of project is difficult to predict and is dependent upon the receipt of the necessary governmental and regulatory approvals. There can be no assurances when or if these approvals will be
obtained.



We have entered into Development and Management Agreements with the North Fork Rancheria of Mono Indians (the "Mono"), a federally
recognized Native American tribe located near Fresno, California. Pursuant to those agreements, we will assist the Mono in developing and operating a gaming and entertainment facility to be located in
Madera County, California. We have purchased, for the benefit of the Mono, a 305-acre parcel of land located on Highway 99 north of the city of Madera. Under the terms of the Development
Agreement, we have agreed to arrange the financing for the ongoing development costs and construction of the facility. Funds advanced by us are expected to be repaid from the proceeds of the project
financing or from the Mono's gaming revenues. As of December 31, 2007, we have advanced approximately $12.4 million toward the development of this project, primarily to complete the
environmental impact study and secure real estate for the project, which is included on our consolidated balance sheets. In addition, we have agreed to pay approximately $1.3 million of
payments upon achieving certain milestones, which will not be reimbursed and will be expensed as incurred. As of December 31, 2007, none of these payments had been made. The Management
Agreement has a term of seven years 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 will include
approximately 2,000 slot machines, 60 table games, restaurants, a hotel and entertainment amenities. Development of the gaming and entertainment project is subject to certain governmental and
regulatory approvals, including, but not limited to, negotiating a gaming compact with the State of California, the DOI accepting the land into trust on behalf of the Mono and approval of the
Management Agreement by the NIGC. Prior to obtaining third-party financing, we will contribute significant financial support to the project. The timing of this type of project is difficult to predict,
and is dependent upon the receipt of the necessary governmental and regulatory approvals. There can be no assurances when or if these approvals will be obtained.

Land Acquisition

We have acquired certain parcels of land as part of future development activities. Our decision whether to proceed with any new gaming
or development opportunity is dependent upon future economic and regulatory factors, the availability of financing and competitive and strategic considerations. As many of these considerations are
beyond our control, no assurances can be made that we will be able to secure additional, acceptable financing in order to proceed with any particular project.

As
of December 31, 2007, we had $516.2 million of land held for development that consists primarily of seven sites that are owned or leased, which comprise 263 acres in the
Las Vegas valley, 147 acres in the northern California and 203 acres in Reno, Nevada. The primary gaming-entitled land that we own in the Las Vegas valley consists of 68 acres located at the
intersection of Durango Road and the Southern Beltway/Interstate 215 in the southwest area of Las Vegas, 49 acres also located in southwest Las Vegas at the intersection of Flamingo Road and
Interstate 215, 45 acres in Henderson, Nevada, 61 acres located on the southern end of Las Vegas Boulevard at Cactus Avenue of which we lease and have an
option to purchase 2.5 acres and 30 acres on Boulder Highway at the site formerly known as the Castaways Hotel Casino and Bowling Center.

We
also have acquired or are under contract to acquire approximately 106 acres of land on which Wild Wild West is located and the surrounding area of which, approximately 72 acres have
been acquired as of December 31, 2007. During 2007 Combined and the years ended December 31, 2006 and 2005 we incurred and expensed approximately $25,000, $1.1 million and
$11.7 million, respectively to terminate various leases related to this land. In 2003, we exercised our option to purchase the 19-acre parcel of leased land on which Wild Wild West
is located which was to occur in July 2005 at a purchase price of approximately

15

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$36 million.
We have extended the date for the close of escrow to no later than January 2009. Additionally, the lease expense was reduced from $2.9 million to $1.6 million per
year beginning in July 2005. No amounts related to this purchase option have been recorded on our consolidated balance sheets at December 31, 2007 and 2006.

Regulation and Taxes

We are subject to extensive regulation by the Nevada gaming authorities and will be subject to regulation, which may or may not be
similar to that in Nevada, by any other jurisdiction in which we may conduct gaming activities in the future, including the NIGC and tribal gaming agency of the UAIC.

The
gaming industry represents a significant source of tax revenue, particularly to the State of Nevada and its counties and municipalities. From time to time, various state and federal
legislators and officials have proposed changes in tax law, or in the administration of such law, affecting the gaming industry. The Nevada Legislature concluded their 2007 session and there were no
increases in taxes affecting the gaming industry. The Nevada Legislature meets again in 2009.

There
are several gaming tax increase proposals currently circulating in Nevada. These proposals would take the form of voter referendums, which in Nevada require passage by voters on
two separate occasions, the next two being 2008 and 2010. If a proposal to increase the gaming tax is passed in both elections, the earliest the increase could go into effect would be 2011. An
increase in the gaming tax could have an adverse effect on our results of operations.

We
believe that our recorded tax balances are adequate. However, it is not possible to determine with certainty the likelihood of possible changes in tax law or in the administration of
such law, regulations or compact provisions. Such changes, if adopted, could have a material adverse effect on our operating results.

Description of Certain Indebtedness and Capital Stock (Restated)



In conjunction with the Merger on November 7, 2007, we terminated our $2.0 billion revolving credit facility (the
"Revolving Facility") due December 2010. As a result we recorded a loss on early retirement of debt of approximately $8.1 million during the Successor Period to reflect the write off of the
unamortized loan costs. In addition, we terminated two cash flow hedge interest rate swaps with a notional amount of $500 million, which were due to terminate in December 2010 and tied directly
to the Revolving Facility. These cash flow hedge interest rate swaps were terminated at market value, and as a result, we paid approximately $12.2 million which is included in our loss on early
retirement of debt in the Successor Period.



In connection with the Merger, Station, as borrower, entered into a new $900 million senior secured credit agreement (the
"Credit Agreement") consisting of a $650 million revolving facility (the "Revolver") and a $250 million term loan (the "Term Loan"). The maturity date for both the Term Loan and the
Revolver is August 7, 2012 subject to a single 15-month extension (as further defined in the Credit Agreement). The Term Loan requires quarterly principal payments of $625,000
beginning March 31, 2008. The Revolver contains no principal amortization. Initial borrowings, including full funding of the Term Loan and $260 million drawn on the Revolver for an
aggregate amount of $510 million, were used to repay a portion of the outstanding amounts under the Revolving Facility. Borrowings under the Credit Agreement bear interest at a margin above the
Alternate Base Rate or the Eurodollar Rate (each as defined in the Credit Agreement), as selected by us. The margin above such rates, and the fee on the unfunded portions of the Revolver, will vary
quarterly based on our combined consolidated ratio of debt to Adjusted EBITDA (as defined in the Credit Agreement). As of December 31, 2007, the borrower's margin

16

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above
the Eurodollar Rate on borrowings under the Credit Agreement was 2.50%. The maximum margin for Eurodollar Rate borrowings is 2.50%. The maximum margin for Alternate Base Rate borrowings is
1.50%. As of December 31, 2007, the fee for the unfunded portion of the Revolver was 0.375%.

The
Credit Agreement contains certain financial and other covenants. These include a minimum interest coverage ratio of 1.50 to 1.00 beginning March 31, 2008 through
June 30, 2008, which increases to 1.75 to 1.00 on September 30, 2008 through December 31, 2008, to 2.00 to 1.00 on March 31, 2009 through December 31, 2009, to 2.25
to 1.00 on March 31, 2010 through December 31, 2010, and to 2.50 to 1.00 on March 31, 2011. The Credit Agreement has financial covenants that require that the maximum total debt
to Adjusted EBITDA (as defined in the Credit Agreement) ratio can be no more than 8.50 to 1.00 beginning March 31, 2008, which reduces to 8.25 to 1.00 on June 30, 2008, to 8.00 to 1.00
on September 30, 2008, to 7.75 to 1.00 on December 31, 2008, to 7.50 to 1.00 on March 31, 2009, to 7.25 to 1.00 on June 30, 2009, to 7.00 to 1.00 on September 30,
2009, to 6.75 to 1.00 on December 31, 2009, to 6.25 to 1.00 on March 31, 2010, to 6.00 to 1.00 on June 30, 2010 through December 31, 2010, to 5.75 on March 31, 2011,
to 5.5 to 1.00 on June 30, 2011 through September 30, 2011, and to 5.00 to 1.00 on December 31, 2011. In addition, total senior secured debt to Adjusted EBITDA (as defined in the
Credit Agreement) can be no more than 2.25 to 1.00 beginning March 31, 2008 through June, 30, 2008 and reduces to 2.00 to 1.00 on September 30, 2008. The covenants limit our ability to
incur additional indebtedness; issue preferred stock or provide guarantees; create liens on assets; engage in mergers or consolidations; sell assets; pay dividends, make distributions or repurchase
our own capital stock; make investments, loans or advances; make certain acquisitions; engage in certain transactions with affiliates; capital expenditures and fundamentally change our business. All
obligations under the Credit Agreement are secured by substantially all of our assets with the exception of the collateral securing the CMBS Loans, the Land Loan and other excluded items as described
in the Credit Agreement.



In connection with the Merger, on November 7, 2007, a number of wholly-owned unrestricted direct and indirect subsidiaries of
Station (collectively, the "CMBS Borrower") entered into a mortgage loan and related mezzanine financings in the aggregate principal amount of $2.475 billion (the "CMBS Loans"), for the purpose
of financing the Merger consideration payable to the Company's stockholders upon consummation of the Merger and paying fees and expenses incurred in connection with the Merger.

The
CMBS Loans are collateralized by substantially all fee and leasehold real property comprising Palace Station, Boulder Station, Sunset Station and Red Rock (collectively, the "CMBS
Property") and will mature in November 2009, subject to three one-year extensions as defined in the CMBS Loans. Interest on the CMBS Loans is equal to one-month LIBOR plus 2.3%
per annum. The CMBS Borrower is required to hedge the LIBOR interest rate such that it will not exceed 5.5% on a blended basis. As a result, the CMBS Borrower purchased an interest rate cap with a
$1.11 billion notional amount and a strike price of 5.77% for an initial premium of $3.6 million. This premium is being amortized to interest expense ratably over the term of the
interest rate cap. In addition, the CMBS Borrower entered into an interest rate swap with a notional amount of $1.36 billion terminating in November 2012. As of December 31, 2007, we
paid a fixed rate of 5.3% and received one-month LIBOR which approximated 5.0%. Although economically effective, this interest rate swap is not designated as a hedging instrument for
accounting purposes, resulting in the gain or loss reported in earnings. For the year ended December 31, 2007, we recorded a loss of $30.7 million, related to the change in fair value of
this interest rate swap on our consolidated statement of operations.

The
loan documents for the CMBS Loans (the "CMBS Loan Documents") contain a number of covenants that, among other things, restrict, subject to certain exceptions, each wholly-owned
unrestricted direct and indirect subsidiary's ability to incur additional indebtedness; create liens on assets; engage in mergers or consolidations; sell assets; pay dividends or make distributions;
make investments, loans or advances; make certain acquisitions; engage in certain transactions with affiliates; and fundamentally

17

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change
its business. In addition, the CMBS Loan Documents require the CMBS Borrower to maintain a minimum lease coverage ratio and also contain certain customary affirmative covenants and certain
events of default. The CMBS Loan Documents also require the CMBS Borrower to fund specific reserves (as defined in the CMBS Loan Documents).



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

During
2005, we redeemed the remaining $16.9 million of outstanding 83/8% senior notes due 2008 and $17.4 million of outstanding 97/8% senior
subordinated notes due 2010. As a result of these redemptions, we recorded a loss on early retirement 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 call premium.

The
indentures (the "Indentures") governing our senior and senior subordinated notes (the "Notes") contain certain customary financial and other covenants, which limit our and our
subsidiaries' ability to incur additional debt. At December 31, 2007, our Consolidated Coverage Ratio (as defined in the Indentures) was 2.11 to 1.00. The Indentures provide that we may not
incur additional indebtedness, other than specified types of indebtedness, unless the Consolidated Coverage Ratio is at least 2.00 to 1.00. In the event our Consolidated Coverage Ratio is below 2.00
to 1.00, the covenant limits our ability to incur additional indebtedness for borrowings under the Revolver not to exceed the greater of $200 million or 1.5 times Operating Cash Flow (as
defined in the Indentures) for the four most recent quarters, plus $15 million. The Indentures also give the holders of the Notes the right to require us to purchase the Notes at 101% of the
principal amount of the Notes plus accrued interest thereon upon a Change of Control and Rating Decline (each as defined in the Indentures) of the Company. In addition, the indenture governing the
senior notes contains a limitation on liens we can incur.



On February 7, 2008, a wholly-owned, indirect subsidiary of Station, as borrower, entered into a $250 million
delay-draw term loan which is collateralized by land located on the southern end of Las Vegas Boulevard at Cactus Avenue and land surrounding Wild Wild West in Las Vegas, Nevada (the "Land
Loan"). The Land Loan contains no principal amortization and matures on February 7, 2011. At closing, $200 million was drawn and the proceeds were used to fund a distribution to Station,
establish an interest reserve and pay transaction expenses. The borrower has the option to request an additional $50 million under the Land Loan to purchase certain real property. Borrowings
under the Land Loan bear interest at LIBOR plus 3.5% per annum or at the Alternate Base Rate (as defined in the Land Loan) plus 2.5% per annum, at the borrower's request. The borrower is required to
hedge the interest rate such that it will not exceed 6.5%. As a result, the borrower entered into a cash flow hedge interest rate swap with a notional amount of
$200 million in which the borrower pays a fixed rate of 2.97% and receives one-month LIBOR, terminating in February 2011.

The
Land Loan contains a number of covenants that, among other things, restrict, subject to certain exceptions, the borrower's ability to incur additional indebtedness; create liens on
assets; engage in mergers or consolidations; sell assets; pay dividends or make distributions; make investments, loans or advances; make certain acquisitions; engage in certain transactions with
affiliates; and fundamentally change its business. In addition, the Land Loan requires the borrower to maintain a loan-to-value ratio of no more than 40% and also contains
customary affirmative covenants and certain events of default.

18

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In November 2007, we terminated a fair value hedge interest rate swap with a notional amount of $50.0 million, which was due to
terminate in April 2012. The fair value hedge interest rate swap was terminated at market value and, as a result, we paid approximately $1.2 million. This fair value hedge interest rate swap
was tied directly to our $450 million 6.0% senior notes. The mark-to-market adjustment is being amortized as interest expense over the remaining contract life of the
interest rate swap.

In
January 2008, we entered into a cash flow hedge interest rate swap with a notional amount of $250 million that converts a portion of our floating-rate debt to a
fixed rate based on one-month LIBOR rates, terminating in January 2011.

The
difference between amounts 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 incurred over
the life of the interest rate swaps. The net effect of the interest rate swaps resulted in an increase of interest expense of approximately $0.4 million in 2007 Combined and a reduction of
interest expense of approximately $0.2 million and $2.1 million for the years ended December 31, 2006 and 2005, respectively.



In November 2007, we entered into a sale-leaseback agreement related to our corporate office building with a third party
real estate investment firm. We sold the corporate office building for approximately $70 million and subsequently entered into a lease with the purchaser for an initial period of
20 years with four options to extend the lease, each option for an extension of five years. Annual lease payments for the first year will be approximately $5.3 million and will increase
approximately 1.2% annually to approximately $6.7 million in the final year of the original term. In conjunction with the sale, we recorded an impairment loss of approximately
$8.6 million which is included on our consolidated statement of operations. The lease also contains two options for us to repurchase the corporate office building, one option at the end of the
fifth year of the lease term and a second option at the end of the tenth year of the lease term, which is considered continuing involvement under SFAS 98, "Accounting for Leases;
Sale-Leaseback Transactions Involving Real Estate; Sales-Type Leases of Real Estate; Definition of Lease Term; Initial Direct Costs of Direct Financing Leases". Because of this
continuing involvement, the sale-leaseback transaction is being accounted for as a financing transaction, with the sales proceeds recorded as a liability and the lease payments recorded as
interest expense. In addition, we continue to include the corporate office building within property and equipment, net on our consolidated balance sheet and it continues to be depreciated. During 2007
Combined, we recorded approximately $0.9 million of interest expense related to this transaction. Future minimum lease payments related to this lease are approximately $5.3 million,
$5.3 million, $5.4 million, $5.5 million and $5.5 million for the years ended December 31, 2008, 2009, 2010, 2011 and 2012, respectively.



In October 2007, we completed financing for Aliante Station (the "Aliante Financing"). The Aliante Financing was completed with a group
of banks and provides for borrowings of up to $430 million at a margin above the LIBOR rate of up to 325 basis points. The loan requires initial equity contributions from each partner, Station
and G.C. Investments, LLC (G.C. Investments, LLC being principally owned by members of the Greenspun family) of $105 million and equity contributions for a completion guarantee,
if necessary, for project costs that exceed $618 million exclusive of land acquisition costs and financing costs. The completion guarantee is a joint and several obligation of each partner,
with G.C. Investment, LLC's obligation collateralized.

19

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On February 16, 2007, Green Valley Ranch entered into a new $830 million credit facility (the "Green Valley Facility").
The Green Valley Facility includes a $550 million first lien term loan due February 2014, a $250 million second lien term loan due August 2014 and a $30 million revolver due
February 2012. At the time of close, the revolver was unfunded. Proceeds from the Green Valley Facility were used to repay outstanding borrowings under the previous revolving credit facility and term
loan, as well as an equal distribution to the members, which was comprised of approximately $185 million in distributions to each member and a $100 million promissory note from each
member, for a total of approximately $570 million. The outstanding balance of the Green Valley Facility as of December 31, 2007, was approximately $789.0 million.

Effective
January 1, 2008, Green Valley Ranch agreed to effectively forgive $200 million in notes receivable and the related interest from its members. As a result, the
$100 million due to unconsolidated affiliate and related accrued interest recorded on our consolidated balance sheet at December 31, 2007 will be forgiven during the three months ended
March 31, 2008 with a corresponding reduction in our investments in joint ventures.



