Majestic Star reports results

10 May 2007

Consolidated Results: Three-Month Period Ended March 31, 2007

The Company's net revenues for the three-month period ended March 31, 2007 were $91.7 million, a decrease of $8.2 million, or 8.2%, from the same period in 2006. Casino revenues decreased $8.8 million, or 8.4%, to $95.1 million. We experienced a decrease in net revenues and casino revenues at all of our properties. The Majestic Properties contributed a decrease in net and casino revenues of $6.3 million and $4.7 million, respectively. We also experienced lower net and casino revenues at Fitzgeralds Tunica of $1.2 million and $3.2 million, respectively, and at Fitzgeralds Black Hawk of $0.7 million and $0.8 million, respectively, which is further described below.

The Company expects to report a net loss of $4.7 million compared to net income of $3.7 million for the same period in 2006. The $8.4 million decline in net income from the three months ended March 31, 2006 was mainly due to lower net revenues, as explained above, at the Majestic Properties, Fitzgeralds Tunica and Fitzgeralds Black Hawk.

For the three-month period ended March 31, 2007, adjusted EBITDA (defined as earnings before interest, taxes, depreciation, amortization, and other non-operating expenses, which is primarily non-usage fees on the credit facility and adjusted for certain non-recurring charges) was $18.6 million, compared to adjusted EBITDA of $26.2 million in the same period last year, a decrease of $7.6 million, or 29.1%. The Majestic Properties and Fitzgeralds Tunica contributed $5.3 million and $2.3 million, respectively, to the decrease. Adjusted EBITDA, identified in the table at the end of this press release, reconciles net income (loss) to EBITDA and adjusted EBITDA. See the detailed explanation below as to the usefulness and limitations of using EBITDA and adjusted EBITDA as financial measures and a reconciliation of net income (loss) to EBITDA and adjusted EBITDA.

Total cash and cash equivalents at March 31, 2007 was $27.3 million as compared to $25.5 million at December 31, 2006. Total debt outstanding at March 31, 2007 was $534.8 million compared to $546.0 million at December 31, 2006. The Company had $45.4 million available on its $80.0 million credit facility at March 31, 2007.

Majestic Star and Majestic Star II ("Majestic Properties")

The Majestic Properties' net revenues decreased from $69.5 million in the first quarter of 2006 to $63.2 million in the first quarter of 2007. The decline in net revenues was due to a decrease in casino revenues of $4.7 million, or 6.6%, to $66.5 million and an increase in promotional allowances of $3.4 million, or 69.7%, to $8.3 million, offset by a $1.6 million improvement in food and beverage revenues, or 131.8%, to $2.8 million. The decline in casino revenues was due to a 4.8% lower win percentage in table games and enhanced marketing and promotional efforts from competitors, which contributed to a 3.4% decline in customer admissions and resulted in lower table game and slot volumes. In the first quarter of 2007, the property increased its aggressiveness in promotions in order to re-build its customer base. In addition, during the quarter we took over operations of the restaurants in the Buffington Harbor Pavilion. These restaurants are the primary restaurants for our guests. As a result, we can offer true complimentary meals to our customers rather than paying a third party to provide the service. We can now better control the service and quality of food provided to our customers. Also, during the first quarter of 2007, we opened a new restaurant called Wings and Things to provide another dining option for our customers. We have additionally converted Don & Mike's sports bar into an upscale baccarat room to attract and cater to our existing Asian customers. The new baccarat room opened on May 3, 2007.

Adjusted EBITDA decreased in the three-month period ended March 31, 2007 from $19.9 million to $14.6 million, and the adjusted EBITDA margin declined from 28.6% in the first quarter of 2006 to 23.0% in the first quarter of 2007 mainly due to lower net revenues, as described above, and increased food and beverage expenses, resulting from our operation of the restaurants, and greater advertising and promotional expenses.

Fitzgeralds Tunica

Fitzgeralds Tunica's net revenues decreased from $21.7 million in the first quarter of 2006 to $20.5 million in the first quarter of 2007. Casino revenues declined from $23.4 million in the first quarter of 2006 to $20.1 million in the first quarter of 2007. This decline resulted from an unusually low hold percentage of 10.1% in table games during the first quarter of 2007 as compared to 18.4% during the year earlier quarter. Despite a 27.9% increase in table games handle during the quarter, table games revenues were down $0.7 million. Had our table games held at the same percentage as last year with the 27.9% volume improvement, table games revenue would have been $1.3 million higher. Also affecting casino revenues was a slot promotional program implemented during the second quarter of 2006. This program allows the customers to directly download promotional credits to the slot machine thus eliminating the substantial amount of coupons mailed to and redeemed by our casino customers. The downloadable promotional credits, when played by the customer, are not being recognized as slot revenue; however, any jackpots won would be recognized as a reduction in slot revenues. When our marketing and promotional efforts were comprised principally of mailing coupons to our customers, those coupons, when redeemed, were being reflected in promotional allowances. The currency inserted and played off at the slot machine was recognized as revenue and any jackpots associated with this play would be a reduction of slot revenue. During the first quarter of 2007, slot revenues were reduced by $2.2 million as a result of downloadable promotional credits and declined $2.6 million overall. Offsetting the decline in casino revenues, primarily as a result of downloadable promotional credits, was a $2.3 million decline in promotional allowances, which was due to the significant reduction in cash coupons redeemed. Also, impacting our revenues was a hotel remodel project, which took almost eight-thousand room nights out of service during the first quarter of this year and reduced hotel revenues by $0.3 million over the prior year quarter.

EBITDA for the three months ended March 31, 2007 decreased to $3.5 million from $5.8 million in the year earlier period. For the three months ended March 31, 2007 as compared to the year earlier period, the EBITDA margin decreased from 26.8% to 17.2%. The decrease in EBITDA and the EBITDA margin in the first quarter of 2007 resulted primarily from the decline in net revenues discussed above. Also, impacting EBITDA and EBITDA margin were increases in casino payroll and bad debts, particularly in the table games department, and increases in junket costs, expenses associated with producing our direct mail, and player development events. These increased expenses were offset by a decline in gaming tax expense due to lower casino revenues.

Fitzgeralds Black Hawk

Fitzgeralds Black Hawk's net revenues were $7.9 million in the first quarter of 2007 down $0.7 million from the year earlier period. This decline in net revenues directly resulted from a decline in casino revenue of $0.8 million in the first quarter of 2007. Part of this decrease was due to reduced customer traffic in our casino, which resulted from the severe winter storms in Colorado during January 2007. Also, the lower level of casino revenue in the three-month period ended March 31, 2007, compared to the year earlier period, was caused by the elimination of construction disruption, which impacted one of our major competitors during the first quarter of 2006. Though we derived additional casino revenues in the first quarter of 2006 resulting from our competitor's construction disruption, starting in the second quarter of 2006, when the casino construction disruption from our competitor was abated, our casino revenues declined. In addition, we were impacted by greater levels of marketing at our competitors in 2007.

In the first quarter of 2007, EBITDA declined $0.1 million to $2.2 million from the year earlier period. EBITDA margin for the first quarter of 2007 was 28.1% as compared to 26.7% for the year earlier period. The recent conversion of slot machines from coin-in to TITO (ticket-in-ticket-out) has allowed us to reduce casino payroll expense, and the purchase of new machines has reduced our slot participation expense, both of which have helped us to maintain our margins.