21 Management’s Discussion and Analysis of Financial Condition and Results of Operations Overall Outlook Mandalay Merger We have invested heavily in our existing operations in 2003 and 2004, and expect to continue to do so on a targeted basis in 2005. Our Las Vegas Strip resorts require ongoing capital investment to maintain their competitive advantages. We believe the investments in additional non-gaming amenities we made in 2003 and 2004 have enhanced our ability to generate increased visitor volume and allowed us to charge premium prices for our amenities. The most likely significant factors affecting operating results at our existing resorts in 2005 will be the expected continued strength of the leisure and convention travel segments, the expansion of Bellagio and the opening of  KÀ and other amenities at MGM Grand Las Vegas, and new competition from Wynn Las Vegas on the Las Vegas Strip. Various lodging market observers, such as PricewaterhouseCoopers  and Smith Travel Research, are forecasting mid-single digit percentage growth in REVPAR in 2005, with greater REVPAR gains in full service hotels. Our REVPAR growth, and REVPAR growth in Las Vegas in general, has outpaced that of the national market, and we expect that trend to continue.  The Bellagio expansion opened in late 2004 and added over 30% to the resort’s room base. In addition, we added new meeting, retail and dining space and signifi- cantly expanded the spa and salon.  KÀ opened in late November 2004 at MGM Grand Las Vegas, which had been without a featured production show for almost two years. Along with the numerous restaurant and other entertainment additions at MGM Grand Las Vegas,  KÀ will enhance our ability to generate visitor traffic and capture a greater share of our guests’ spending.  Wynn Las Vegas will add room capacity to the Las Vegas market, with its 2,700 rooms representing a 2% increase in Las Vegas room supply. Wynn Las Vegas will also feature numerous upscale restaurants and generally target customers who might otherwise choose Bellagio, MGM Grand Las Vegas or The Mirage. We believe there The Mandalay merger will impact our operations in several ways. We will have to integrate Mandalay’s operations into ours. This could require additional operating and capital expenditures. However, we expect to achieve ongoing cost savings and On June 16, 2004, we announced that we had entered into a definitive merger agreement with Mandalay Resort Group (“Mandalay”), a publicly traded company, under which we will acquire Mandalay for $71.00 in cash for each share of  common stock of Mandalay. Mandalay owns and operates eleven properties in Nevada, including Mandalay Bay, Luxor, Excalibur, Circus Circus, and Slots-A-Fun in Las Vegas, Circus Circus-Reno in Reno, Colorado Belle and Edgewater in Laughlin, Gold Strike and Nevada Landing in Jean, and Railroad Pass in Henderson. Mandalay also owns and operates Gold Strike, a hotel/casino in Tunica County, Mississippi. In addition, Mandalay owns a 50% interest in Silver Legacy in Reno, a 50% interest in Monte Carlo in Las Vegas, a 50% interest in Grand Victoria, a riverboat in Elgin, Illinois, and a 53.5% interest in MotorCity in Detroit, Michigan. The total consideration is approximately $8.1 billion, including equity value of approximately $4.8 billion, convertible debentures with a redemp- tion value of approximately $574 million, the assumption or repayment of other outstanding Mandalay debt with a fair value of approximately $2.6 billion as of December 31, 2004, and $100 million of estimated transaction costs. The transac- tion is structured as a merger of one of our wholly-owned subsidiaries with and into Mandalay. The transaction will be accounted for as a purchase and is anticipated to close during the first quarter of 2005. will be some impact on these resorts from Wynn Las Vegas, but also believe that the breadth of amenities in our portfolio of resorts and our loyalty and other marketing programs will help minimize these competitive pressures. The proximity of Wynn Las Vegas to TI and The Mirage, along with pedestrian bridges linking TI with the Fashion Show Mall and Venetian, will also benefit these resorts.