We are authorized to issue up to 10,000 shares of voting common stock, $0.01 par value per share. At December 31, 2007, there
were 41.7 shares of voting common stock issued and outstanding. Each holder of issued and outstanding shares of voting common stock is entitled to one vote for each share held of record on each matter
submitted to a vote of stockholders. Holders of our voting common stock have no cumulative voting, conversion or redemption rights. Under the Equityholders Agreement of Station, FCP and Fertitta
Partners, as amended, in certain circumstances, FCP VoteCo, as the holder of Station's voting common stock, shall have the preemptive right to purchase or subscribe to any voting stock to be sold or
issued by Station on the terms and conditions as such voting stock is being offered and sold or issued. Subject to any preferences that may be granted to the holders of our preferred stock, each
holder of voting common stock is entitled to receive ratably, such dividends as may be declared by our Board of Directors out of funds legally available therefore, as well as any distributions to the
stockholders and, in the event of our liquidation, dissolution or winding up is entitled to share ratably in all our assets remaining after payment of liabilities.

During
the Predecessor Period, we paid a quarterly cash dividend of $0.2875 per share to stockholders of record on February 26, 2007, May 21, 2007 and October 5,
2007. The total amount paid in dividends for 2007 was $49.1 million.

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



We are authorized to issue up to 100,000,000 shares of non-voting common stock, $0.01 par value per share. At
December 31, 2007, there were 41,674,838 shares of non-voting common stock issued and outstanding. Holders of issued and outstanding shares of non-voting common stock
are not entitled to vote on any matters to be voted on by the stockholders of the Company and are not to be included in determining the number of shares voting or entitled to vote. Holders of our
non-voting common stock have no cumulative voting, conversion or redemption rights. Under the Equityholders Agreement of Station, FCP and Fertitta Partners, as amended, in certain circumstances,
holders of non-voting common stock shall have the preemptive right to purchase or subscribe to any equity interests (other than voting stock) to be sold or issued by Station on the same terms and
conditions as such equity interests are being offered

20

---



and
sold or issued. Subject to any preferences that may be granted to the holders of our preferred stock, each holder of non-voting common stock is entitled to receive ratably, such
dividends as may be declared by our Board of Directors out of funds legally available therefor, as well as any distributions to the stockholders and, in the event of our liquidation, dissolution or
winding up is entitled to share ratably in all our assets remaining after payment of liabilities.



We are authorized to issue up to 10,000 shares of preferred stock, $0.01 par value per share of which none are issued. The Board of
Directors, without further action by the holders of our common stock, may issue shares of preferred stock in one or more series and may fix or alter the rights, preferences, privileges and
restrictions, including the voting rights, redemption provisions (including sinking fund provisions), dividend rights, dividend rates, liquidation rates, liquidation preferences, conversion rights and
the description and number of shares constituting any wholly unissued series of preferred stock. Except as described above, our Board of Directors, without further stockholder approval, may issue
shares of preferred stock with rights that could adversely affect the rights of the holders of our common stock. The issuance of shares of preferred stock under certain circumstances could have the
effect of delaying or preventing a change of control of Station or other corporate action.



During the Predecessor Period, we repurchased approximately 1.3 million shares of our common stock for approximately
$110.2 million, primarily through open market purchases. On November 7, 2007, upon consummation of the Merger, all of our treasury stock was cancelled and retired.

Critical Accounting Policies



We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States.
Certain of our accounting policies, including the determination of slot club program liability, the estimated useful lives assigned to our assets, asset impairment, insurance reserves, bad debt
expense, purchase price allocations made in connection with our acquisitions and the calculation of our income tax liabilities, require that we apply significant judgment in defining the appropriate
assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. Our judgments are based on our historical experience, terms of
existing contracts, observance of trends in the gaming industry and information available from other outside sources. There can be no assurance that actual results will not differ from our estimates.
To provide an understanding of the methodology we apply, our significant accounting policies and basis of presentation are discussed below, as well as where appropriate in this discussion and analysis
and in the notes to our consolidated financial statements.



Our Boarding Pass and Amigo Club player rewards programs (the "Programs") allow customers to redeem points earned from their gaming
activity at all Station and Fiesta properties for complimentary food, beverage, rooms, entertainment and merchandise. At the time redeemed, the retail value of complimentaries under the Programs is
recorded as revenue with a corresponding offsetting amount included in promotional allowances. The cost associated with
complimentary food, beverage, rooms, entertainment and merchandise redeemed under the Programs is recorded in casino costs and expenses. We also record a liability for the estimated cost of the
outstanding points under the Programs that we believe will ultimately be redeemed.

21

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We are self insured up to certain stop loss amounts for workers' compensation and general liability costs. We are also self insured for
major medical claims. Insurance claims and reserves include accruals of estimated settlements for known claims, as well as accruals of estimates for claims incurred but not reported. In estimating
these accruals, we consider historical loss experience and make judgments about the expected levels of costs per claim. We believe our estimates of future liability are reasonable based upon our
methodology; however, changes in health care costs, accident frequency and severity and other factors could materially affect the estimate for these liabilities.



From time to time we enter into interest rate swaps in order to manage interest rate risks associated with our current and future
borrowings. As such, we have adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" and as amended by SFAS 138 and 149, to account for our interest rate swaps.
The pronouncements require us to recognize our interest rate swaps as either assets or liabilities in the consolidated 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 whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging
relationship. Additionally, the difference between amounts 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
incurred over the life of the swap.

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

Derivative
instruments that are designated as a fair value hedge and qualify for the "shortcut" method under SFAS 133 and as amended by SFAS 138 and 149, allows for an
assumption of no ineffectiveness. As such, there is no impact on the consolidated statement of operations from the changes in the fair value of the hedging instrument. Instead, the fair value of the
instrument is recorded as an asset or liability on our balance sheet with an offsetting adjustment to the carrying value of the related debt.



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

We
evaluate our property and equipment and other long-lived assets for impairment in accordance with SFAS 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets". For assets to be disposed of, we recognize the asset to be sold at the lower of carrying value or fair market value less costs of disposal. Fair market value for assets
to be disposed of is generally estimated based on comparable asset sales, solicited offers or a discounted cash flow model. For assets to be held and used, we review fixed assets for impairment
whenever indicators of impairment exist. If an indicator of impairment exists, we compare the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If
the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then an impairment is measured based on fair value
compared to carrying value, with fair value typically based on a discounted cash flow model. Our consolidated financial statements reflect all adjustments required by SFAS 144 as of
December 31, 2007 and 2006.

22

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In accordance with SFAS 142, "Goodwill and Other Intangible Assets", we test for impairment of goodwill and indefinite-lived
intangible assets annually. For the Predecessor Period, we utilized fair values established through a third-party business valuation to determine any possible impairment. For the years ending
December 31, 2006 and 2005, we utilized the Income
Approach, which focuses on the income-producing capability of the respective property during the fourth quarter of each fiscal year. The underlying premise of this approach is that the value of an
asset can be measured by the present worth of the net economic benefit (cash receipts less cash outlays) to be received over the life of the subject asset. The steps followed in applying this approach
include estimating the expected after-tax cash flows attributable to the respective property and converting these after-tax cash flows to present value through discounting. The
discounting process uses a rate of return, which accounts for both the time value of money and investment risk factors. The present value of the after-tax cash flows is then totaled to
arrive at an indication of the fair value of the assets. Under both methods, if the fair value of the assets exceeds the carrying value, then impairment is measured based on the difference between the
calculated fair value and the carrying value. For the Predecessor Period, we determined that an impairment of goodwill at Magic Star and Gold Rush totaling approximately $8.0 million existed
which we expensed accordingly. We have determined that there was no impairment during 2006 or 2005.



We are subject to income taxes in the U.S. and file a consolidated federal income tax return. We account for income taxes according to
SFAS 109, "Accounting for Income Taxes". SFAS 109 requires the recognition of deferred tax assets, net of applicable reserves, related to net operating loss carry-forwards and certain
temporary differences.

Effective
January 1, 2007, we adopted Financial Interpretation No. 48, "Accounting for Uncertainty in Income TaxesAn Interpretation of FASB Statement
No. 109" ("FIN 48"). FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS 109. The first step is
to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon settlement.

Although
we believe that we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. We
adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is
different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact
of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest.



In December 2007, the Financial Accounting Standards Board ("FASB") issued SFAS 141R, "Business Combinations". Under
SFAS 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value, with limited
exceptions, replacing SFAS 141's cost-allocation process. SFAS 141R also includes a substantial number of new disclosure requirements. SFAS 141R is to be applied
prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early adoption
is prohibited. We will adopt SFAS 141R in the first quarter of 2009 and expect SFAS 141R will have an impact on our accounting for future business combinations once adopted; however, the
effect is dependent upon acquisitions that are made in the future.

23

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In
December 2007, the FASB issued SFAS 160, "Noncontrolling Interests in Consolidated Financial StatementsAn Amendment of ARB No. 51". SFAS 160
establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of
a noncontrolling interest as equity in the consolidated financial statements and separate from the parent's equity. In addition, the amount of net income attributable to the noncontrolling interest
should be included in consolidated net income on the face of the income statement. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. Early adoption is prohibited. We are evaluating SFAS 160 and have not yet determined the impact the adoption will have on the consolidated financial statements.

In
February 2007, the FASB issued SFAS 159, "The Fair Value Option for Financial Assets and Financial Liabilitiesincluding an amendment of FASB Statement 115" that
provides companies with an option to report certain financial assets and liabilities in their entirety at fair value. This statement is effective for fiscal years beginning after November 15,
2007. The fair value option may be applied instrument by instrument, and may be applied only to entire instruments. A business entity would report unrealized gains and losses on items for which the
fair value option has been elected in earnings at each subsequent reporting date. We are evaluating our options provided for under this statement and their potential impact on the consolidated
financial statements when implemented. SFAS 159 is being reviewed in conjunction with the requirements of SFAS 157 discussed below.

In
September 2006, the FASB issued SFAS 157, "Fair Value Measurements". This statement defines fair value, establishes a framework for measuring fair value for both assets and
liabilities through a fair value hierarchy and expands disclosure requirements. SFAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. In February 2008, FASB issued FASB Staff Position ("FSP") FAS 157-2,
which defers the effective date of SFAS 157 to fiscal years beginning November 15, 2008, and interim periods within those fiscal years, for nonfinancial assets and nonfinancial
liabilities that are recognized or disclosed at fair value in an entity's financial statements on a recurring basis. We are evaluating SFAS 157 and have not yet determined the impact the
adoption will have on the consolidated financial statements.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Restated)

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency
exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our long-term debt. We attempt to limit our exposure to interest rate risk by
managing the mix of our long-term and short-term borrowings under the Credit Agreement. Borrowings under the Credit Agreement bear interest at a margin above the Alternate Base
Rate or the Eurodollar Rate (each as defined in the Credit Agreement) as selected by us. However, the amount of outstanding borrowings is expected to fluctuate and may be reduced from time to time.
The borrowings under the Credit Agreement mature in August 2012.

24

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The
following table provides information about our long-term debt at December 31, 2007 (see also "Description of Certain Indebtedness and Capital Stock") (amounts in
thousands, restated):

Maturity
date

Face
amount

Carrying
value

Estimated
fair valueCMBS Loans, weighted average interest rate of approximately 7.8%

November 2012 (a)

$
2,475,000

$
2,475,000

$
2,475,000Revolver, weighted-average interest rate of approximately 8.2%

August 2012


650,000


293,100


293,100Term Loan, weighted-average interest rate of approximately 8.0%

August 2012


250,000


250,000


250,0006% senior notes

April 2012


450,000


424,608


400,50073/4% senior notes

August 2016


400,000


391,455


360,00061/2% senior subordinated notes

February 2014


450,000


395,093


337,50067/8% senior subordinated notes

March 2016


700,000


607,214


511,00065/8% senior subordinated notes

March 2018


300,000


251,937


205,500Other debt, weighted-average interest rate of approximately 8.0%

2009-2026


83,100


82,742


82,742Total



$
5,758,100

$
5,171,149

$
4,915,342


---

We
are also exposed to market risk in the form of fluctuations in interest rates and their potential impact upon our debt. This market risk is managed by utilizing derivative financial
instruments in accordance with established policies and procedures. We evaluate our exposure to market risk by monitoring interest rates in the marketplace, and do not utilize derivative financial
instruments for trading purposes. Our derivative financial instruments consist exclusively of interest rate swap agreements. Interest differentials resulting from these agreements are recorded on an
accrual basis as an adjustment to interest expense. Interest rate swaps related to debt are matched with specific debt obligations.

The
following table provides information about our financial instruments at December 31, 2007 that are sensitive to changes in interest rates (amounts in thousands):

During the year ending December 31,2008

2009

2010

2011

2012

Thereafter

TotalLong-term debt (including current portion):Fixed-rate

$


$
8,977

$


$


$
424,608

$
1,645,699

$
2,079,284Average interest rate





6.7
%







7.6
%

8.9
%

8.6
%Variable-rate

$
2,610

$
3,094

$
2,620

$
2,629

$
3,008,238

$
72,674

$
3,091,865Average interest rate


8.0
%

8.0
%

8.0
%

8.0
%

7.9
%

8.1
%

7.9
%Interest rate swaps:Notional amount

$


$


$


$


$
1,362,500

$


$
1,362,500Average payable rate














5.3
%




5.3
%Average receivable rate














5.0
%




5.0
%


25

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Restated)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PageReports of Independent Registered Public Accounting Firm

27Consolidated Balance Sheets

29Consolidated Statements of Operations

30Consolidated Statements of Stockholders' Equity (Deficit)

31Consolidated Statements of Cash Flows

32Notes to Consolidated Financial Statements

34


26

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Report of Independent Registered Public Accounting Firm

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

We
have audited the accompanying consolidated balance sheets of Station Casinos, Inc. and its subsidiaries (the "Company") as of December 31, 2007 (Successor) and 2006 (Predecessor), and
the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the period from November 8, 2007 through December 31, 2007, (Successor), the period
from January 1, 2007 through November 7, 2007 (Predecessor) and for each of the two years in the period ended December 31, 2006 (Predecessor). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, 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 to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2007 (Successor) and 2006
(Predecessor), and the consolidated results of its operations and its cash flows for the period from November 8, 2007 through December 31, 2007, (Successor), the period from
January 1, 2007 through November 7, 2007 (Predecessor) and for each of the two years in the period ended December 31, 2006 (Predecessor), in conformity with U.S. generally
accepted accounting principles.

As
discussed in Notes 14 and 16, in 2006 the Company adopted Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, and Statement of Financial Accounting Standards
No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans.

As
discussed in Note 21, the Company has restated previously issued financial statements as of December 31, 2007 (Successor) and for the period from November 8, 2007 through
December 31, 2007 (Successor).

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of
December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
February 28, 2008 expressed an unqualified opinion thereon.



Las
Vegas, Nevada
February 28, 2008, except for Note 21
as to which the date is August 11, 2008

27

---



Report of Independent Registered Public Accounting Firm

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

We
have audited Station Casinos, Inc. and its subsidiaries' (the "Company") internal control over financial reporting as of December 31, 2007 based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company's management is responsible for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the
financial statements.

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

In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007 based on the COSO criteria.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company at December 31, 2007
(Successor) and 2006 (Predecessor), and the consolidated statements of operations, stockholders' equity (deficit), and cash flows for the period from November 8, 2007 through
December 31, 2007, (Successor), the period from January 1, 2007 through November 7, 2007 (Predecessor) and for each of the two years in the period ended December 31, 2006
(Predecessor) of the Company and our report dated February 28, 2008 expressed an unqualified opinion thereon.



