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Ameristar Casinos Reports Mixed Q4 Results

Fourth quarter and year-end 2002 highlights

-- Net revenues of $181.6 million for the quarter ended December 31, 2002, an increase of $29.6 million, or 19.5 percent, over the fourth quarter of 2001. Net revenues of $698.0 million for the year ended December 31, 2002, an increase of $95.2 million, or 15.8 percent, over 2001.

-- Operating income of $25.1 million for the fourth quarter of 2002, representing a decrease of $1.6 million, or 6.0 percent, as compared to the same quarter last year. Adjusted operating income of $126.8 million for 2002 (excluding preopening expense of $6.4 million relating to the new St. Charles facility and impairment loss on assets held for sale of $5.2 million), representing an increase of $11.9 million, or 10.4 percent, as compared to the prior year.

-- EBITDA (as defined below) of $39.8 million during the three months ended December 31, 2002, compared to $38.5 million for the fourth quarter of 2001, representing an increase of 3.4 percent. EBITDA of $175.5 million for 2002, compared to $155.0 million for 2001, representing an increase of 13.2 percent.

-- Net income of $5.0 million for the fourth quarter of 2002, down $4.2 million, or 45.7 percent, as compared to the fourth quarter of 2001. Net income of $40.5 million for 2002, up $7.3 million, or 22.0 percent, as compared to the prior year.

-- Diluted earnings per share of $0.19 for the fourth quarter of 2002 compared to $0.40 for the fourth quarter of 2001. Diluted earnings per share for 2002 of $1.50, compared to $1.51 for the prior year. Analysts' consensus expectation for the fourth quarter of 2002 was $0.21, as reported by Thomson's First Call.

-- For the fourth quarter of 2002, Ameristar Casinos was the market share leader (based on gross gaming revenues) in all of its markets.

The growth in revenues in the fourth quarter of 2002 as compared to the prior-year quarter was driven primarily by increased revenues at the new Ameristar St. Charles facility, which opened August 6, 2002, as well as continued revenue improvements at all other properties. Fourth quarter 2002 consolidated operating income was adversely impacted by inefficiencies associated with the initial operations of the new St. Charles facility, business disruption from ongoing construction of the enhancements being made to the casino and non-gaming amenities at the Kansas City property and the general slowdown in the U.S. economy. The Company's net income in the fourth quarter of 2002 was also negatively affected by the substantial increase in the base of depreciable assets and the reduction of capitalized interest following the opening of the new St. Charles facility.

"While revenues and EBITDA continue to grow, we are implementing a number of revenue enhancement and cost reduction initiatives in order to further improve operating margins," said Chief Executive Officer Craig H. Neilsen. "We are confident the expanded and enhanced facilities at our Missouri properties will generate improved operating results in 2003. We are employing similar marketing and operating strategies at the Missouri properties that have led to strong returns at the Council Bluffs and Vicksburg properties following the completion of capital improvement projects at those properties. Adjusted operating income at Council Bluffs and Vicksburg increased by 37.6 percent and 65.0 percent, respectively, from 2001 to 2002, and EBITDA at these properties increased by 28.3 percent and 45.5 percent, respectively, during the same period."

Ameristar St. Charles

Net revenues at Ameristar St. Charles improved to $58.6 million for the quarter ended December 31, 2002 from $36.1 million for the corresponding period in 2001, representing an increase of 62.3 percent and marking the eighth straight quarter of double-digit revenue growth for the property. The level of growth in revenues is principally due to the opening of the new facility in August 2002. Ameristar St. Charles continued to improve its market share, with an increase in the fourth quarter of 2002 to 29.4 percent, a record since Ameristar acquired the property in December 2000, up from 19.9 percent in the prior-year quarter.

Operating income at Ameristar St. Charles was $9.5 million for the three months ended December 31, 2002, a decrease of 6.9 percent from the quarter ended December 31, 2001. Ameristar St. Charles' operating income margin declined from 28.1 percent in the fourth quarter of 2001 to 16.3 percent in the fourth quarter of 2002. These decreases are largely due to higher labor and marketing costs and depreciation expense associated with the opening of the new facility in August 2002, which collectively increased fourth quarter operating expenses by $11.5 million. Management expects to achieve improved operating margins in future periods through increased labor and marketing efficiencies and other operational initiatives. EBITDA margin at Ameristar St. Charles improved to over 28 percent in January 2003, compared to 19 percent in September 2002, the first full month of operations after the new facility opened. Management attributes the improvement to the effect of the above measures implemented to date as well as the heightened customer awareness of the scope and quality of the new facility. Despite operating inefficiencies associated with the opening of the new facility, EBITDA at the property improved by $3.2 million in the fourth quarter of 2002, an increase of 27.6 percent over the quarter ended December 31, 2001.

Ameristar Kansas City

Ameristar Kansas City reported net revenues of $52.0 million in the fourth quarter of 2002, representing an increase of $2.7 million, or 5.5 percent, over the prior-year quarter. The property's 9.7 percent increase in gaming revenues as compared to 2001 exceeded the 5.2 percent growth in the overall Kansas City market and improved the property's market share in the fourth quarter of 2002 to 34.3 percent, up from 32.5 percent in the same period in 2001. Increased costs of targeted marketing programs, including coin coupon offerings, which are recorded as promotional allowances, caused net revenues to grow at a lower rate than gaming revenues.

