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Argosy Gaming Company Reports Second Quarter Earnings

23 July 2002

ALTON, Illinois -- (Press Release) -- Argosy Gaming Company (NYSE: AGY ) today announced second quarter operating results. The Company reported net income of $23.2 million, or $0.79 per diluted share, for the second quarter ended June 30, 2002, before reflecting the impact of the increased gaming tax rates resulting from the Illinois and Indiana gaming tax increases which recently became effective, as compared to $13.7 million, or $0.47 per diluted share, for the second quarter 2001. After consideration of the increased taxes, the Company's second quarter 2002 net income was $11.3 million, or $0.38 per diluted share.

The Company's reported second quarter results reflect the acquisition of the Empress Casino Joliet on July 31, 2001 and continued favorable business trends at its Lawrenceburg property. In addition, the adoption of the Financial Accounting Standards Board Statement No. 142 on January 1, 2002 eliminated goodwill amortization and impacted second quarter comparisons as the Company had recorded goodwill amortization of $1.3 million, or $0.04 per diluted share, after tax, for the quarter ended June 30, 2001.

In states where Argosy is subject to graduated tax rates or city lease fees, the Company records these costs over the course of the year based upon management's best estimate of the annualized effective rates for the affected properties. These costs are included in the operating expenses of each affected property. The effect of the increased gaming tax rates in Illinois and Indiana during the first six months of 2002 was $17.0 million and was expensed in the second quarter.

Record second quarter 2002 casino revenues of $235.2 million reflect an increase of $68.7 million over the second quarter 2001. The increase in casino revenues is primarily related to the $62.2 million generated at the Empress Casino Joliet. Casino revenues increased a combined 1% from $83.0 million to $84.0 million at Alton, Baton Rouge, Riverside and Sioux City, and increased 7%, from $83.5 million to $88.9 million at Lawrenceburg.

EBITDA (earnings before interest, taxes, depreciation and amortization) increased by $23.2 million to $71.4 million, from $48.2 million for the second quarter of 2001, before reflecting the increased tax rates. The increase in EBITDA is primarily related to the $20.3 million in EBITDA reported by the Empress Casino Joliet for the second quarter 2002. After giving effect to the increased taxes, the Company reported EBITDA of $54.3 million for the second quarter 2002, including $13.9 million for the Empress Casino Joliet.

The Company reported net income of $47.9 million, or $1.63 per diluted share for the six months ended June 30, 2002, before consideration of the annualized effect of increased gaming taxes, as compared to $28.3 million, or $0.97 per diluted share in 2002. After giving effect to the tax increase, the Company's net income for the six months ended June 30, 2002 was $36.0 million, or $1.22 per diluted share. The adoption of SFAS 142 impacted the first six months comparisons as the Company had recorded goodwill amortization of $2.1 million, or $0.07 per diluted share, after tax, for the six months ended June 30, 2001.

For the six months ended June 30, 2002, Argosy reported record casino revenue of $477.3 million, reflecting an increase of $139.0 million over the first six months of 2001. The Empress Casino Joliet reported $124.5 million in casino revenues for the six months ended June 30, 2002. Casino revenues increased a combined 2% from $167.4 million to $170.9 million at Alton, Baton Rouge, Riverside and Sioux City, and increased 6% from $170.9 million to $182.0 million at Lawrenceburg for the six months ended June 30. 2002.

For the six months ended June 30, 2002, EBITDA was $129.0 million, including a $17.0 million accrual for the annualized effect of the increased gaming tax rate, as compared to $98.4 million the prior year. EBITDA decreased from $21.4 million to $19.0 million, including a $0.8 million tax accrual in Alton, and decreased from $63.9 million to $59.6 million, including a $9.8 million gaming tax accrual in Lawrenceburg. The Empress Casino Joliet reported EBITDA of $33.4 million, including a $6.4 million accrual for the increased taxes. The decrease in EBITDA at the Alton property was in part due to flooding in the St. Louis area in May 2002 that closed the main access bridge from Missouri to Alton for approximately one week, as well as to increased competitive pressures in the St. Louis marketplace.

James B. Perry, Chief Executive Officer, commenting on the results of the second quarter and six months ended June 30, 2002, said, "Our financial results continue to benefit from the Lawrenceburg and Empress Casino Joliet acquisitions last year, tempered by the recent tax increases in Illinois and Indiana this year." Perry further stated, "We continue to see improved revenues in Lawrenceburg where we recently filed our dockside application with the Indiana Gaming Commission. However, we expect to experience increased competitive pressures at our Alton casino as the St. Louis market prepares to absorb the opening of a new barge facility by a competitor in early August 2002."