Las
Vegas, Nevada
February 28, 2008

28

---





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

Successor

PredecessorDecember 31,
2007

December 31,
2006(As Restated
See Note 21)ASSETSCurrent assets:Cash and cash equivalents

$
96,392

$
116,898Restricted cash


966


Receivables, net


48,680


40,762Inventories


12,496


9,676Prepaid gaming tax


21,541


21,519Prepaid expenses


14,472


12,696Total current assets


194,547


201,551Property and equipment, net


3,563,497


2,586,473Goodwill


2,964,938


154,498Intangible assets, net


1,002,617


Land held for development


516,186


214,374Investments in joint ventures


391,953


253,577Native American development costs


200,667


181,153Other assets, net


154,261


125,070Total assets

$
8,988,666

$
3,716,696LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)Current liabilities:Current portion of long-term debt

$
2,610

$
341Accounts payable


16,954


19,558Construction contracts payable


23,151


58,318Accrued expenses and other current liabilities


178,018


173,689Total current liabilities


220,733


251,906Long-term debt, less current portion


5,168,539


3,468,487Deferred income tax, net


789,644


109,788Due to unconsolidated affiliate


100,000


Other long-term liabilities, net


138,688


73,373Total liabilities


6,417,604


3,903,554Commitments and contingenciesStockholders' equity (deficit):Successor:Common stock, par value $0.01; authorized 10,000 shares; 41.7 shares issued





Non-voting common stock, par value $0.01; authorized 100,000,000 shares; 41,674,838 shares issued


417


Predecessor:Common stock, par value $0.01; authorized 135,000,000 shares; 80,507,427 shares issued





593Treasury stock, 23,245,751 shares, at cost





(1,039,804
)Additional paid-in capital


2,920,526


582,739Accumulated other comprehensive loss


(11,981
)

(10,782
)Retained (deficit) earnings


(337,900
)

280,396Total stockholders' equity (deficit)


2,571,062


(186,858
)Total liabilities and stockholders' equity (deficit)

$
8,988,666

$
3,716,696


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

29

---





STATION CASINOS, INC.        CONSOLIDATED STATEMENTS OF OPERATIONS        (amounts in thousands)

Successor

PredecessorPeriod from
November 8, 2007
Through
December 31, 2007

Period from
January 1, 2007
Through
November 7, 2007

Year Ended
December 31, 2006

Year Ended
December 31, 2005(As Restated
See Note 21)Operating revenues:Casino

$
151,867

$
879,097

$
969,147

$
825,995Food and beverage


37,885


210,698


211,579


146,774Room


14,926


97,514


82,431


61,238Other


12,543


64,800


70,245


52,550Management fees


9,708


78,077


99,485


95,144Gross revenues


226,929


1,330,186


1,432,887


1,181,701Promotional allowances


(17,218
)

(92,902
)

(93,863
)

(72,868
)Net revenues


209,711


1,237,284


1,339,024


1,108,833Operating costs and expenses:Casino


60,946


331,009


348,659


286,503Food and beverage


27,236


149,998


152,300


102,970Room


5,548


32,103


29,962


21,094Other


4,363


24,586


26,244


17,799Selling, general and administrative


37,567


217,596


230,278


181,670Corporate


292,955


47,541


60,540


57,619Development


1,294


7,068


9,036


8,747Depreciation and amortization


32,292


136,498


131,094


101,356Loss (gain) on asset disposals, net


754


(1,586
)

1,736


3,916Preopening


251


1,880


29,461


6,560Merger transaction costs





156,500


2,526


Impairment loss





16,631





Management agreement/lease terminations





3,825


1,053


14,654463,206


1,123,649


1,022,889


802,888Operating (loss) income


(253,495
)

113,635


316,135


305,945Earnings from joint ventures


5,875


34,247


41,854


38,281Operating (loss) income and earnings from joint ventures


(247,620
)

147,882


357,989


344,226Other expense:Interest expense, net


(61,276
)

(197,370
)

(171,729
)

(80,378
)Interest and other expense from joint ventures


(4,743
)

(23,503
)

(6,808
)

(6,343
)Change in fair value of derivative instrument


(30,686
)







Loss on early retirement of debt


(20,311
)







(1,278
)(117,016
)

(220,873
)

(178,537
)

(87,999
)(Loss) income before income taxes


(364,636
)

(72,991
)

179,452


256,227Income tax benefit (provision)


26,736


15,335


(69,240
)

(94,341
)Net (loss) income

$
(337,900
)
$
(57,656
)
$
110,212

$
161,886


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

30

---





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

Common
stock

Non-voting
common
stock

Treasury
stock

Additional
paid-in
capital

Deferred
compensation-
restricted
stock

Accumulated
other
comprehensive
income (loss)

Retained
earnings
(deficit)

Total
stockholders'
(deficit) equityPredecessor:Balances, December 31, 2004

$
561

$


$
(137,714
)
$
567,939

$
(77,598
)
$
(611
)
$
136,344

$
488,921Exercise of stock options


16








50,744











50,760Issuance of restricted stock, net


1








8,669


(8,670
)







Amortization of deferred compensation














12,669








12,669Purchase of treasury stock, at cost (0.3 million shares)








(21,414
)













(21,414
)Interest rate swap market value adjustment,
net of tax

















635





635Dividends paid




















(62,643
)

(62,643
)Net income




















161,886


161,886Balances, December 31, 2005


578





(159,128
)

627,352


(73,599
)

24


235,587


630,814SFAS 123R adoption reclass











(73,599
)

73,599








Exercise of stock options


1








4,706











4,707Issuance of restricted stock, net


14








(14
)










Share-based compensation expense











24,294











24,294Purchase of treasury stock, at cost (12.7 million shares)








(880,676
)













(880,676
)Interest rate swap market value adjustment,
net of tax

















(636
)




(636
)Adoption of SFAS 158, net of tax

















(10,170
)




(10,170
)Dividends paid




















(65,403
)

(65,403
)Net income




















110,212


110,212Balances, December 31, 2006


593





(1,039,804
)

582,739





(10,782
)

280,396


(186,858
)Adoption of FIN 48




















(522
)

(522
)Exercise of stock options











2,366











2,366Share-based compensation expense











143,714











143,714Purchase of treasury stock, atcost (1.3 million shares)








(110,164
)













(110,164
)Interest rate swap market value adjustment,
net of tax

















(7,179
)




(7,179
)Unrealized gain on available-for-sale securities, net of tax

















607





607Amortization of unrecognized pension and postretirement benefit plan liabilities, net of tax

















513





513Dividends paid




















(49,050
)

(49,050
)Net loss




















(57,656
)

(57,656
)Balances, November 7, 2007

$
593

$


$
(1,149,968
)
$
728,819

$


$
(16,841
)
$
173,168

$
(264,229
)Successor:Balances, November 8, 2007

$


$
97

$


$
(68,993
)
$


$
(16,841
)
$


$
(85,737
)Cash investment by FCP





317





2,703,984











2,704,301Cash investment by management





3





1,841











1,844Interest rate swap acquired from FCP,
net of tax*











(27,739
)










(27,739
)Share-based compensation expense











288,130











288,130Excess tax benefit from exercise of stock options











23,303











23,303Interest rate swap market value adjustment,
net of tax*

















1,314





1,314Unrealized gain on available-for-sale securities, net of tax

















(119
)




(119
)Amortization of unrecognized pension and postretirement benefit plan liabilities, net of tax

















3,665





3,665Net loss*




















(337,900
)

(337,900
)Balances, December 31, 2007*

$


$
417

$


$
2,920,526

$


$
(11,981
)
$
(337,900
)
$
2,571,062


---

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

31

---





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

Successor

PredecessorPeriod from
November 8, 2007
Through
December 31, 2007

Period from
January 1, 2007
Through
November 7, 2007

Year Ended
December 31, 2006

Year Ended
December 31, 2005(As Restated
See Note 21)Cash flows from operating activities:Net (loss) income

$
(337,900
)
$
(57,656
)
$
110,212

$
161,886Adjustments to reconcile net (loss) income to net cash provided by operating activities:Depreciation and amortization


32,292


136,498


131,094


101,356Change in fair value of derivative instrument


30,686








Tax benefit from exercise of stock options











31,803Excess tax benefit from exercise of stock options


(23,303
)




(3,145
)

Share-based compensation


288,130


143,714


24,294


12,669Earnings from joint ventures


(1,132
)

(10,744
)

(35,046
)

(31,938
)Distributions of earnings from joint ventures





82,115


890


11,867Amortization of debt discount and issuance costs


5,907


4,392


4,731


3,262Loss on early retirement of debt


20,311








1,278Impairment loss





16,631





Changes in assets and liabilities:Receivables, net


2,786


(10,704
)

(21,158
)

1,848Inventories and prepaid expenses


1,439


(6,057
)

(9,836
)

(4,419
)Deferred income tax


(3,348
)

(24,023
)

38,739


59,481Accounts payable


(10,422
)

7,818


6,947


2,260Accrued expenses and other current liabilities


18,454


(13,342
)

39,589


19,885Other, net


(5,211
)

4,831


6,062


5,653Total adjustments


356,589


331,129


183,161


215,005Net cash provided by operating activities


18,689


273,473


293,373


376,891Cash flows from investing activities:Acquisition of Station Casinos, Inc. including direct Merger costs


(4,217,469
)







Capital expenditures


(55,510
)

(530,364
)

(754,988
)

(830,805
)Proceeds from sale of land, property and equipment


105


10,019


18,002


22,143Investments in joint ventures, net


(27,983
)

(81,552
)

(39,759
)

(1,295
)Distributions in excess of earnings from joint ventures


488


106,999





Construction contracts payable


(19,619
)

(15,548
)

(24,833
)

46,853Native American development costs


(2,454
)

(17,060
)

(15,909
)

(111,900
)Other, net


(1,523
)

(2,912
)

(18,774
)

(10,323
)Net cash used in investing activities


(4,323,965
)

(530,418
)

(836,261
)

(885,327
)Cash flows from financing activities:Cash equity contributions


2,706,145








Proceeds from issuance of CMBS loans


2,475,000








Borrowings under the Revolver with maturity dates less than three months, net


293,100








Borrowings under the Term Loan with maturity dates greater than three months


250,000








(Payments) borrowings under Revolving Facility with maturity dates less than three months, net


(1,383,300
)

227,500


825,800


278,500Proceeds from issuance of related party promissory note





100,000





Proceeds from financing transaction





70,000





Proceeds from the issuance of senior and senior subordinated notes, net








698,500


358,250Redemption of senior and senior subordinated notes











(34,272
)Purchase of treasury stock





(110,164
)

(880,676
)

(21,414
)Payment of dividends





(49,050
)

(65,403
)

(62,643
)Debt issuance costs


(60,086
)

(8
)

(8,660
)

(11,381
)Exercise of stock options





560


1,562


18,957Excess tax benefit from exercise of stock options


23,303





3,145


Other, net


(1,229
)

(56
)

(34
)

(426
)Net cash provided by financing activities


4,302,933


238,782


574,234


525,571


32

---



STATION CASINOS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(amounts in thousands)

Successor

PredecessorPeriod from
November 8, 2007
Through
December 31, 2007

Period from
January 1, 2007
Through
November 7, 2007

Year Ended
December 31, 2006

Year Ended
December 31, 2005(As Restated
See Note 21)Cash and cash equivalents:(Decrease) increase in cash and cash equivalents


(2,343
)

(18,163
)

31,346


17,135Balance, beginning of period


98,735


116,898


85,552


68,417Balance, end of period

$
96,392

$
98,735

$
116,898

$
85,552Supplemental cash flow disclosures:Cash paid for interest, net of $3,083, $16,309, $29,638 and $22,287 capitalized

$
21,446

$
219,129

$
137,464

$
75,424Cash (received) paid for income taxes, net

$


$
(15,871
)
$
34,283

$
3,036Supplemental disclosure of non-cash items:Rollover equity

$
1,044,590

$


$


$
Assets assumed in Merger

$
7,759

$


$


$
Liabilities assumed in Merger

$
(3,542
)
$


$


$
Capital expenditures financed by debt

$


$
3,453

$
1,788

$
Land contributed to joint ventures, net

$


$


$
50,708

$
Investment in MPM

$


$


$


$
3,467Interest rate swap acquired from FCP

$
(42,675
)
$


$


$



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

33

---





STATION CASINOS, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies and Basis of Presentation



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 nine major hotel/casino properties (one of which is 50% owned) under the Station and Fiesta brand names and eight smaller casino properties
(three of which are 50% owned), in the Las Vegas metropolitan area, as well as manages a casino for a Native American tribe. The accompanying consolidated financial statements include the accounts of
Station and its wholly owned subsidiaries and MPM Enterprises, LLC (which is 50% owned by Station and required to be consolidated). Investments in all other 50% or less owned affiliated
companies are accounted for under the equity method. All significant intercompany accounts and transactions have been eliminated.

On
November 7, 2007, the Company completed its merger (the "Merger") with FCP Acquisition Sub, a Nevada corporation ("Merger Sub"), pursuant to which Merger Sub merged with and
into the Company with the Company continuing as the surviving corporation. The Merger was completed pursuant to the Agreement and Plan of Merger (the "Merger Agreement"), dated as of
February 23, 2007 and amended as of May 4, 2007, among the Company, Fertitta Colony Partners LLC, a Nevada limited liability company ("FCP"), and Merger Sub, as amended.

As
a result of the Merger, 24.1% of the issued and outstanding shares of non-voting common stock of the Company are owned by Fertitta Partners LLC, a Nevada limited
liability company ("Fertitta Partners"), which is owned by affiliates of Frank J. Fertitta III, Chairman and Chief Executive Officer of Station, affiliates of Lorenzo J. Fertitta, Vice Chairman and
President of Station, affiliates of Blake L. Sartini and Delise F. Sartini, and certain officers and other members of
management of the Company. The remaining 75.9% of the issued and outstanding shares of non-voting common stock of the Company are owned by FCP Holding, Inc., a Nevada corporation
("FCP HoldCo") and a wholly-owned subsidiary of FCP. FCP is owned by an affiliate of Colony Capital, LLC ("Colony") and affiliates of Frank J. Fertitta III and Lorenzo J.
Fertitta. Substantially simultaneously with the consummation of the Merger, shares of voting common stock of Station were issued for nominal consideration to FCP VoteCo LLC, a Nevada limited
liability company ("FCP VoteCo"), which is owned equally by Frank J. Fertitta III, Lorenzo J. Fertitta and Thomas J. Barrack, Jr., Chairman and Chief Executive Officer of Colony.

At
the effective time of the Merger, each outstanding share of our common stock, including any rights associated therewith (other than shares of our common stock owned by FCP, Merger
Sub, FCP HoldCo, Fertitta Partners or any wholly-owned subsidiary of the Company or shares of our common stock held in treasury by us) was cancelled and converted into the right to receive $90 in
cash, without interest. Following the consummation of the Merger, the Company is privately owned through FCP HoldCo, Fertitta Partners and FCP VoteCo. Station common stock ceased trading on the New
York Stock Exchange at market close on November 7, 2007, and will no longer be listed on any exchange or quotation system. The Company's voting common stock is registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended.

The
Merger resulted in a greater than 50% control of the Company and was a "business combination" for accounting purposes, requiring that FCP, Fertitta Partners, FCP VoteCo and their
respective owners (the "Investors"), pursuant to Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", record the acquired assets and assumed liabilities at
their fair market values as of the acquisition date, resulting in a new basis of accounting. As a result of the Securities and Exchange Commission's rules and guidance regarding
"push-down" accounting, the Investors' new accounting basis

34

---



STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

in
our assets and liabilities is reflected in our consolidated financial statements to the extent that the Investors paid cash for the non-voting stock of the Company as of the
consummation of the Merger. Management has deemed it impracticable to determine the individual investors' carryover basis in the shares and has accordingly computed the carryover basis based on the
pro rata portion of book value of Station prior to the Merger. The accompanying consolidated statements of operations, stockholders' equity (deficit) and cash flows for 2007 are presented for two
periods: January 1, 2007 through November 7, 2007 (the "Predecessor Period") and November 8, 2007 through December 31, 2007 (the "Successor Period"). The Predecessor Period
reflects the historical accounting basis in our assets and liabilities, while the Successor Period reflects the push down of the Investors' new basis to our consolidated financial statements.



The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions for items such as slot club program liability, self-insurance reserves, bad debt reserves, estimated useful lives assigned to our
assets, asset impairment, purchase price allocations made in connection with acquisitions and the calculation of the income tax liabilities, that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ
from those estimates.



Cash and cash equivalents include cash on hand at our properties, as well as investments purchased with an original maturity of
90 days or less.



Restricted cash relates primarily to cash reserves as a requirement of our debt agreements.



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



The carrying value of our cash and cash equivalents, restricted cash, receivables and accounts payable approximates fair value
primarily because of the short maturities of these instruments. The estimated fair value of our long-term debt is based on quoted market prices on or about December 31, 2007, for
our debt securities that are publicly traded. For debt with short-term maturities, the fair value approximates the carrying amount.



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

35

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

We
evaluate our property and equipment and other long-lived assets for impairment in accordance with SFAS 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets". For assets to be disposed of, we recognize the asset to be sold at the lower of carrying value or fair market value less costs of disposal. Fair market value for assets
to be disposed of is generally estimated based on comparable asset sales, solicited offers or a discounted cash flow model. For assets to be held and used, we review fixed assets for impairment
whenever indicators of impairment exist. If an indicator of impairment exists, we compare the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If
the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then an impairment is measured based on fair value
compared to carrying value, with fair value typically based on a discounted cash flow model. Our consolidated financial statements reflect all adjustments required by SFAS 144 as of
December 31, 2007 and 2006.



We capitalize interest costs associated with debt incurred in connection with major construction projects. Interest capitalization
ceases once the project is substantially complete or no longer undergoing construction activities to prepare it for its intended use. When no debt is specifically identified as being incurred in
connection with such construction projects, we capitalize interest on amounts expended on the project at our weighted average cost of borrowings. Interest capitalized was approximately
$3.1 million, $16.3 million, $29.6 million and $22.3 million for the Successor Period, the Predecessor Period and the years ended December 31, 2006 and 2005,
respectively.



In accordance with SFAS 142, "Goodwill and Other Intangible Assets", we test for impairment of goodwill and indefinite-lived
intangible assets annually. For the Predecessor Period, we utilized fair values established through a third-party business valuation to determine any possible impairment. For the years ending
December 31, 2006 and 2005, we utilized the Income Approach, which focuses on the income-producing capability of the respective property during the fourth quarter of each fiscal year. The
underlying premise of this approach is that the value of an asset can be measured by the present worth of the net economic benefit (cash receipts less cash outlays) to be received over the life of the
subject asset. The steps followed in applying this approach include estimating the expected after-tax cash flows attributable to the respective property and converting these
after-tax cash flows to present value through discounting. The discounting process uses a rate of return, which accounts for both the time value of money and investment risk factors. The
present value of the after-tax cash flows is then totaled to arrive at an indication of the fair value of the assets. Under both methods, if the fair value of the assets exceeds the
carrying value, then impairment is measured based on the difference between the calculated fair value and the carrying value. For the Predecessor Period, we determined that an impairment of goodwill
at Magic Star and Gold Rush totaling approximately $8.0 million existed which we expensed accordingly. We determined that there was no impairment during 2006 or 2005.



We incur certain costs associated with development and management agreements entered into with Native American Tribes (the "Tribe"). In
accordance with SFAS 67, "Accounting for Costs and Initial Rental Operations of Real Estate Projects", costs for the acquisition and related development of the land

36

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

and
the casino facilities are capitalized as long-term assets until such time as the assets are transferred to the Tribe at which time a long term receivable is recognized.