Fourth quarter 2002 income from operations at Ameristar Kansas City improved to $8.7 million, compared to $8.3 million in the corresponding period in 2001. EBITDA at Ameristar Kansas City decreased $0.9 million, or 7.1 percent, in the fourth quarter of 2002 compared to the prior-year quarter. The comparability of income from operations between the two periods was affected by the absence of goodwill amortization expense in the fourth quarter of 2002 compared to $0.7 million recorded in the prior-year quarter. In accordance with Statement of Financial Accounting Standards No. 142, which the Company adopted on January 1, 2002, the Company no longer records goodwill amortization expense.

Operating expenses (excluding depreciation) at Ameristar Kansas City in the fourth quarter of 2002 were $3.6 million higher than the corresponding period in 2001. This increase is principally associated with increased costs of certain marketing and player development initiatives and general and administrative expenses. The property's results were also adversely impacted by business disruption associated with the ongoing construction of enhancements to the casino and entertainment facilities that began in July 2002. The current projects, undertaken to further improve its competitive position and operating results, include significant improvements to the casino and land-based amenities and are expected to be substantially completed in the first quarter of 2003. Similar enhancement projects completed in 2001 at Ameristar Council Bluffs and Ameristar Vicksburg resulted in significant improvement in operating results. Management expects to achieve improved results at Ameristar Kansas City after completion of the current projects.

Ameristar Council Bluffs

Net revenues at Ameristar Council Bluffs increased to $35.7 million, up $1.4 million, or 4.1 percent, from the fourth quarter of 2001. The property continued to benefit from the ongoing refinement of targeted marketing programs and the installation of new gaming equipment. Ameristar Council Bluffs improved its market share to an all-time record 39.4 percent in the fourth quarter of 2002, up from 37.6 percent in the fourth quarter of 2001. Ameristar Council Bluffs has now been the market share leader in Council Bluffs for sixteen consecutive months. Despite the increase in net revenues, operating income and EBITDA at Ameristar Council Bluffs decreased slightly, down $0.2 million and $0.1 million, respectively, from the same quarter in 2001. These declines are largely attributable to increases in property insurance expense and liability accruals.

Ameristar Vicksburg

Ameristar Vicksburg experienced significant improvement in the fourth quarter of 2002, with net revenues increasing by $2.6 million, or 13.5 percent, over the fourth quarter of 2001, due to the effectiveness of targeted marketing programs and new gaming equipment. The 16.8 percent growth in casino revenues far outpaced the 3.0 percent increase in the overall Vicksburg gaming market. Ameristar Vicksburg, the long-time market share leader in Vicksburg, improved its market share to 40.2 percent in the fourth quarter of 2002, up from 35.5 percent in the fourth quarter of 2001. Ameristar Vicksburg generated operating income of $4.8 million and EBITDA of $7.1 million, up 33.3 percent and 22.4 percent, respectively, from the fourth quarter of 2001. In addition, the Vicksburg property improved its operating income margin from 18.6 percent to 21.8 percent and EBITDA margin from 30.4 percent to 32.6 percent from the quarter ended December 31, 2001 to the corresponding period in 2002.

Jackpot Properties

Net revenues at the Jackpot Properties in the fourth quarter of 2002 were $13.5 million, up 3.1 percent from the fourth quarter of 2001. This improvement is attributable to more effective marketing programs and milder weather conditions in the fourth quarter of 2002 compared to the prior-year quarter. The Jackpot Properties generated operating income of $1.4 million and EBITDA of $2.4 million, up 7.7 percent and 4.3 percent, respectively, from the fourth quarter of 2001.

Income tax rates

The effective income tax rate for the quarter ended December 31, 2002 was 37.3 percent compared to 23.6 percent for the prior-year quarter. During the fourth quarter of 2001, the Company recorded $1.7 million of previously unrecognized tax credits, which reduced the effective tax rate for the quarter by 14.2 percentage points.

Capital structure and borrowing costs

The number of diluted shares outstanding increased by 17.4 percent from the fourth quarter of 2001 to the fourth quarter of 2002, primarily due to the issuance of 4.9 million shares in the Company's December 2001 public equity offering. Among other factors, this increase in outstanding shares affects the comparability of earnings per share between the fourth quarter of 2001 and the fourth quarter of 2002.

At December 31, 2002, the Company's total debt was $798.4 million, representing an increase of $42.5 million from September 30, 2002. At December 31, 2002, the Company had $67.7 million of available borrowing capacity under the senior credit facility. The Company's cash increased from $47.2 million on September 30, 2002 to $90.6 million on December 31, 2002. The Company has no off-balance sheet debt.

In October 2002, the Company borrowed $14 million from a commercial bank to finance equipment purchases for the new St. Charles facility. On December 2, 2002, the Company borrowed an additional $100 million under the incremental term loan commitment provisions of its senior credit facility and repaid $67.7 million of the outstanding debt under the $75 million revolving loan facility.

Interest expense (net of capitalized interest associated with the Company's ongoing construction projects) for the quarter ended December 31, 2002 was $17.3 million, up 22.7 percent from $14.1 million for the quarter ended December 31, 2001, due to the cessation of capitalization of interest on the new St. Charles facility when it opened in August 2002. Total interest cost before capitalizing interest was $17.7 million for the quarter ended December 31, 2002, a decline of $0.8 million, or 4.6 percent, compared with the quarter ended December 31, 2001. The reduction reflects a lower weighted- average interest rate on the senior credit facility, which is largely attributable to the May 2002 amendment of the facility, offset by a higher weighted-average debt level in 2002 as a result of the additional borrowings described above.

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