Perry said, "Over the next eighteen months, we plan to utilize our substantial free cash flow to complete our expansion and renovation projects in Kansas City, Joliet and Sioux City. Throughout the next year we will evaluate how to best utilize our free cash flow in 2004 and beyond to increase shareholder value. Our strong balance sheet and free cash flow position the Company to take advantage of other potential opportunities that also provide for increased shareholder value." Perry further stated, "The capital expansion projects will grow our asset base and strategically position us for future growth. The future growth of Argosy and development or expansion of our assets over the next five years will be built upon our solid base of operational expertise, strong balance sheet and our diversified and talented management team."

The Company remains focused on executing its plans to minimize the effect of the increased taxes through cost savings measures. Argosy said that it continues to believe that it's markets will grow at a 3% to 5% overall growth rate this year. However, EBITDA will no longer grow consistent with the revenue growth due to the recent gaming tax increases that became effective July 1, 2002 in Illinois and Indiana. The impact of dockside operations in Indiana under the graduated tax rate and the anticipated levels of increased revenues generated to offset the tax increase are uncertain at this time. While the Company anticipates a minimal 10% increase in casino revenues in Lawrenceburg, actual results could be either lower or higher than anticipated. As a result, it is premature at this time for the Company to provide further guidance on the impact dockside gaming in Indiana will have on its Lawrenceburg and Joliet properties.

The Company reported that debt at the end of the second quarter 2002 decreased by $19.5 million to $938.0 million from $957.5 million at the end of the first quarter 2002. Net interest expense increased $6.6 million from $13.8 million to $20.4 million for the second quarter 2002 and increased $16.0 million from $25.2 million to $41.2 million for the six months ended June 30, 2002, due primarily to additional borrowings used to acquire the Lawrenceburg casino minority interests in the first quarter 2001 and the Empress Casino Joliet July 31, 2001.

Technological Advances

-- The Company recently completed the first phase of its enterprise data warehouse, including the rollout of the first phases of the Customer Relationship Management (CRM) application. When fully implemented in the fourth quarter 2002, the system will enhance the Company's ability to build stronger customer relationships, identify retail opportunities, and enhance the Company's plan to gain marketshare.

-- Moving forward on this initiative, the Company is in the process of installing a new casino management system at its Joliet property, and will have upgraded the casino management systems at each Argosy property by the fourth quarter 2002. In addition to supporting the data warehouse, these upgrades are necessary to support cashless gaming, which Argosy will continue to pursue in each jurisdiction subject to regulatory approval. Over the last year, the Company has been primarily purchasing slot machines that are convertible to a cashless environment.

Recent Highlights

-- The Company commenced construction of its new barge facility and pavilion renovation in Riverside that is scheduled for completion in the fourth quarter 2003. When completed, the project will provide for a 50% increase in gaming capacity and increased dining and parking facilities. The Company is currently the only casino operator in the Kansas City market that operates from a multi-level riverboat.

-- For Joliet, the Company said that it recently agreed to acquire a 60,000 square foot casino barge, including approximately 50,000 feet of gaming space and an approximately 18,000 square foot restaurant barge facility for approximately $7 million. Argosy plans to renovate these facilities subject to Illinois Gaming Board and other regulatory approvals, as well as final approval from its Board of Directors. The Company anticipates that the renovation of these assets could be completed as early as the end of the first quarter 2003. Perry said, "This project will have great customer appeal and will competitively position our Joliet Empress Casino with our two closest competitors that recently opened barge-based facilities. The facility will provide for many operational cost efficiencies that will improve employee productivity. In addition, it will allow for the casino to quickly expand the number of gaming positions should the legislature enact an increase in the maximum allowable gaming positions."

-- The Company commenced construction of its $6 million barge facility in Sioux City. When completed in the first quarter 2003, in addition to a new grill restaurant, party/function room and promotions booth, the project will also include office space for its employees. The Company currently leases office space in downtown Sioux City.

-- Argosy strengthens its management team, positioning itself for developing the future of the Company over the next two to five years, and adding bench strength to its operations in order to take advantage of future opportunities.

* April, 2002 -- Brenda Bauer and Arnold Block were promoted to Regional Vice Presidents of Operations

* July, 2002 -- Richard Glasier appointed new President of Argosy Gaming Company

-- Other Events

The Company's strategic, financial, and operating plans, including its focus on business fundamentals, customer courtesy programs, and service initiatives were again recently recognized as follows:

* May, 2002 -- "Argosy Gaming Company Tops List of Public Companies" in the 11th Annual St. Louis Post Dispatch Review of Local Companies

* June, 2002 -- "Argosy Named to List of America's Best Small Companies" by Business Week

* July, 2002 -- Empress Casino Joliet named "Best Place to Gamble" by Chicagoland's Daily Southtown's annual reader's poll for the 8th consecutive year. This reaffirmed our position as 'Best Place to Gamble' earlier this year by the Star newspaper (Joliet metropolitan area).

* July, 2002 -- Illinois Gaming Board issues the Empress Casino Joliet a new four-year license

* July, 2002 -- Argosy Casino & Hotel in Lawrenceburg named "Best of Region" for southern Indiana in Casino Player Magazine's 7th annual "Best of Gaming" issue.

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