In
accordance with SFAS 34, "Capitalization of Interest Costs", we capitalize interest to the project once a "Notice of Intent" (or the equivalent) to transfer the land into
trust, signifying that activities are in progress to prepare the asset for its intended use, has been issued by the United States Department of the Interior ("DOI").

We
earn a return on the costs incurred for the acquisition and development of the projects based upon the costs incurred over the development period of the project. In accordance with
SFAS 66, "Accounting for Sales of Real Estate", we recognize the return when the facility is complete and collectability of the receivable is assured. Due to the uncertainty surrounding the
estimated cost to complete and the collectability of the stated return, we defer the return until the gaming facility is complete and transferred to the Tribe and the resulting receivable has been
repaid. Repayment of the resulting advances would be from a refinancing by the Tribe, from the cash flow from the gaming facility or both.

On
a quarterly basis, we evaluate the Native American Development Costs for impairment in accordance with SFAS 144. We review the Native American Development Costs for impairment
whenever indicators of impairment exist. If an indicator of impairment exists, we compare 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 the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then impairment is measured based on fair value
compared to carrying amount, with fair value typically based on a discounted cash flow model. The consolidated financial statements reflect all adjustments required by SFAS 144 as of
December 31, 2007 and 2006.



Debt issuance costs incurred in connection with the issuance of long-term debt are capitalized and amortized to interest
expense over the expected terms of the related debt agreements and are included in other assets, net on our consolidated balance sheets.



We expense advertising costs the first time the advertising takes place. Advertising expense, which is generally included in selling,
general and administrative expenses on the accompanying consolidated statement of operations was approximately $3.6 million, $17.7 million, $19.1 million and $13.5 million
for the Successor Period, the Predecessor Period and the years ended December 31, 2006 and 2005, respectively.



Preopening expenses have been expensed as incurred. The construction phase of a project typically covers a period of 12 to
24 months. The majority of preopening costs are incurred in the three months prior to opening. We incurred preopening expenses of approximately $0.3 million and $1.9 million
during the Successor Period and the Predecessor Period, respectively, primarily related to projects under development. During the years ended December 31, 2006 and 2005, we incurred preopening
expenses of approximately $29.5 million and $6.6 million, respectively, primarily related to the development of Red Rock which opened on April 18, 2006.

37

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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



From time to time we enter into interest rate swaps in order to manage interest rate risks associated with our current and future
borrowings. As such, we have adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", and as amended by SFAS 138 and 149, to account for interest rate swaps. The
pronouncements require us to recognize the interest rate swaps as either assets or liabilities in the consolidated 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 whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging
relationship. Additionally, the difference between amounts 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
incurred over the life of the swap.

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

Derivative
instruments that are designated as fair value hedges and qualify for the "shortcut" method under SFAS 133, and as amended by SFAS 138 and 149, allow for an
assumption of no ineffectiveness. As such, there is no impact on the consolidated statement of operations from the changes in the fair value of the hedging instrument. Instead, the fair value of the
instrument is recorded as an asset or liability on our balance sheet with an offsetting adjustment to the carrying value of the related debt (see Note 10).



We recognize as casino revenues the net win from gaming activities, which is the difference between gaming wins and losses. All other
revenues are recognized as the service is provided. Additionally, our Boarding Pass and Amigo Club player rewards programs (the "Programs") allow customers to redeem points earned from their gaming
activity at all Station and Fiesta properties for complimentary food, beverage, rooms, entertainment and merchandise. At the time redeemed, the retail value of complimentaries under the Programs is
recorded as revenue with a corresponding offsetting amount included in promotional allowances. The cost associated with complimentary food, beverage, rooms, entertainment and merchandise redeemed
under the Programs is recorded in casino costs and expenses. The estimated departmental costs of providing such promotional allowances are included in casino costs and expenses and consist of the
following (amounts in thousands):

Successor

PredecessorPeriod from
November 8, 2007
Through
December 31, 2007

Period from
January 1, 2007
Through
November 7, 2007

Year Ended
December 31,
2006

Year Ended
December 31,
2005Food and beverage

$
15,524

$
82,591

$
82,270

$
62,424Room


1,126


5,588


5,794


3,786Other


816


3,948


3,832


3,414Total

$
17,466

$
92,127

$
91,896

$
69,624


We
also record a liability for the estimated cost of the outstanding points under the Programs that we believe will ultimately be redeemed.

38

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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



We have entered into various related party transactions, which consist primarily of lease payments related to ground leases at Boulder
Station and Texas Station and the purchase of certain assets. The expenses related to these related party ground lease transactions were approximately $0.9 million, $5.3 million,
$6.2 million and $5.9 million for the Successor Period, the Predecessor Period and the years ended December 31, 2006 and 2005, respectively. In February 2005, we purchased
approximately 96 acres of gaming-entitled property in Reno, Nevada for $15.1 million from Blake L. Sartini, the brother-in-law of Frank J. Fertitta III, Chief Executive
Officer, and Lorenzo J. Fertitta, President. Additionally, we have purchased tickets to events held by Zuffa, LLC which is the parent company of the Ultimate Fighting Championship and is owned
by Frank J. Fertitta III and Lorenzo J. Fertitta. For the Successor Period, the Predecessor Period and the year ended December 31, 2006, ticket purchases totaled approximately
$0.1 million, $0.2 million and $0.3 million, respectively. No tickets were purchased for the year ended December 31, 2005.



Effective January 1, 2006, we adopted SFAS 123R, "Share-Based Payment", utilizing the modified prospective application.
Under the modified prospective application, SFAS 123R applies to new awards and awards that were outstanding 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 and subsequent periods includes compensation cost of 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 the original provisions of SFAS 123 and compensation cost for all share-based payments granted subsequent to January 1,
2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. Accordingly, prior period amounts are not restated to reflect the impact of
adopting SFAS 123R under the modified prospective application.

Prior
to adopting SFAS 123R, we accounted for share-based awards under APB Opinion 25, "Accounting for Stock Issued to Employees", which resulted in compensation expense recorded
only for restricted share awards and for modification of outstanding unvested options. Upon adoption of SFAS 123R, we began recognizing compensation expense related to stock option awards that
were previously disclosed as pro forma information regarding net income. Compensation expense related to restricted stock awards continued to be expensed as under APB Opinion 25, with the addition of
estimated forfeitures.



Equity Awards.Upon consummation of the Merger, FCP and Fertitta Partners issued Class B Units to an affiliate of Frank J. Fertitta III, Lorenzo J. Fertitta
and certain officers of the Company. Pursuant to SFAS 123R, the unearned share-based compensation related to the Class B Units is amortized to compensation expense over the requisite
service period (immediate to five years). The share-based expense for these awards was based on the estimated fair market value of the Class B Units at the date of the Merger applied to the
total number of Class B Units that were anticipated to fully vest and then amortized over the vesting period.

Also
upon consummation of the Merger, FCP and Fertitta Partners issued Class C Units to certain officers and management of the Company. Pursuant to SFAS 123R, the unearned
share-based

39

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

compensation
related to the Class C Units is amortized to compensation expense over the requisite service period (five years). The share-based expense for these awards was based on the estimated fair
market value of the Class C Units at the date of the Merger, applied to the total number of Class C Units that were anticipated to fully vest and then amortized over the vesting period.



As a result of the consummation of the Merger described above, all outstanding stock options and unvested restricted stock awards under
the 2005 Plan and Prior Plans vested and $124.9 million in previously unrecognized compensation expense was recognized during the Predecessor Period and is included in merger transaction costs
on the consolidated statement of operations.

Stock Options.The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model and expensed using the
straight-line approach. Option valuation models require the input of highly subjective assumptions and changes in the assumptions used can materially affect the fair value estimate.
Expected volatility and dividends were based on implied and historical factors related to our common stock. The expected term represented the weighted-average time between grant date and exercise date
and the risk-free interest rate was based on U.S. Treasury rates appropriate for the expected term. We used historical data and projections to estimate expected employee behaviors related
to option exercises and forfeitures. SFAS 123R requires that forfeitures be included as part of the grant date estimate. The effect of forfeitures related to previous SFAS 123 pro forma
expense was not material.

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

Restricted Stock.The unearned share-based compensation related to restricted stock was amortized to compensation expense over the period the restrictions lapse
(generally five to ten years). The share-based expense for these awards was determined based on the market price of our stock at the date of grant applied to the total number of shares that were
anticipated to fully vest and then amortized over the vesting period. Upon adoption of SFAS 123R, we recognize compensation expense based on our expectation of which restricted stock awards
will vest over the requisite service period for such awards. Prior to implementing SFAS 123R, we recognized deferred compensation as a contra-equity account representing the amount of
unrecognized restricted stock expense that was reduced as the expense was recognized. Under the provisions of SFAS 123R, the previously recorded deferred compensation was recorded against
additional paid-in capital.

The
recognition of compensation expense related to the issuance of restricted stock has not changed with the adoption of SFAS 123R, except for the addition of the estimate of
forfeitures, and such compensation expense continues to be expensed in the statements of operations. During the year ended December 31, 2006, income before income tax and net income were
reduced by approximately $2.2 million and $1.4 million, respectively reflecting compensation expense related to stock option awards that were

40

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

previously
not recognized in the consolidated financial statements due to our prior application of APB Opinion 25.



SFAS 131, "Disclosures about Segments of an Enterprise and Related Information", requires separate financial information be
disclosed for all operating segments of a business. We believe we meet the "economic similarity" criteria established by SFAS 131, and as a result, we aggregate all of our properties into one
operating segment. All of our properties offer the same products, cater to the same customer base, are all located in the greater Las Vegas, Nevada area, have the same regulatory and tax structure,
share the same marketing techniques and are all directed by a centralized management structure.



In December 2007, the Financial Accounting Standards Board ("FASB") issued SFAS 141R, "Business Combinations". Under
SFAS 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value, with limited
exceptions, replacing SFAS 141's cost-allocation process. SFAS 141R also includes a substantial number of new disclosure requirements. SFAS 141R is to be applied
prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early adoption
is prohibited. We will adopt SFAS 141R in the first quarter of 2009 and we expect SFAS 141R will have an impact on our accounting for future business combinations once adopted; however,
the effect is dependent upon acquisitions that are made in the future.

In
December 2007, the FASB issued SFAS 160, "Noncontrolling Interests in Consolidated Financial StatementsAn Amendment of ARB No. 51". SFAS 160
establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest as equity in the consolidated financial statements and separate from the parent's equity. In addition,
the amount of net income attributable to the noncontrolling interest should be included in consolidated net income on the face of the income statement. SFAS 160 is effective for fiscal years,
and interim periods within those fiscal years, beginning on or after December 15, 2008. Early adoption is prohibited. We are evaluating SFAS 160 and have not yet determined the impact
the adoption will have on the consolidated financial statements.

In
February 2007, the FASB issued SFAS 159, "The Fair Value Option for Financial Assets and Financial Liabilitiesincluding an amendment of FASB Statement 115" that
provides companies with an option to report certain financial assets and liabilities in their entirety at fair value. This statement is effective for fiscal years beginning after November 15,
2007. The fair value option may be applied instrument by instrument, and may be applied only to entire instruments. A business entity would report unrealized gains and losses on items for which the
fair value option has been elected in earnings at each subsequent reporting date. We are evaluating our options provided for under this statement and their potential impact on the consolidated
financial statements when implemented. SFAS 159 is being reviewed in conjunction with the requirements of SFAS 157 discussed below.

In
September 2006, the FASB issued SFAS 157, "Fair Value Measurements". This statement defines fair value, establishes a framework for measuring fair value for both assets and
liabilities through a fair value hierarchy and expands disclosure requirements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007
and interim periods within those fiscal years. In

41

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

February
2008, FASB issued FASB Staff Position ("FSP") FAS 157-2, which defers the effective date of SFAS 157 to fiscal years beginning November 15, 2008, and interim
periods within those fiscal years, for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in an entity's financial statements on a recurring basis. We are
evaluating SFAS 157 and have not yet determined the impact the adoption will have on the consolidated financial statements.



Certain amounts in the December 31, 2006 and 2005 consolidated financial statements have been reclassified to conform to the
2007 presentation. These reclassifications had no effect on the previously reported net income.

2. Acquisition of Station Casinos, Inc. (Restated)

On November 7, 2007, pursuant to the Merger Agreement described in Note 1, approximately 72.2% of the outstanding shares of the Company were acquired for
$4.17 billion. In addition, we incurred approximately $52.0 million of direct Merger costs and approximately $60.1 million in capitalized debt issuance costs related to new
financings under a new senior secured credit agreement and a mortgage loan and related mezzanine financings. By going private, the Merger provides the Company with greater operating flexibility,
allowing management to concentrate on long-term growth, reduce its focus on the quarter-to-quarter performance often emphasized by the public markets and pursue
alternatives.

We
valued the assets acquired and liabilities assumed based on an initial third-party business valuation at the date of the Merger. In accordance with the provisions of SFAS 141,
to the extent that the purchase price exceeded the fair value of the net identifiable tangible and intangible assets acquired, such excess was allocated to goodwill. We believe that the goodwill arose
from the our dominance in the local Las Vegas gaming market, the value of the existing workforce and existing management and operating infrastructure. The purchase price allocation is preliminary and
will be completed within one year of the Merger as provided under SFAS 141; thus the allocation of the purchase price is subject to refinement.

November 7,
2007(in millions)Current assets

$
120Property and equipment, net


2,753Intangible assets


1,014Goodwill


2,924Other assets


948Current liabilities assumed


(151
)Debt assumed


(2,539
)Other long-term liabilities assumed


(852
)$
4,217




The following unaudited pro forma results of operations assume that the Merger occurred at the beginning of the respective fiscal
years. This unaudited pro forma information should not be relied upon as

42

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Acquisition of Station Casinos, Inc. (Restated) (Continued)

necessarily
being indicative of the results that would have been obtained if the Merger had actually occurred on those dates, nor of the results that may be reported in the future. The pro forma
financial information for each year presented contains an adjustment of $286.3 million for the immediate vesting of Class B Units.

For the Year Ended December 31,2007

2006(As Restated
See Note 21)(amounts in thousands)Net revenue

$
1,446,995

$
1,339,024Operating loss


(32,102
)

(191,800
)Interest expense, net


366,995


355,149Net loss


(539,949
)

(382,168
)




During the Predecessor Period, the Company recorded approximately $156.5 million in costs related to the Merger. These costs,
presented as "Merger Transaction Costs" on the face of the consolidated statement of operations, include approximately $31.6 million of accounting, investment banking, legal and other costs
associated with the Merger and $124.9 million of expense related to the accelerated vesting and buyout of employee stock options and restricted stock awards upon consummation of the Merger.

3. Receivables

Components of receivables are as follows (amounts in thousands):

Successor

PredecessorDecember 31,
2007

December 31,
2006Casino

$
18,385

$
12,882Hotel


7,923


6,475Management fees


4,721


9,459Income tax


17,167


7,100Due from unconsolidated joint ventures


3,122


1,988Other


4,587


6,19055,905


44,094Allowance for doubtful accounts


(7,225
)

(3,332
)Receivables, net

$
48,680

$
40,762


43

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Property and Equipment

Property and equipment consists of the following (amounts in thousands):

Successor

PredecessorEstimated life
(years)

December 31,
2007

December 31,
2006Land




$
1,010,913

$
312,714Buildings and improvements


10-45


2,123,501


2,034,613Furniture, fixtures and equipment


3-7


498,429


745,457Construction in progress





161,733


148,2963,794,576


3,241,080Accumulated depreciation and amortization





(231,079
)

(654,607
)Property and equipment, net




$
3,563,497

$
2,586,473


As
a result of the Merger discussed in Note 1 and pursuant to the provisions of SFAS 141, property and equipment balances at December 31, 2007 reflect the push down
of the Investors' new basis to our consolidated financial statements, while the December 31, 2006 balances reflect our historical accounting basis. At December 31, 2007 and 2006,
substantially all of our property and equipment is pledged as collateral for our long-term debt.

5. Goodwill and Other Intangible Assets

As discussed in Note 2, in connection with the Merger completed on November 7, 2007, we recorded $2.92 billion of goodwill and $1.01 billion of intangible
assets during the Successor Period. Intangible assets as of December 31, 2007 are shown on the table below. There was $154.5 million of goodwill and no intangible assets recorded on the
consolidated balance sheet at December 31, 2006.

SuccessorDecember 31, 2007(amounts in thousands)Estimated life
(years)

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
AmountBrands


Indefinite

$
214,791

$


$
214,791Customer relationships


25


268,961


(2,473
)

266,488Management contracts


3-20


521,464


(7,506
)

513,958Other


1


8,654


(1,274
)

7,380$
1,013,870

$
(11,253
)
$
1,002,617


The
aggregate amortization expense for the Successor Period for those assets that are amortized under the provisions of SFAS 142 was $11.3 million. There was no intangible
amortization expense recorded for the prior periods presented. Estimated annual amortization expense for intangible assets for the years ended December 31, 2008, 2009, 2010, 2011 and 2012 is
anticipated to be $75.2 million, $65.7 million, $42.0 million, $18.5 million and $21.2 million, respectively. The amount of amortization to be recorded in future
periods is subject to change as the purchase price allocations are refined and finalized.

44

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Land Held for Development

As of December 31, 2007, we had $516.2 million of land held for development that consists primarily of seven sites that are owned or leased, which comprise 263 acres in the
Las Vegas valley, 147 acres in the northern California and 203 acres in Reno, Nevada. The primary gaming-entitled land that we own in the Las Vegas valley consists of 68 acres located at the
intersection of Durango Road and the Southern Beltway/Interstate 215 in the southwest area of Las Vegas, 49 acres also located in southwest Las Vegas at the intersection of Flamingo Road and
Interstate 215, 45 acres in Henderson, Nevada, 61 acres located on the southern end of Las Vegas Boulevard at Cactus Avenue of which we lease and have an option to purchase 2.5 acres and 30 acres on
Boulder Highway at the site formerly known as the Castaways Hotel Casino and Bowling Center.

We
also have acquired or are under contract to acquire approximately 106 acres of land on which Wild Wild West is located and the surrounding area, of which approximately 72 acres have
been acquired as of December 31, 2007. During the Predecessor Period and the years ended December 31, 2006 and 2005 we incurred and expensed approximately $25,000, $1.1 million
and $11.7 million respectively, to terminate various leases related to this land. No such expense was incurred during the Successor Period. In 2003, we exercised our option to purchase the
19-acre parcel of leased land
on which Wild Wild West is located 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 than January
2009. Additionally, the lease expense was reduced from $2.9 million to $1.6 million per year beginning in July 2005. No amounts related to this purchase option have been recorded on our
consolidated balance sheets at December 31, 2007 and 2006.

Our
decision whether to proceed with any new gaming or development opportunity is dependent upon future economic and regulatory factors, the availability of acceptable financing and
competitive and strategic considerations. As many of these considerations are beyond our control, no assurances can be made that we will be able to proceed with any particular project.

7. Investments in Joint Ventures

We have various investments in 50% owned joint ventures, and a 6.7% investment in a joint venture that owns the Palms Casino Resort in Las Vegas, Nevada, which are accounted for under
the equity method. Under the equity method, original investments are recorded at cost and adjusted by our share of earnings, losses and distributions of the joint ventures. The investment balance also
includes interest capitalized during the construction period and any fair value adjustments recorded in conjunction with the Merger described in Note 1. Investments in joint ventures consist of
the following (amounts in thousands):

Successor

PredecessorDecember 31,
2007

December 31,
2006Green Valley Ranch (50.0%)

$
143,599

$
135,271Aliante Station (50.0%)


134,949


56,812Rancho Road (50.0%)


49,958


28,285Palms Casino Resort (6.7%)


25,921


18,089Barley's (50.0%)


22,482


3,580Renata's (50.0%)


11,832


8,029The Greens (50.0%)


3,212


3,511Investments in joint ventures

$
391,953

$
253,577


45

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Investments in Joint Ventures (Continued)

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

Successor

PredecessorDecember 31,
2007

December 31,
2006Current assets

$
115,919

$
90,581Property and equipment and other assets, net


1,894,425


1,394,021Current liabilities


123,298


103,551Long-term debt and other liabilities


1,318,904


628,788Shareholders' equity


568,142


752,263


Summarized
results of operations for the joint ventures are as follows (amounts in thousands):

Successor

PredecessorPeriod from
November 8, 2007
Through
December 31, 2007

Period from
January 1, 2007
Through
November 7, 2007

Year Ended
December 31,
2006

Year Ended
December 31,
2005Net revenues

$
81,609

$
479,017

$
499,111

$
437,618Operating costs and expenses


69,613


386,920


392,689


341,021Operating income


11,996


92,097


106,422


96,597Interest and other expense, net


15,744


66,191


22,931


14,368Net (loss) income

$
(3,748
)
$
25,906

$
83,491

$
82,229


The
operating earnings from these joint ventures are shown as a separate line item on our consolidated statements of operations after operating income. In addition, interest and other
expense from these joint ventures are shown as a separate component under other expense in our consolidated statements of operations. The following table identifies the total equity earnings from
joint ventures (amounts in thousands):

Successor

PredecessorPeriod from
November 8, 2007
Through
December 31, 2007

Period from
January 1, 2007
Through
November 7, 2007

Year Ended
December 31,
2006

Year Ended
December 31,
2005Operating earnings from joint ventures

$
5,875

$
34,247

$
41,854

$
38,281Interest and other expense from joint ventures


(4,743
)

(23,503
)

(6,808
)

(6,343
)Net earnings from joint ventures

$
1,132

$
10,744

$
35,046

$
31,938


As
a result of the Merger, our investment account differs from our ownership equity in these investments by $217.3 million due to the allocation of the purchase price to these
investment accounts.
As the purchase price allocation is preliminary, the amounts allocated to our investments in joint ventures are subject to change as the purchase price allocations are refined and finalized.

46

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Management Fees

We manage 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 the management agreement). In
addition, we are the managing partner for Green Valley Ranch, Barley's, The Greens and Renata's 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% of EBITDA from Barley's, The Greens, and Renata's. Our management fees are included in net revenues on our consolidated
statements of operations.



We have entered into a Development Services Agreement and a Management Agreement with the UAIC. Our seven-year Management
Agreement was approved by the National Indian Gaming Commission (the "NIGC") and expires in June 2010. Pursuant to those agreements, and in compliance with a Memorandum of Understanding entered into
by the UAIC and Placer County, California, we developed, with the UAIC, Thunder Valley, a gaming and entertainment facility on approximately 49 acres located approximately seven miles north of
Interstate 80 on Highway 65, in Placer County, California, near Sacramento, which opened on June 9, 2003.

9. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (amounts in thousands):

Successor

PredecessorDecember 31,
2007

December 31,
2006Accrued payroll and related

$
41,634

$
47,210Accrued interest payable


69,690


66,466Accrued gaming and related


33,945


32,645Other accrued expenses and current liabilities


32,749


27,368Total accrued expenses and other current liabilities

$
178,018

$
173,689


47

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Long-term Debt (Restated)

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

Successor

PredecessorDecember 31,
2007

December 31,
2006(As Restated
See Note 21)CMBS mortgage loan and related mezzanine financings, due November 12, 2009, interest at a margin above LIBOR (7.8% at December 31, 2007)

$
2,475,000

$
Revolver, $650 million limit at December 31, 2007, due August 7, 2012, interest at a margin above the Alternate Base Rate or the Eurodollar Rate (8.2% at December 31,
 2007)


293,100


Term Loan, $250 million December 31, 2007, due August 7, 2012, interest at a margin above the Alternate Base Rate or the Eurodollar Rate (8.0% at December 31,
2007)


250,000


6% senior notes, interest payable semi-annually, principal due April 1, 2012, callable April 1, 2008, net of unamortized discount of $25.4 million and
$1.3 million at December 31, 2007 and 2006, respectively


424,608


448,74273/4% senior notes, interest payable semi-annually, principal due August 15, 2016, callable August 15, 2011, net of unamortized discount of
$8.5 million at December 31, 2007


391,455


400,00061/2% senior subordinated notes, interest payable semi-annually, principal due February 1, 2014, callable February 1, 2009, net of
unamortized discount of $54.9 million at December 31, 2007


395,093


450,00067/8% senior subordinated notes, interest payable semi-annually, principal due March 1, 2016, callable March 1, 2009, net of unamortized
discount of $92.8 million at December 31, 2007 and premium of $7.4 million December 31, 2006


607,214


707,42765/8% senior subordinated notes, interest payable semi-annually, principal due March 15, 2018, callable March 15, 2011, net of unamortized
discount of $48.1 million and $1.4 million at December 31, 2007 and 2006, respectively


251,937


298,568Other long-term debt, weighted-average interest of 8.0% and 7.1% at December 31, 2007 and 2006, respectively, maturity dates ranging from 2009 to 2026


82,742


9,196Revolving Facility, $2.0 billion limit at December 31, 2006, terminated in November 2007, interest was at a margin above the Alternate Base Rate or the Eurodollar Rate
(7.6% at December 31, 2006)





1,155,800Total long-term debt


5,171,149


3,469,733Current portion of long-term debt


(2,610
)

(341
)Market value of interest rate swaps





(905
)Total long-term debt, net

$
5,168,539

$
3,468,487


In
connection with the Merger discussed in Note 1, the assumption of our liabilities required long-term debt to be adjusted to reflect the push down of the Investors'
new basis as required by SFAS 141.

48

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Long-term Debt (Restated) (Continued)

As
a result, we recorded a reduction in the net book value of our senior and senior subordinated notes of approximately $236.8 million during the Successor Period.



In conjunction with the Merger on November 7, 2007, we terminated our $2.0 billion revolving credit facility (the
"Revolving Facility") due December 2010. As a result, we recorded a loss on early retirement of debt of approximately $8.1 million during the Successor Period to reflect the write off of the
unamortized loan costs. In addition, we terminated two cash flow hedge interest rate swaps with a notional amount of $500 million, which were due to terminate in
December 2010 and tied directly to the Revolving Facility. These cash flow hedge interest rate swaps were terminated at market value, and as a result, we paid approximately $12.2 million
which is included in our loss on early retirement of debt in the Successor Period.



In connection with the Merger, Station, as borrower, entered into a new $900 million senior secured credit agreement (the
"Credit Agreement") consisting of a $650 million revolving facility (the "Revolver") and a $250 million term loan (the "Term Loan"). The maturity date for both the Term Loan and the
Revolver is August 7, 2012 subject to a single 15-month extension (as further defined in the Credit Agreement). The Term Loan requires quarterly principal payments of $625,000
beginning March 31, 2008. The Revolver contains no principal amortization. Initial borrowings, including full funding of the Term Loan and $260 million drawn on the Revolver for an
aggregate amount of $510 million, were used to repay a portion of the outstanding amounts under the Revolving Facility. Borrowings under the Credit Agreement bear interest at a margin above the
Alternate Base Rate or the Eurodollar Rate (each as defined in the Credit Agreement), as selected by us. The margin above such rates, and the fee on the unfunded portions of the Revolver will vary
quarterly based on our combined consolidated ratio of debt to Adjusted EBITDA (as defined in the Credit Agreement). As of December 31, 2007, the borrower's margin above the Eurodollar Rate on
borrowings under the Credit Agreement was 2.50%. The maximum margin for Eurodollar Rate borrowings is 2.50%. The maximum margin for Alternate Base Rate borrowings is 1.50%. As of December 31,
2007, the fee for the unfunded portion of the Revolver was 0.375%.

The
Credit Agreement contains certain financial and other covenants. These include a minimum interest coverage ratio of 1.50 to 1.00 beginning March 31, 2008 through
June 30, 2008 which increases to 1.75 to 1.00 on September 30, 2008 through December 31, 2008, to 2.00 to 1.00 on March 31, 2009 through December 31, 2009, to 2.25
to 1.00 on March 31, 2010 through December 31, 2010, and to 2.50 to 1.00 on March 31, 2011. The Credit Agreement has financial covenants that require that the maximum total debt
to Adjusted EBITDA (as defined in the Credit Agreement) ratio can be no more than 8.50 to 1.00 beginning March 31, 2008, which reduces to 8.25 to 1.00 on June 30, 2008, to 8.00 to 1.00
on September 30, 2008, to 7.75 to 1.00 on December 31, 2008, to 7.50 to 1.00 on March 31, 2009, to 7.25 to 1.00 on June 30, 2009, to 7.00 to 1.00 on September 30,
2009, to 6.75 to 1.00 on December 31, 2009, to 6.25 to 1.00 on March 31, 2010, to 6.00 to 1.00 on June 30, 2010 through December 31, 2010, to 5.75 on March 31, 2011,
to 5.5 to 1.00 on June 30, 2011 through September 30, 2011, and to 5.00 to 1.00 on December 31, 2011. In addition, total senior secured debt to Adjusted EBITDA (as defined in the
Credit Agreement) can be no more than 2.25 to 1.00 beginning March 31, 2008 through June, 30, 2008 and reduces to 2.00 to 1.00 on September 30, 2008. The covenants limit our ability to
incur additional indebtedness; issue preferred stock or provide guarantees; create liens on assets; engage in mergers or consolidations; sell assets; pay

49

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Long-term Debt (Restated) (Continued)

dividends,
make distributions or repurchase our own capital stock; make investments, loans or advances; make certain acquisitions; engage in certain transactions with affiliates; capital expenditures
and fundamentally change our business. All obligations under the Credit Agreement are secured by substantially all of our assets with the exception of the collateral securing the CMBS Loans, the Land
Loan and other excluded items as described in the Credit Agreement.



In connection with the Merger, on November 7, 2007, a number of wholly-owned unrestricted direct and indirect subsidiaries of
Station (collectively, the "CMBS Borrower") entered into a mortgage loan and related mezzanine financings in an aggregate principal amount of $2.475 billion (the "CMBS Loans"), for the purpose
of financing the Merger consideration payable to the Company's stockholders upon consummation of the Merger and paying fees and expenses incurred in connection with the Merger.

The
CMBS Loans are collateralized by substantially all fee and leasehold real property comprising Palace Station, Boulder Station, Sunset Station and Red Rock (collectively, the "CMBS
Property") and will mature in November 2009, subject to three one-year extensions as defined in the CMBS Loans. Interest on the CMBS Loans is equal to one-month LIBOR plus 2.3%
per annum. The CMBS Borrower is required to hedge the LIBOR interest rate such that it will not exceed 5.5% on a blended basis. As a result, the CMBS Borrower purchased an interest rate cap with a
$1.11 billion notional amount and a strike price of 5.77% for an initial premium of $3.6 million. This premium is being amortized to interest expense ratably over the term of the
interest rate cap. In addition, the CMBS Borrower entered into an interest rate swap with a notional amount of $1.36 billion terminating in November 2012. As of December 31, 2007, we
paid a fixed rate of 5.3% and received
one-month LIBOR which approximated 5.0%. Although economically effective, this interest rate swap is not designated as a hedging instrument for accounting purposes, resulting in the gain
or loss reported in earnings. For the year ended December 31, 2007, we recorded a loss of $30.7 million, related to the change in fair value of this interest rate swap on our
consolidated statement of operations.

The
loan documents for the CMBS Loans (the "CMBS Loan Documents") contain a number of covenants that, among other things, restrict, subject to certain exceptions, each wholly-owned
unrestricted direct and indirect subsidiary's ability to incur additional indebtedness; create liens on assets; engage in mergers or consolidations; sell assets; pay dividends or make distributions;
make investments, loans or advances; make certain acquisitions; engage in certain transactions with affiliates; and fundamentally change its business. In addition, the CMBS Loan Documents require the
CMBS Borrower to maintain a minimum lease coverage ratio and also contain certain customary affirmative covenants and certain events of default. The CMBS Loan Documents also require the CMBS Borrower
to fund specific reserves (as defined in the CMBS Loan Documents).



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

During
2005, we redeemed the remaining $16.9 million of outstanding 83/8% senior notes due 2008 and $17.4 million of outstanding 97/8% senior
subordinated notes due 2010. As a result of these redemptions, we recorded a loss on early retirement of debt of approximately $1.3 million in the year

50

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Long-term Debt (Restated) (Continued)

ended
December 31, 2005 to reflect the write-off of the unamortized loan costs, discounts and call premium.

The
indentures (the "Indentures") governing our senior and senior subordinated notes (the "Notes") contain certain customary financial and other covenants, which limit our and our
subsidiaries' ability to incur additional debt. At December 31, 2007, our Consolidated Coverage Ratio (as defined in the Indentures) was 2.11 to 1.00. The Indentures provide that we may not
incur additional indebtedness, other than specified types of indebtedness, unless the Consolidated Coverage Ratio is at least 2.00 to 1.00. In the event our Consolidated Coverage Ratio is below 2.00
to 1.00, the covenant limits our ability to incur additional indebtedness for borrowings under the Revolver not to exceed the greater of $200 million or 1.5 times Operating Cash Flow (as
defined in the Indentures) for the four most recent
quarters, plus $15 million. The Indentures also give the holders of the Notes the right to require us to purchase the Notes at 101% of the principal amount of the Notes plus accrued interest
thereon upon a Change of Control and Rating Decline (each as defined in the Indentures) of the Company. In addition, the indenture governing the senior notes contains a limitation on liens we can
incur.



In November 2007, we entered into a sale-leaseback agreement related to our corporate office building with a third party
real estate investment firm. We sold the corporate office building for approximately $70 million and subsequently entered into a lease with the purchaser for an initial period of
20 years with four options to extend the lease, each option for an extension of five years. Annual lease payments for the first year will be approximately $5.3 million and will increase
approximately 1.2% annually to approximately $6.7 million in the final year of the original term. In conjunction with the sale, we recorded an impairment loss of approximately
$8.6 million which is included on our consolidated statement of operations. The lease also contains two options for us to repurchase the corporate office building, one option at the end of the
fifth year of the lease term and a second option at the end of the tenth year of the lease term, which is considered continuing involvement under SFAS 98, "Accounting for Leases;
Sale-Leaseback Transactions Involving Real Estate; Sales-Type Leases of Real Estate; Definition of Lease Term; Initial Direct Costs of Direct Financing Leases". Because of this
continuing involvement, the sale-leaseback transaction is being accounted for as a financing transaction, with the sales proceeds recorded as a liability and the lease payments recorded as
interest expense. In addition, we continue to include the corporate office building within property and equipment, net on our consolidated balance sheet and it continues to be depreciated. During the
Successor Period and the Predecessor Period, we recorded approximately $0.8 million and $0.1 million, respectively, of interest expense related to this lease. Future minimum lease
payments related to this lease are approximately $5.3 million, $5.3 million, $5.4 million, $5.5 million and $5.5 million for the years ended December 31,
2008, 2009, 2010, 2011 and 2012, respectively.

The
estimated fair value of our long-term debt at December 31, 2007 was approximately $5.0 billion, compared to the book value of approximately
$5.2 billion. At December 31, 2006, the estimated fair value of our long-term debt was approximately $3.3 billion, compared to the book value of $3.5 billion.
The estimated fair value amounts were based on quoted market prices on or about December 31, for our debt securities that are publicly traded. For the Revolver, the Term Loan and the CMBS
Loans, the fair value approximates the carrying amount of the debt due to short-term maturities of the individual components of the debt.

51

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Long-term Debt (Restated) (Continued)

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

Years ending December 31,2008

$
2,6102009


12,0712010


2,6202011


2,6292012


3,432,846Thereafter


1,718,373Total

$
5,171,149




In November 2007, we terminated a fair value hedge interest rate swap with a notional amount of $50.0 million, which was due to
terminate in April 2012. The fair value hedge interest rate swap was terminated at market value and, as a result, we paid approximately $1.2 million. This fair value hedge interest rate swap
was tied directly to our $450 million 6.0% senior notes. The mark-to-market adjustment is being amortized as interest expense over the remaining contract life of the
interest rate swap.

The
difference between amounts 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 incurred over
the life of the swaps. The net effect of the interest rate swaps resulted in an increase in interest expense of approximately $1.1 million for the Successor Period and a reduction of interest
expense of approximately $0.7 million, $0.2 million and $2.1 million for the Predecessor Period and the years ended December 31, 2006 and 2005, respectively.

11. Due to Unconsolidated Affiliate

On February 16, 2007, Green Valley Ranch entered into a new $830 million credit facility (the "Green Valley Facility"). Proceeds from the Green Valley Facility were used to
repay outstanding borrowings under the previous revolving facility and term loan, as well as fund an equal distribution to the members which was comprised of approximately $185 million in
distributions to each member and a $100 million promissory note from each member for a total of approximately $570 million. The $100 million promissory note is at an interest rate
of 7% and matures on February 15, 2012. (See Note 19Subsequent EventsGreen Valley Ranch Notes).

12. Commitments and Contingencies



We entered into a ground lease for 27 acres of land on which Boulder Station is located. We lease this land 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 and Lorenzo
J. Fertitta, Vice Chairman and President of Station. The lease has a maximum term of 65 years, ending in June 2058. The lease provides for monthly payments of $183,333 through June 2008. In
July 2008, and every ten years thereafter, the rent will be adjusted by a cost of living factor. In July 2013,

52

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Commitments and Contingencies (Continued)

and
every ten years thereafter, the rent will be adjusted 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
situated property or (ii) 8% per year. In no event will the rent for any period be less than the immediately preceding period. Pursuant to the ground lease, we have 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 the property is subject to a lien to secure borrowings under the
CMBS Loan Documents.



We entered into a ground lease for 47 acres of land on which Texas Station is located. We lease this land from Texas Gambling
Hall & Hotel, Inc., a company owned by the 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 to the product of the fair market value of the land and the greater of (i) the then
prevailing annual rate of return being realized for owners of comparable land in Clark County or (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 rent for any period be less than the immediately preceding period. Pursuant to the ground lease, we have an option, exercisable at five-year
intervals with the next option in May 2010, to purchase the land at fair market value. Our leasehold interest in the property is subject to a lien to secure borrowings under the Credit Agreement.



We exercised our option to purchase the 19-acre parcel of land on which Wild Wild West is located in 2003 which was to
occur in July 2005 at a purchase price of $36 million. We have extended the date for the close of escrow to no later than January 2009. Additionally, the lease expense was reduced from
$2.9 million to $1.6 million per year beginning in July 2005. No amounts related to this purchase option have been recorded on our consolidated balance sheets at December 31, 2007
and 2006.



In connection with the financing of the CMBS Loans, certain Station subsidiaries (the "Operating Subsidiaries") entered into an amended
and restated purchase and sale agreement with a wholly-owned subsidiary of Station, which immediately prior to the closing of the CMBS Loans, assigned its rights and obligations under the amended and
restated purchase and sale agreement to a newly created subsidiary of the Company, the CMBS Borrower. Pursuant this purchase and sale agreement, the CMBS Property was sold to the CMBS Borrower.
Immediately following the sale, such CMBS Property was leased back to the Company pursuant to a master lease with an initial term of fifteen years and extension terms for an aggregate of ten
additional years. The Company in turn subleased each parcel of the CMBS Property back to the Operating Subsidiaries, with each such sublease having the same term as the master lease. All transactions
related to this lease are intercompany in nature and as such eliminate upon consolidation.

53

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Commitments and Contingencies (Continued)



We lease several parcels of land, buildings and equipment used in our operations. Leases on various parcels ranging from 2.5 acres to
47 acres have terms expiring between February 2008 and August 2103. Future minimum lease payments required under these operating leases and other non-cancelable operating leases are as
follows (amounts in thousands):

Years ending December 31,2008

$
10,4662009


8,9682010


8,9682011


8,4102012


7,316Thereafter


313,618Total

$
357,746


Rent
expense totaled approximately $1.2 million and $8.5 million for the Successor Period and Predecessor Period, respectively, and $12.4 million and
$12.8 million for the years ended December 31, 2006 and 2005, respectively.



In December 2005, we entered into an agreement with the Greenspun Corporation to develop Aliante Station, a hotel and casino in the
Aliante master-planned community located in North Las Vegas, Nevada. We are developing and will manage the facility, to be located on a gaming-entitled 40-acre site on the northeast corner
of Interstate 215 and Aliante Parkway, which was contributed by the Greenspun Corporation for their 50% ownership in the joint venture. We will receive a management fee equal to 2% of the property's
revenues and approximately 5% of EBITDA. The first phase of Aliante Station is expected to include a hotel, casino, multiple full-service restaurants and a multi-screen movie theater
complex. Construction on Aliante Station began in February 2007. 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 joint venture. As of December 31, 2007,
we have contributed an additional $79.5 million to fund design and development costs.

In
October 2007, we completed financing for Aliante Station (the "Aliante Financing"). The Aliante Financing was completed with a group of banks and provides for borrowings up to
$430 million at a margin above the LIBOR rate of up to 325 basis points. The loan requires initial equity contributions from each partner, Station and G.C. Investments, LLC (G.C.
Investments, LLC being principally owned by members of the Greenspun family) of $105 million and equity contributions for a completion guarantee, if necessary, for project costs that
exceed $618 million exclusive of land acquisition costs and financing costs. The completion guarantee is a joint and several obligation of each partner, with G.C. Investment, LLC's
obligation collateralized.

54

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Commitments and Contingencies (Continued)



In December 2006, we entered into an amended and restated operating agreement with FBLV Holding Company LLC ("FBLV"). Pursuant
to the amended and restated operating agreement, the parties contributed approximately 52 acres (with approximately 20 acres contributed by us for our 50% ownership and approximately 32 acres
contributed by FBLV for their 50% ownership) of improved and unimproved real property located along Rancho Road south of Palace Station in Las Vegas, Nevada into a joint venture. It is anticipated
that the joint venture will develop, construct and manage, pursuant to a master development plan, a mixed-use residential, retail and entertainment project on all or a portion of such
property. The timing, cost and scope of the project have yet to be determined. As of December 31, 2007, we have contributed an additional $24.7 million to fund the acquisition of
additional property and design and development costs.



We have entered into Development and Management Agreements with the Federated Indians of Graton Rancheria (the "FIGR"), a federally
recognized Native American tribe. Pursuant to those agreements, we will assist the FIGR in developing and operating a gaming and entertainment project to be located in Sonoma County, California. The
FIGR selected us to assist them in designing, developing and financing their project and, upon opening, we will manage the facility on behalf of the FIGR. The Management Agreement has a term of seven
years from the opening of the facility and we will receive a management fee equal to 24% of the facility's net income. We will also receive a development fee equal to 2% of the cost of the project
upon the opening of the facility.

In
October 2003, the FIGR entered into a Memorandum of Understanding with the City of Rohnert Park. In August 2005, we purchased 270 acres of land just west of the Rohnert Park city
limits in Sonoma County, California. In March 2006, we purchased an additional 4.7 acres adjacent to the previously acquired property. The property purchased is approximately one-quarter
mile from Highway 101 and approximately 43 miles from downtown San Francisco. Development of the gaming and entertainment project is subject to certain governmental and regulatory approvals,
including, but not limited to, negotiating a gaming compact with the State of California, the DOI accepting a portion of the land into trust on behalf of the FIGR and approval of the Management
Agreement by the NIGC. Prior to obtaining third-party financing, we will contribute significant financial support to the project. As of December 31, 2007, we have advanced approximately
$140.3 million toward the development of this project, primarily to complete the environmental impact study and secure real estate for the project, which is included on our consolidated balance
sheets. Funds advanced by us are expected to be repaid from the proceeds of the project financing or from the FIGR's gaming revenues. In addition, we have agreed to pay approximately
$11.3 million upon achieving certain milestones, which will not be reimbursed. As of December 31, 2007, approximately $2.0 million of these payments had been made and were
expensed in development expense as incurred. The timing of this type of project is difficult to predict and is dependent upon the receipt of the necessary governmental and regulatory approvals. There
can be no assurances when or if these approvals will be obtained.

55

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Commitments and Contingencies (Continued)



On November 13, 2003, we agreed to purchase a 50% interest in MPM Enterprises, LLC, a Michigan limited liability company
("MPM"). Concurrently with our agreement to
purchase that interest, MPM and the Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians, a federally recognized Native American tribe
commonly referred to as the Gun Lake Tribe ("Gun Lake"), entered into amended Development and Management Agreements, pursuant to which MPM agreed to assist Gun Lake in developing and operating a
gaming and entertainment project to be located in Allegan County, Michigan. On July 29, 2005, MPM and Gun Lake entered into amended and restated Development and Management Agreements. We have
agreed to pay $6.0 million for our 50% interest in MPM, which is payable upon achieving certain milestones and is not reimbursable. As of December 31, 2007, approximately
$2.0 million of these payments had been made and were expensed in development expense as incurred. An additional $12.0 million in total may be paid by us in years six and seven of the
amended and restated Management Agreement, subject to certain contingencies. Under the terms of the amended and restated Development Agreement, we have agreed to arrange financing for the ongoing
development costs and construction of the project. As of December 31, 2007, we have advanced approximately $38.3 million toward the development of this project, primarily to complete the
environmental assessment and secure real estate for the project, which is included on our consolidated balance sheets. Funds advanced by us are expected to be repaid from the proceeds of the project
financing or from Gun Lake's gaming revenues. The amended and restated Management Agreement has a term of seven years from the opening of the facility and provides for a management fee of 30% of the
project's net income to be paid to MPM. Pursuant to the terms of the MPM Operating Agreement, our portion of the management fee is 50% of the first $24 million 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 approximately 146 acres on Highway 131 near 129th Avenue, approximately 25 miles north of Kalamazoo, Michigan. As currently contemplated,
the project will include slot machines, table games, a buffet and specialty restaurants. Construction of the project includes the conversion of an existing 192,000 square-foot building
into the casino and entertainment facility. Development of the gaming and entertainment project and operation of Class III gaming is subject to certain governmental and regulatory approvals,
including, but not limited to, the Michigan legislature's ratification of a gaming compact signed by the Governor of the State of Michigan, the DOI taking the land into trust on behalf of Gun Lake and
approval of the Management Agreement by the NIGC. On February 27, 2004, the DOI issued a Finding 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 Agency Determination (the "Determination") to take certain land into trust for the benefit of Gun Lake. The publication commenced a
thirty-day period in which interested parties could seek judicial review of the Determination. On June 13, 2005, Michigan Gambling Opposition filed a complaint (the "Complaint") in
the United States District Court, District of Columbia, seeking declaratory and injunctive relief against the DOI and officials of the DOI. The Complaint seeks judicial review of the Determination. On
July 27, 2005, Gun Lake filed a motion to intervene in that lawsuit. On September 1, 2005, the District Court granted Gun Lake's motion to intervene. On January 6, 2006, Gun Lake
filed a motion for judgment on the pleadings or, in the alternative, for summary judgment. Also on January 6, 2006, the DOI filed a motion to dismiss or, in the alternative, for summary
judgment. By May 2006, all responsive pleadings had been filed and the case was ready for consideration by the District Court. On October 27, 2006, the Department of Justice filed a Notice with
the District Court indicating that the DOI planned to take the 146-acre site into

56

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Commitments and Contingencies (Continued)

trust
on January 5, 2007, if the plaintiffs did not seek injunctive relief or failed to persuade the court to issue any relief precluding the DOI from doing so. The DOI subsequently amended
that date to March 5, 2007, in order to provide the Court sufficient time to render its decision. The Court set oral arguments on the parties' 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, the District Court issued its decision in favor of the DOI and Gun Lake, finding
that there were no facts which would entitle plaintiffs to any relief on the four issues raised in the Complaint, and granted the parties' motion to dismiss or, in the alternative for summary judgment
(the "Dispositive Motions"). On March 1, 2007, the plaintiffs filed a motion for stay pending appeal with the District Court. On March 5, 2007, the District Court granted the plaintiffs'
motion for stay pending appeal, thereby precluding the DOI from taking the site into trust for the benefit of Gun Lake until the District Court's decision granting the Dispositive Motions has been
reviewed on appeal. On March 22, 2007, plaintiffs filed a notice of appeal of the District Court's decision granting the Dispositive Motions with the United States Court of Appeals for the
District of Columbia Circuit. On May 21, 2007, the plaintiffs filed their appellate brief. On July 6, 2007, the DOI and Gun Lake filed their responsive briefs. On July 30, 2007,
the plaintiffs filed their reply brief. Oral arguments were heard on October 19, 2007. The parties are currently waiting for the appellate court to render its decision. As with all litigation,
no assurances can be provided as to the outcome of this lawsuit.

On
March 9, 2007, Gun Lake and the State of Michigan entered into a tribal-state Class III gaming compact. The compact is subject to approval by the Michigan Legislature
and, if approved, will regulate gaming at Gun Lake's proposed gaming and entertainment project to be developed on the site. On August 8, 2007, the Michigan House of Representatives ratified the
compact. No assurances can be provided as to whether the Michigan Senate will approve the compact. Prior to obtaining third-party
financing, we will contribute significant financial support to the project. The timing of this type of project is difficult to predict and is dependent upon the receipt of the necessary governmental
and regulatory approvals. There can be no assurances when or if these approvals will be obtained.



We have entered into Development and Management Agreements with the Mechoopda Indian Tribe of Chico Rancheria, California (the
"MITCR"), a federally recognized Native American tribe. Pursuant to those agreements, we will assist the MITCR in developing and operating a gaming and entertainment facility to be located on a
portion of an approximately 650-acre site in Butte County, California, at the intersection of State Route 149 and Highway 99, approximately 10 miles southeast of Chico, California and 80
miles north of Sacramento, California. Under the terms of the Development Agreement, we have agreed to arrange the financing for the ongoing development costs and construction of the facility. Funds
advanced by us are expected to be repaid from the proceeds of the project financing or from the MITCR's gaming revenues. As of December 31, 2007, we have advanced approximately
$9.8 million toward the development of this project, primarily to complete the environmental assessment and secure real estate for the project, which is included on our consolidated balance
sheets. In addition, we have agreed to pay approximately $2.2 million of payments upon achieving certain milestones, which will not be reimbursed. As of December 31, 2007, $50,000 of
these payments had been made and were expensed in development expense as incurred. The Management Agreement has a term of seven years 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 will include slot machines, table games and dining and entertainment amenities. Development of the facility is subject to
certain governmental and regulatory approvals, including, but not limited to,

57

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Commitments and Contingencies (Continued)

negotiating
a gaming compact with the State of California, the DOI accepting land into trust on behalf of the MITCR and approval of the Management Agreement by the NIGC. Prior to obtaining third-
party financing, we will contribute significant financial support to the project. The timing of this type of project is difficult to predict and is dependent upon the receipt of the necessary
governmental and regulatory approvals. There can be no assurances when or if these approvals will be obtained.



We have entered into Development and Management Agreements with the North Fork Rancheria of Mono Indians (the "Mono"), a federally
recognized Native American tribe located near Fresno, California. Pursuant to those agreements, we will assist the Mono in developing and operating a gaming and entertainment facility to be located in
Madera County,
California. We have purchased, for the benefit of the Mono, a 305-acre parcel of land located on Highway 99 north of the city of Madera. Under the terms of the Development Agreement, we
have agreed to arrange the financing for the ongoing development costs and construction of the facility. Funds advanced by us are expected to be repaid from the proceeds of the project financing or
from the Mono's gaming revenues. As of December 31, 2007, we have advanced approximately $12.4 million toward the development of this project, primarily to complete the environmental
impact study and secure real estate for the project, which is included on our consolidated balance sheets. In addition, we have agreed to pay approximately $1.3 million of payments upon
achieving certain milestones, which will not be reimbursed and will be expensed as incurred. As of December 31, 2007, none of these payments had been made. The Management Agreement has a term
of seven years 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 will include slot machines, table games,
restaurants, a hotel and entertainment amenities. Development of the gaming and entertainment project is subject to certain governmental and regulatory approvals, including, but not limited to,
negotiating a gaming compact with the State of California, the DOI accepting the land into trust on behalf of the Mono and approval of the Management Agreement by the NIGC. Prior to obtaining
third-party financing, we will contribute significant financial support to the project. The timing of this type of project is difficult to predict, and is dependent upon the receipt of the necessary
governmental and regulatory approvals. There can be no assurances when or if these approvals will be obtained.

13. Stockholders' Equity (Restated)



We are authorized to issue up to 10,000 shares of voting common stock, $0.01 par value per share. At December 31, 2007, there
were 41.7 shares of voting common stock issued and outstanding. Each holder of issued and outstanding shares of voting common stock is entitled to one vote for each share held of record on each matter
submitted to a vote of stockholders. Holders of our voting common stock have no cumulative voting, conversion or redemption rights. Under the Equityholders Agreement of Station, FCP and Fertitta
Partners, as amended, in certain circumstances, FCP VoteCo, as the holder of Station's voting common stock, shall have the preemptive right to purchase or subscribe to any voting stock to be sold or
issued by Station on the terms and conditions as such voting stock is being offered and sold or issued. Certain actions defined as Major Actions in the Equityholders Agreement of Station, FCP and
Fertitta Partners, as amended, require the approval of Thomas J. Barrack, Jr. and at least one of Frank J.

58

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Stockholders' Equity (Restated) (Continued)

Fertitta III
or Lorenzo J. Fertitta. Subject to any preferences that may be granted to the holders of our preferred stock, each holder of voting common stock is entitled to receive
ratably, such dividends as may be declared by our Board of Directors out of funds legally available therefore, as well as any distributions to the stockholders and, in the event of our liquidation,
dissolution or winding up is entitled to share ratably in all our assets remaining after payment of liabilities.



We are authorized to issue up to 100,000,000 shares of non-voting common stock, $0.01 par value per share. At
December 31, 2007, there were 41,674,838 shares of non-voting common stock issued and outstanding. Holders of issued and outstanding shares of non-voting common stock
are not entitled to vote on any matters to be voted on by the stockholders of the Company and are not to be included in determining the number of shares voting or entitled to vote. Holders of our
non-voting common stock have no cumulative voting, conversion or redemption rights. Under the Equityholders Agreement of Station, FCP and Fertitta Partners, as amended, in certain circumstances,
holders of non-voting common stock shall have the preemptive right to purchase or subscribe to any equity interests (other than voting stock) to be sold or issued by Station on the same terms and
conditions as such equity interests are being offered and sold or issued. Subject to any preferences that may be granted to the holders of our preferred stock, each holder of non-voting
common stock is entitled to receive ratably, such dividends as may be declared by our Board of Directors out of funds legally available therefor, as well as any distributions to the stockholders and,
in the event of our liquidation, dissolution or winding up is entitled to share ratably in all our assets remaining after payment of liabilities.



We are authorized to issue up to 10,000 shares of preferred stock, $0.01 par value per share of which none are issued. The Board of
Directors, without further action by the holders of our common stock, may issue shares of preferred stock in one or more series and may fix or alter the rights, preferences, privileges and
restrictions, including the voting rights, redemption provisions (including sinking fund provisions), dividend rights, dividend rates, liquidation rates, liquidation preferences, conversion rights and
the description and number of shares constituting any wholly unissued series of preferred stock. Except as described above, our Board of Directors, without further stockholder approval, may issue
shares of preferred stock with rights that could adversely affect the rights of the holders of our common stock. The issuance of shares of preferred stock under certain circumstances could have the
effect of delaying or preventing a change of control of Station or other corporate action.



During the Predecessor Period, we paid a quarterly cash dividend of $0.2875 per share to stockholders of record on February 26,
2007, May 21, 2007 and October 5, 2007 for approximately $49.1 million.

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

59

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Stockholders' Equity (Restated) (Continued)



During the Predecessor Period, we repurchased approximately 1.3 million shares of our common stock for approximately
$110.2 million, primarily through open market purchases. As of November 7, 2007, upon consummation of the Merger, all of our treasury stock was cancelled and retired.



SFAS 130, "Reporting Comprehensive Income", requires companies to disclose other comprehensive income and the components of such
income. Comprehensive income is the total of net income and all other non stockholder changes in equity. For the Successor Period, Predecessor Period and the years ended December 31, 2006 and
2005, we recorded the mark-to-market valuation of our interest rate swaps and our 50% interest in the mark-to-market valuation of the interest rate
swaps at Green Valley Ranch and Aliante Station, as well as the unrealized gain on available-for-sale securities and the amortization of the unrecognized pension and
postretirement benefit plan liabilities as other comprehensive (loss) income. Comprehensive (loss) income was computed as follows (amounts in thousands):

Successor

PredecessorPeriod from November 8, 2007 Through December 31, 2007

Period from January 1, 2007 Through November 7, 2007

Year Ended December 31, 2006

Year Ended December 31, 2005(As Restated-
See Note 21)Net (loss) income

$
(337,900
)
$
(57,656
)
$
110,212

$
161,886Mark-to-market valuation of interest rate swaps, net of tax


1,314


(7,179
)

(636
)

635Unrealized (loss) gain on available-for-sale securities, net of tax


(119
)

607





Amortization of unrecognized pension and postretirement benefit plan liabilities, net of tax


3,665


513





Comprehensive (loss) income

$
(333,040
)
$
(63,715
)
$
109,576

$
162,521


The
components of accumulated other comprehensive loss are as follows (amounts in thousands):

Successor

PredecessorDecember 31, 2007

December 31, 2006(As Restated-
See Note 21)Mark-to-market valuation of interest rate swaps, net of tax

$
(6,477
)
$
(612
)Unrealized gain on available-for-sale securities, net of tax


488


Amortization of unrecognized pension and postretirement benefit plan liabilities, net of tax


(5,992
)

Adoption of SFAS 158, net





(10,170
)Accumulated other comprehensive loss

$
(11,981
)
$
(10,782
)


60

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Share-Based Compensation



Long-term incentive compensation is provided in the form of non-voting limited liability company membership
interests in FCP and Fertitta Partners pursuant to the Second Amended and Restated Operating Agreement of Fertitta Colony Partners and the Amended and Restated Operating Agreement of Fertitta
Partners, respectively (collectively "the Operating Agreements"). The Operating Agreements allow certain officers and members of management of the Company to participate in the long-term
growth and financial success of the Company through indirect ownership of Class B Units and direct ownership of Class C Units in FCP and Fertitta Partners. The purpose is to promote the
Company's long-term growth and profitability by aligning the interests of the Company's management with the interests of the owners of the Company and by encouraging retention. Upon the
consummation of the Merger, certain members of management were awarded indirect ownership of Class B Units and direct ownership of Class C Units in each of FCP and Fertitta Partners. The
Class C Units include certain call and put provisions as defined in the Operating Agreements, such that under certain circumstances, within ninety days after termination, in certain cases, of
the Class C Unit holder's employment with Station, FCP and Fertitta Partners can call the Class C Units and the employee that holds the Class C Units can put the Class C
Units back to FCP and Fertitta Partners. The conditions that could result in the employee putting the Class C Units back to FCP and Fertitta Partners are either contingent or within the control
of the issuer.

At
December 31, 2007, we had unearned share-based compensation of approximately $60.0 million associated with Class B and Class C Units which is expected to
be recognized over a period of approximately 4.8 years. During the Successor Period, approximately 6.9 million Class B Units were granted with a weighted-average grant-date fair value of
$44.92. Of the Class B Units granted, approximately 6.4 million units vested immediately and the remaining units vest equally over five years. In addition, approximately
1.4 million Class C Units were granted in the Successor Period with a weighted-average grant-date fair value of $28.54. The Class C Units vest equally over five years.

The
Company determined the fair value associated with these units based on a third-party valuation taking into account the estimated enterprise value of the Company, expected term of the
units of six years, expected volatility of 30% based on expected volatility of equity instruments of comparable companies and a risk free rate of 4.01%. The estimated fair value of the units, less an
assumed forfeiture rate, will be recognized in expense on a straight-line basis over the requisite service periods of the awards.



Prior to the Merger, the stockholders approved and we adopted the 2005 Stock Compensation Plan (the "2005 Plan") which provided for
grants 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 included employees,
directors and independent contractors of the Company and its subsidiaries and other entities controlled by us. However, incentive stock options could be granted only to an employee of ours or a
subsidiary of ours. Upon adoption of the 2005 Plan, no additional grants of awards could be made under the following plans of Station (the "Prior Plans"): (i) the Incentive Stock Option Plan,
(ii) the Compensatory Stock Option Plan, (iii) the Restricted Share Plan, (vi) the Non-employee Director Stock Option Plan, (v) the 1999 Compensatory Stock
Option Plan, and (vi) the 1999 Share Plan.

Pursuant
to the Merger discussed in Note 1, each share of Station restricted stock vested and was cancelled and converted into the right to receive $90.00 in cash, without interest and
less any applicable

61

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Share-Based Compensation (Continued)

payroll
withholding taxes, while each stock option outstanding under Station's stock plans was cancelled and extinguished, and the holder of any such stock option was entitled to receive an amount in
cash equal to the product of (i) the number of shares of Station common stock subject to such stock option and (ii) the excess, if any, of $90.00 over the exercise price per share of such stock
option, without interest and less any applicable payroll withholding taxes. As a result, $124.9 million in previously unrecognized compensation expense was recognized during the Predecessor
Period and is included in merger transaction costs on the consolidated statement of operations. The Predecessor share-based compensation plans were discontinued in connection with the Merger.

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

Options

Weighted average exercise price

Restricted Shares

Weighted average grant date fair value

TotalOutstanding at December 31, 2005


2,314,182

$
12.12


2,124,594

$
37.24


4,438,776Granted








1,374,100

$
68.21


1,374,100Exercised/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


5,214,461Granted














Exercised/Lapsed


(46,050
)
$
12.17


(419,223
)
$
46.67


(465,273
)Canceled


(400
)
$
16.81


(400
)
$
64.67


(800
)Accelerated vest


(2,140,657
)
$
12.06


(2,607,731
)
$
52.99


(4,748,388
)Outstanding at November 7, 2007




$





$



Exercisable at November 7, 2007




$
Available for grant at November 7, 2007

















As
of December 31, 2006, 2,069,407 of the options were vested and exercisable with a weighted average exercise price of $11.81 and 1,108,632 were available for grant.



No stock options have been issued since 2003 resulting in no assumptions for dividend yield, expected volatility, risk-free
interest rate or expected term of option for 2007, 2006 or 2005.

The
intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the stock option. Total intrinsic value of stock
options exercised was $3.3 million, $6.9 million and $87.4 million for the Predecessor Period and the years ended December 31, 2006 and 2005, respectively.

Net
cash proceeds from the exercise of stock options were $0.6 million, $1.6 million and $19.0 million for the Predecessor Period and the years ended
December 31, 2006 and 2005, respectively. The actual income tax benefit realized from stock option exercises was $0, $3.1 million and $31.8 million for the same periods,
respectively.

62

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Share-Based Compensation (Continued)



During the years ended December 31, 2006 and 2005, we granted 1,374,100 and 137,000, respectively, of restricted stock awards at
a weighted-average grant date fair value of $68.21 and $66.33 for the same periods. There were no restricted stock grants in 2007. The total fair value of restricted shares that vested for the
Predecessor Period and the years ended December 31, 2006 and 2005 was $35.7 million, $32.4 million and $30.5 million, respectively. In addition, the fair value of
restricted shares that vested due to the Merger on November 7, 2007 was $234.7 million for the Predecessor Period.

The
following table represents where recorded share-based compensation expense was classified in the accompanying consolidated statements of operations (amounts in thousands):

Successor

PredecessorPeriod from November 8, 2007 Through December 31, 2007

Period from January 1, 2007 Through November 7, 2007

Year Ended December 31, 2006

Year Ended December 31, 2005Casino expense

$


$
311

$
359

$
229Food & beverage expense








44


56Room expense








12


1Selling, general & administrative


542


2,236


2,567


1,787Corporate


287,145


13,384


18,163


8,534Merger transaction costs





124,850





Development


443


1,842


2,327


1,485Preopening





492


223


367Total share-based compensation


288,130


143,115


23,695


12,459Tax benefit


(100,846
)

(50,090
)

(8,293
)

(4,361
)Total share-based compensation, net of tax

$
187,284

$
93,025

$
15,402

$
8,098


Had
compensation expense for the 2005 Plan and Prior Plans been determined in accordance with SFAS 123, the effect on our net income would have been as follows (amounts in
thousands):

For the year ended December 31,
2005Net income:As reported

$
161,886Share-based compensation expense reported in net income


Additional share-based compensation expense under fair value method


(2,646
)Pro forma net income

$
159,240


63

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. Executive Compensation Plans

We have employment agreements with certain of our executive officers. These contracts provide for, among other things, an annual base salary, supplemental long-term
disability and supplemental life insurance benefits in excess of our normal coverage for employees. In addition, we have adopted a Supplemental Executive Retirement Plan for our Chief Executive
Officer and President and a Supplemental Management Retirement Plan for certain key executives as selected by our Board of Directors. Other executive plans include a Deferred Compensation Plan and a
Long-Term Stay-On Performance Incentive Plan.

16. Retirement Plans

Effective as of November 30, 1994, we adopted the Supplemental Executive Retirement Plan (the "SERP"), which is an unfunded defined benefit plan for the Chief Executive Officer
and President as sole participants. On January 21, 2005, Station amended the SERP (the "First SERP Amendment"). The purpose of the First SERP Amendment was to (i) increase the Early
Retirement Date (as defined in the SERP) for participants from age 45 to age 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 the Company as a participant, and (iv) include the average annual bonus (in addition to base salary) earned by participants for the three most recent fiscal
years in determining Final Annual Compensation (as defined in the SERP). On November 7, 2007, Station further amended the SERP for the purpose of updating the "Change of Control" definition and
confirming that the Merger would not constitute a "Change of Control" for purposes of the plan.

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
than the Chief Executive Officer and President) as selected by the Board of Directors are able to participate in the SMRP. On November 7, 2007, Station amended the SMRP for the purpose of
updating the "Change of Control" definition under the plan and confirming that the Merger would not constitute a "Change of Control" for purposes of the plan.

64

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. Retirement Plans (Continued)

A
reconciliation of the beginning and ending balances of the pension benefit obligation and fair value of the plan assets and the funded status is as follows (in thousands):

Successor

PredecessorDecember 31, 2007

December 31, 2006Change in pension benefit obligation:Benefit obligation at beginning of year

$
30,390

$
28,491Service cost


2,050


2,070Interest cost


1,865


1,680Net actuarial gain


(3,153
)

(1,851
)Benefits paid


(223
)

Curtailment


(2,349
)

Benefit obligation at end of year

$
28,580

$
30,390Change in plan assets:Contribution by Station

$
223

$
Benefits paid


(223
)

Fair value of plan assets at end of year

$


$
Funded status of the plan (underfunded)

$
(28,580
)
$
(30,390
)Unrecognized net actuarial loss





Unrecognized actuarial loss





Net amount recognized

$
(28,580
)
$
(30,390
)Amounts recognized in the consolidated balance sheet consist of:Current liabilities

$
(293
)
$
Accrued pension costs


(19,069
)

(14,744
)Accumulated other comprehensive loss


(9,218
)

(15,646
)Net amount recognized

$
(28,580
)
$
(30,390
)Weighted average assumptions:Discount rate


5.75
%

5.50
%Salary rate increase


5.00
%

5.00
%


65

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STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. Retirement Plans (Continued)

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

Successor

PredecessorPeriod from November 8, 2007 Through December 31, 2007

Period from January 1, 2007 Through November 7, 2007

Year Ended December 31, 2006

Year Ended December 31, 2005Service cost

$
303

$
1,747

$
2,070

$
1,336Interest cost


276


1,589


1,680


1,087Amortization of prior service cost


46


265


312


312Amortization actuarial losses


94


541


746


259Net periodic pension cost


719


4,142


4,808


2,994Curtailment charge


(20
)







96Total pension cost

$
699

$
4,142

$
4,808

$
3,090


We
expect benefits of approximately $0.3 million to be paid in each of the next five years and approximately $1.5 million to be paid in aggregate for the five years
thereafter. These estimates are based on assumptions about future events and as such, actual payments may vary significantly from these estimates.



We have a defined contribution 401(k) plan, which covers all employees who meet certain age and length of service requirements and
allows an employer contribution up to 50% of the first 4% of each participating employee's compensation. Plan participants can elect to defer before tax compensation through payroll deductions. These
deferrals are regulated under Section 401(k) of the Internal Revenue Code. Our matching contribution was approximately $0.4 million, $3.2 million, $2.8 million and
$2.2 million for the Successor Period, the Predecessor Period and the years ended December 31, 2006 and 2005, respectively.

17. Income Taxes (Restated)

We file a consolidated federal income tax return. For financial reporting purposes, we recorded an income tax benefit of $26.7 million and $15.3 million for the
Successor Period and Predecessor Period, respectfully, and a provision for income taxes of $69.2 million and $94.3 million for the years ended December 31, 2006 and 2005,
respectively.

66

---





STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

17. Income Taxes (Restated) (Continued)

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

Successor

PredecessorPeriod from November 8, 2007 Through December 31, 2007

Period from January 1, 2007 Through November 7, 2007

Year Ended December 31, 2006

Year Ended December 31, 2005(As Restated
See Note 21)Current

$
(8,768
)
$
(8,399
)
$
30,753

$
31,864Deferred


(17,968
)

(6,936
)

38,487


62,477Total income taxes

$
(26,736
)
$
(15,335
)
$
69,240

$
94,341


The
income tax provision differs from that computed at the federal statutory corporate tax rate as follows:

Successor

PredecessorPeriod from
November 8, 2007
Through
December 31, 2007

Period from
January 1, 2007
Through
November 7, 2007

Year Ended
December 31,
2006

Year Ended
December 31,
2005(As Restated
See Note 21)Federal statutory rate


35.0
%

35.0
%

35.0
%

35.0
%Lobbying and political





(0.3
)

0.3


0.2Fines and penalties











Meals and entertainment











Credits earned, net





1.2


(0.5
)

(0.3
)Nondeductible officers compensation





1.8


3.4


1.7Non-deductible transaction costs





(10.8
)




Vesting of Class B and Class C Units


(27.7
)







Golden parachute





(5.3
)




Other, net





(0.6
)

0.4


0.2Effective tax rate


7.3
%

21.0
%

38.6
%

36.8
%


We recorded $23.3 million, $0, $3.1 million and $31.8 million as an increase to contributed capital for certain tax benefits
from employee share-based compensation for the Successor Period, the Predecessor Period and the years ended December 31, 2006 and 2005, respectively. As part of the purchase accounting
adjustment, $71.1 million of tax benefits from employee share-based compensation were recorded as a deferred tax asset related to net operating losses.

67

---



STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

17. Income Taxes (Restated) (Continued)

The
tax effects of significant temporary differences representing net deferred tax assets and liabilities are as follows (amounts in thousands):

Successor

PredecessorDecember 31,
2007

December 31,
2006Deferred tax assets:Accrued vacation, bonuses and group insurance

$
5,818

$
5,187Preopening and other costs, net of amortization


9,048


700Accrued benefits


21,075


26,305Comprehensive income adjustments


28,765


Net operating loss carryover


109,746


FICA credits


5,513


Minimum tax credit carryover


26,795


Other deferred tax assets


8,040


8,295Total deferred tax assets

$
214,800

$
40,487Deferred tax liabilities:Prepaid expenses and other

$
(17,802
)
$
(16,573
)Temporary differences related to property and equipment


(532,743
)

(122,295
)Goodwill


(9,104
)

Long term debt (fair market value adjustment)


(81,536
)

Intangibles


(367,253
)

(14,670
)Total deferred tax liabilities

$
(1,008,438
)
$
(153,538
)Net

$
(793,638
)
$
(113,051
)


At
December 31, 2007, the Company had an Alternative Minimum Tax ("AMT") credit carryforward of approximately $26.8 million. AMT credits are available to be carried forward
indefinitely and may be utilized against regular U.S. corporate tax to the extent that they do not exceed computed AMT calculations. The Company expects to utilize all of its AMT credits.

At
December 31, 2007, the Company had a general business credit carryforward for U.S. federal income tax purposes of approximately $5.5 million. The general business credit
carryforward expires in 2026. Based on the Company's projections of taxable income, the Company expects to utilize all of its general business credit carryforward.

As
of December 31, 2007, the Company has a tax net operating loss carryover of approximately $313.5 million that expires in 2027. SFAS 109 requires that the tax
benefit of a net operating loss be recorded as an asset. Management believes that the realization of this deferred tax asset is more likely than not based on expectations of future taxable income. We
did not record a valuation allowance at December 31, 2007 or 2006 relating to recorded tax benefits because all benefits are more likely than not to be realized. At December 31, 2007,
the Company has an income tax receivable of $17.2 million as a result of net operating loss carryback to the prior year.

68

---



STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

17. Income Taxes (Restated) (Continued)

Station
or our subsidiaries file income tax returns as prescribed by the laws of the jurisdictions in which we operate. We are no longer subject to U.S. federal tax examination, the only
major tax jurisdiction in which we file tax returns, for years before 2004.

We
adopted FIN 48 as of January 1, 2007. As a result of the adoption, we recognized a $3.0 million increase in our tax liabilities. The cumulative effect upon
adoption was accounted for as a reduction to the January 1, 2007 balance of retained earnings in an amount of $0.5 million, while interest upon adoption totaled $0.2 million.

Our
total unrecognized tax benefits that, if recognized, would affect our effective tax rate were approximately $0.3 million as of both January 1, 2007 and
December 31, 2007. The liability for unrecognized tax benefits increased to $3.3 million for the year ended December 31, 2007.

We
recognize accrued interest related to our unrecognized tax benefits in income tax expense. As of January 1, 2007, we had $0.2 million accrued for the payment of
interest. Our liability for the payment of interest on our unrecognized tax benefits increased to $0.4 million as of December 31, 2007. We do not anticipate any penalty assessments
associated with our FIN 48 liability. No significant increases or decreases to unrecognized tax benefits are expected within the next twelve months.

A
summary of the changes in the gross amount of unrecognized tax benefits for the year ended December 31, 2007, is shown below (in millions):

Balance as of January 1, 2007

$
3.0Additions based on tax positions related to the prior year


0.5Reductions based on tax positions related to prior years


(0.1
)Statute expirations


(0.1
)Balance as of December 31, 2007

$
3.3


18. Legal Matters

Station and its subsidiaries are defendants in various lawsuits relating to routine matters incidental to their business. As with all litigation, no assurance can be provided as to the
outcome of the following matters and litigation inherently involves significant costs. Following is a summary of key litigation impacting Station. Station believes that the plaintiffs' claims are
without merit and does not expect that the lawsuits will have a material adverse effect on the financial position or results of operations.



On February 4, 2008, Josh Luckevich, Cathy Scott and Julie St. Cyr filed a purported class action complaint in the United
States District Court for the District of Nevada, Case No. CV-00141, against the Company. The plaintiffs are all former employees of the Company. The complaint alleges that the
Company (i) failed to pay its employees for all hours worked, (ii) failed to pay overtime, (iii) failed to timely pay wages and (iv) unlawfully converted certain earned
wages. The complaint seeks, among other relief, class certification of the lawsuit, compensatory damages in excess of $5,000,000, punitive damages and an award of attorneys' fees and expenses to
plaintiffs' counsel. The Company has yet to file a response to the complaint. The Company believes that the allegations in the complaint are without merit and intends to vigorously defend the
same.

69

---



STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. Legal Matters (Continued)



As previously disclosed, on December 4, 2006, the Company announced that it had received a proposal from FCP to acquire all of
the Company's outstanding common stock for $82 per share in cash. Six cases (the "Actions") were brought in the District Court for Clark County, Nevada (the "District Court"), alleging that the
actions of Frank J. Fertitta III and Lorenzo J. Fertitta in participating with FCP in making the proposal and entering into the Merger Agreement and the actions of the members of a special committee
of Station's Board of Directors composed entirely of independent directors (the "Special Committee") in responding to the proposal, and entering into the Merger Agreement were breaches of fiduciary
duty:

Roessler v. Station Casinos, Inc., et al., Case No. A532637;

Filhaber v. Station Casinos Inc., et al., Case No. A532499;

Traynor v. Station Casinos, Inc., et al,Case No. A532407;

Goldmann v. Station Casinos, Inc., et al., Case No. A532395;

Griffiths v. Station Casinos, Inc., et al., Case No. A533806; and

West Palm Beach Firefighters' Pension Fund v. Station Casinos, Inc., et al., Case No. 07-A536211.

The
Company was a defendant in the Actions and others were named as defendants in one or more of the Actions. No specific monetary relief was sought against the Company in the Actions.
On January 4, 2007 the Actions were consolidated under the headingIn re Station Casinos Shareholder Litigation, Master Case
No. A-532367 (the "Consolidated Action").

On
June 1, 2007, the plaintiffs filed an amended consolidated class action complaint (the "Amended Complaint") in the District Court against Station, Station's directors, Frank J.
Fertitta III, Lorenzo J. Fertitta, Blake L. Sartini and Delise F. Sartini, Colony, Colony Capital Acquisitions, LLC ("Colony Acquisitions") and FCP. The Amended Complaint alleges that Station's
directors breached their fiduciary duties to Station and its stockholders as follows:

A.    The
defendants failed to engage in a fair process that would maximize value to Station's stockholders because the defendants put into place covenants in Station's bond
indentures that could, under certain circumstances, require a purchaser of Station not affiliated with Frank J. Fertitta III and Lorenzo J. Fertitta to redeem those bonds, put into place a stockholder
rights plan and a staggered board, adopted a supermajority voting requirement in connection with any merger transaction and imposed a $160 million termination fee on Station.

B.    The
process being used to sell Station is wrongful, unfair and harmful and is an attempt by the defendants to aggrandize their personal and financial positions. It does
not reflect the true inherent value of Station that was known only to the defendants. This value, which far exceeds the $90.00 per share Merger consideration, includes the returns from Red Rock, the
Company's Native American casino-management contracts and the expected returns from Aliante Station and other expansion projects.

C.    The
directors have not and are not exercising independent business judgment and have acted and are acting to the detriment of the plaintiff class. In particular, the
members of the Special Committee are not independent of Frank J. Fertitta III and Lorenzo J. Fertitta, were handpicked for Station's Board of Directors by Frank J. Fertitta III and Lorenzo J.
Fertitta, are loyal and beholden to them and will do what

70

---



STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. Legal Matters (Continued)

Frank
J. Fertitta III and Lorenzo J. Fertitta tell them to do. The Special Committee failed to properly shop Station, artificially depressing the value of Station's stock, thereby depriving plaintiffs
of the right to receive the maximum value for their shares. They are taking steps to avoid competitive bidding, to cap the price of Station stock and to give FCP and other members of the buying group
an unfair advantage by, among other things, failing to solicit other potential acquirers or alternative transactions.

D.    The
Company's preliminary proxy statement filed with the SEC on May 7, 2007 (the "Preliminary Proxy Statement") misrepresented material facts and omits material
information necessary for stockholders to make an informed decision concerning the transaction because, in part, it did not discuss whether the defendants considered alternative transaction forms, nor
did it properly detail the sale process.

E.    The
Preliminary Proxy Statement did not detail whether Bear, Stearns & Co., Inc. ("Bear Stearns"), financial advisor to the Special Committee,
performed any sensitivity studies or whether it valued Station assuming Station would be split into separate operating and holding companies. The Preliminary Proxy Statement also failed to detail the
proper valuation for Station, or the basis for the valuation. In addition, Bear Stearns is in a conflict position because it owns 36,639 shares of Station common stock.

The
Amended Complaint also alleges that Frank J. Fertitta III, Lorenzo J. Fertitta, Blake L. Sartini, Delise F. Sartini, FCP, Colony and Colony Acquisitions knowingly aided and abetted
the Company's directors in breaching their fiduciary duties to the Company's public stockholders.

The
Amended Complaint sought an injunction preliminarily and permanently enjoining the defendants from proceeding with, consummating or closing the Merger transaction, and demanded that
the plaintiffs be awarded their costs and disbursements incurred in connection with this action, including reasonable attorneys' fees and reimbursement of expenses.

In
November 2007, in order to resolve the litigation and avoid further cost and delay, the Company and the individual defendants, without admitting any wrongdoing, entered into a global
stipulation of settlement with plaintiffs ("Proposed Settlement"). Pursuant to the Proposed Settlement, the Company made supplemental disclosures in its Definitive Proxy Statement filed with the SEC
on July 9, 2007, to address certain of the disclosure claims raised in the Consolidated Action. As part of the Proposed Settlement, plaintiffs' counsel applied to the Court for an award of
attorneys' fees in the amount of $1.9 million, inclusive of costs and expenses. The Company agreed to pay the fees and expenses on behalf of all plaintiffs as awarded by the court in an amount
up to $1.9 million.

On
December 11, 2007, the District Court preliminarily approved the Proposed Settlement. Thereafter, notice of the Proposed Settlement was disseminated to more than 31,000 former
shareholders of Station and published in theWall Street Journal(national edition), theLos Angeles
Timesand theLas Vegas Review Journal.

None
of the former shareholders objected to the terms of the Proposed Settlement. Consequently, at a hearing on February 11, 2008, Judge Mark R. Denton of the District Court
approved the Proposed Settlement of the Consolidated Action. Given that there were no objections to the settlement, we do not expect an appeal and regard the litigation as concluded.

71

---



STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19. Subsequent Events



On February 7, 2008, a wholly-owned, indirect subsidiary of Station, as borrower, entered into a $250 million
delay-draw term loan which is collateralized by land located on the southern end of Las Vegas Boulevard at Cactus Avenue and land surrounding Wild Wild West in Las Vegas, Nevada (the "Land
Loan"). The Land Loan contains no principal amortization and matures on February 7, 2011. At closing, $200 million was drawn and the proceeds were used to fund a distribution to Station,
establish an interest reserve and pay transaction expenses. The borrower has the option to request an additional $50 million under the Land Loan to purchase certain real property. Borrowings
under the Land Loan bear interest at LIBOR plus 3.5% per annum or at the Alternate Base Rate (as defined in the Land Loan) plus 2.5% per annum, at the borrower's request. The borrower is required to
hedge the interest rate such that it will not exceed 6.5%. As a result, the borrower entered into a cash flow hedge interest rate swap with a notional amount of $200 million in which the
borrower pays a fixed rate of 2.97% and receives one-month LIBOR, terminating in February 2011.

The
Land Loan contains a number of covenants that, among other things, restrict, subject to certain exceptions, the borrower's ability to incur additional indebtedness; create liens on
assets; engage in mergers or consolidations; sell assets; pay dividends or make distributions; make investments, loans or advances; make certain acquisitions; engage in certain transactions with
affiliates; and fundamentally change its business. In addition, the Land Loan requires the borrower to maintain a loan-to-value ratio of no more than 40% and also contains
customary affirmative covenants and certain events of default.



In January 2008, we entered into cash flow hedge interest rate swap with a notional amount of $250 million that converts a
portion of our floating-rate debt to a fixed rate based on one-month LIBOR rates, terminating in January 2011.



Effective January 1, 2008, Green Valley Ranch agreed to effectively forgive $200 million in notes receivable and the
related interest from its members. As a result, the $100 million due to unconsolidated affiliate and related accrued interest recorded on our consolidated balance sheet at December 31,
2007 will be forgiven during the three months ended March 31, 2008 with a corresponding reduction in our investments in joint ventures.

72

---



STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

20. Quarterly Financial Information (Unaudited) (Restated)

Year ended December 31, 2007Predecessor

Successor(amounts in thousands)

Quarter Ended
March 31, 2007
(a)

Quarter Ended
June 30, 2007
(b)

Quarter Ended
September 30, 2007
(c)

Period from
October 1, 2007
through
November 7,
2007 (d)

Period from
November 8, 2007
through
December 31,
2007 (e)(As Restated
See Note 21)Net revenues

$
372,438

$
362,896

$
354,128

$
147,822

$
209,711Operating income (loss)


92,756


82,016


62,623


(123,760
)

(253,495
)Income (loss) before income taxes


41,844


27,151


5,699


(147,685
)

(364,636
)Net income (loss)


23,050


15,073


3,709


(99,488
)

(337,900
)


Year ended December 31, 2006(amounts in thousands)

First
Quarter (f)

Second
Quarter (g)

Third
Quarter

Fourth
Quarter (h)Net revenues

$
292,470

$
341,791

$
345,968

$
358,795Operating income


79,102


76,588


76,983


83,462Income before income taxes


65,641


43,680


32,036


38,095Net income


41,122


26,793


19,229


23,068


---

73

---



STATION CASINOS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

21. Financial Statement Restatement

Subsequent to the issuance of the Company's consolidated financial statements as of December 31, 2007, the Company determined that its financial statements as of
December 31, 2007 and for the period from November 8, 2007 through December 31, 2007 should be restated to recognize the acquisition of an interest rate swap, with an approximate
fair value of $42.7 million, associated with $1.36 billion of the Company's CMBS Loans, from FCP and eliminate the hedge accounting treatment related to such interest rate swap.

Prior
to the consummation of the merger between FCP, the Company and a wholly-owned subsidiary of FCP on November 7, 2007, FCP entered into a deal-contingent interest
rate swap in anticipation of the incurrence of floating rate debt on the CMBS Loan that was to be incurred by the Company in connection with the Merger. Upon consummation of the Merger and execution
of the CMBS Loans, the Company acquired the interest rate swap from FCP. Upon acquisition of the interest rate swap, the Company recognized zero value for the interest rate swap and applied the
"shortcut" method of cash flow hedge accounting under SFAS 133 which allowed for the assumption of no ineffectiveness. As such, there was no impact on the consolidated statement of operations
from the changes in fair value of this interest rate swap. Instead, the changes in fair value of the instrument were recorded in "other comprehensive income". The Company recently concluded that the
acquisition of the interest rate swap did not qualify for the "shortcut" method under SFAS 133 in prior periods because the fair value of the deal-contingent swap was not zero on
the date the interest rate swap was transferred to the Company. Although management believes the interest rate swap
transaction would have qualified for hedge accounting under the "long-haul" method, hedge accounting under SFAS 133 is not allowed retrospectively in connection with the acquisition
of the interest rate swap because the hedge documentation required for the "long-haul" method was not in place at the inception of the interest rate swap.

A
summary of the significant effects of the restatement is as follows:

December 31, 2007As Previously Reported

As Restated(amounts in thousands)Additional paid-in capital

$
2,948,265

$
2,920,526Accumulated other comprehensive loss


(59,666
)

(11,981
)Retained deficit


(317,954
)

(337,900
)




Period from
November 8, 2007
through December 31, 2007As Previously Reported

As Restated(amounts in thousands)Change in fair value of derivative instrument

$


$
(30,686
)Loss before income taxes


(333,950
)

(364,636
)Income tax benefit


15,996


26,736Net loss


(317,954
)

(337,900
)


74

---





PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES

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



Exhibit Number

Description23.1

Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm31.1

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

75

---





SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

STATION CASINOS, INC.Dated: August 11, 2008

By:

/s/FRANK J. FERTITTA IIIFrank J. Fertitta III Chairman of the Board, Chief Executive
Officer and President
(Principal Executive Officer)


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

Signature

Title

Date/s/FRANK J. FERTITTA IIIFrank J. Fertitta III

Chairman of the Board, Chief Executive Officer and President
(Principal Executive Officer)

August 11, 2008/s/LORENZO J. FERTITTALorenzo J. Fertitta

Vice Chairman and Director

August 11, 2008/s/THOMAS M. FRIELThomas M. Friel

Executive Vice President, Chief Accounting Officer and Treasurer (Principal Financial and Accounting Officer)

August 11, 2008/s/THOMAS J. BARRACK, JR.Thomas J. Barrack, Jr.

Director

August 11, 2008/s/JAMES E. NAVEJames E. Nave

Director

August 11, 2008/s/JONATHAN H. GRUNZWEIGJonathan H. Grunzweig

Director

August 11, 2008


76

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