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Argosy Gaming Company Reports Q3 Earnings

The Company reported net income attributable to common shareholders of $13.1 million or $0.45 per diluted share for the third quarter ended September 30, 2000, as compared to $14.3 million or $0.49 per diluted share for the third quarter ended September 30, 1999, before giving effect to an extraordinary loss of $3.7 million related to the final phase of the Company's 1999 refinancing. After giving effect to the extraordinary loss in 1999, the Company reported net income of $10.7 million or $0.37 per diluted share for the third quarter ended September 30, 1999.

For the nine months ended September 30, 2000, the Company reported net income attributable to common shareholders of $34.3 million or $1.18 per diluted share, before giving effect to extraordinary and non-recurring charges incurred in the second quarter 2000, as compared to $24.9 million or $0.87 per diluted share, before giving effect to an extraordinary item incurred in the first nine months ended 1999.

After giving effect to these extraordinary and one-time charges, the Company reported net income attributable to common shareholders of $33.1 million or $1.14 per diluted share for the nine months ended September 30, 2000, as compared to a net loss attributable to common shareholders of $(13.5) million or $(0.47) per diluted share for the nine months ended September 30, 1999. (See Discussion and Analysis of Earnings)

Argosy reported record third quarter casino revenues of $172.2 million, reflecting an increase of $24.9 million over the third quarter 1999. Casino revenues increased 21% from $67.0 million to $81.1 million at the western properties (Alton, Riverside, Baton Rouge and Sioux City) and increased 13% from $80.3 million to $91.1 million at Lawrenceburg.

For the nine months ended September 30, 2000, Argosy reported record casino revenues of $502.4 million, reflecting an increase of $90.1 million over the first nine months of 1999. Casino revenues increased 32% from $182.0 million to $239.4 million at the western properties and 14% from $230.3 million to $263.0 million at Lawrenceburg for the nine months ended September 30, 2000.

The Company attributed its significant growth in casino revenues at the western properties primarily to the opening of the new landing facility in Alton, which included the addition of approximately 130 slot machines in December 1999, and the advent of open boarding in Riverside in November 1999. In Baton Rouge, the Company introduced a new customer courtesy program in December of 1999 which continues to strengthen its position with customers in this market.

This program, in conjunction with the elimination of video poker at non-casino locations in June 1999, has generated significant market share gains. The Argosy customer courtesy program in Baton Rouge has now been implemented at all properties, and, in conjunction with focused marketing programs and product upgrade strategies, has allowed the Company to post double digit casino revenue gains at all of its properties.

Before consideration of non-recurring items in 1999 and 2000, Argosy reported consolidated EBITDA (earnings before interest, taxes, depreciation and amortization) of $49.6 million for the third quarter 2000, as compared to $43.2 million for the third quarter ended 1999. EBITDA increased most significantly at the western properties from $16.7 million to $22.0 million, a 32% increase, and increased 8% from $32.4 million to $34.9 million at Lawrenceburg.

For the first nine months of 2000, excluding non-recurring items, Argosy reported consolidated EBITDA of $147.8 million, as compared to $114.6 million in 1999, an increase of 29%. EBITDA increased 60% from $40.6 million to $65.1 million at the western properties and 10% from $92.4 million to $101.8 million at Lawrenceburg.

Operating margins for the third quarter 2000 increased to 26% from 24% over 1999 at the western properties. For the first nine months of 2000, margins at the western properties increased to 26% from 21% over 1999 amounts. Lawrenceburg continued to post strong 36% margins for the third quarter and nine months ended September 30, 2000.

James B. Perry, President and Chief Executive Officer, commenting on the results of the third quarter and nine months ended September 30, 2000, said, ``Operating trends remain very solid at all our casinos. We have experienced tremendous growth in revenues and cash flow on a year-over-year basis primarily due to favorable regulatory changes in Illinois, Missouri and Louisiana, all of which occurred in the second half of 1999, and to the successful execution of our strategic plan. We are now prepared and positioned to rise to the next level by taking advantage of growth opportunities, both at existing properties and other potential locations.''

Discussion and Analysis

Earnings

Earnings for the third quarter ended 2000 are reported on a fully taxed basis as compared to the third quarter ended 1999, when the Company benefited from net operating loss carry forwards to offset the income tax effect on earnings. Income tax expense increased to $9.1 million or $0.31 per diluted share for the third quarter ended 2000, as compared to $0.6 million or $0.02 per diluted share for the third quarter ended the prior year.

For the nine months ended September 30, 2000, income tax expense increased to $22.5 million or $0.77 per diluted share, as compared to $1.8 million or $0.06 per diluted share for the nine months ended September 30, 1999.

The following table provides an analysis of the significant growth in earnings on a year-over-year basis had the Company not benefited from net operating loss carry forwards to offset the income tax effect in 1999, before giving effect to an extraordinary item of $1.2 million or $0.04 per diluted share related to the redemption of approximately $22.2 million of the Company's 13 1/4% First Mortgage Notes and a non-cash after tax charge of $4.2 million or $0.14 per diluted share related to the write-down of the former Alton landing facility incurred in the second quarter.

EBITDA

The Company reported that its economic share of EBITDA (after deducting its partners' share) was $36.6 million for the third quarter ended September 30, 2000, an increase of 19%, compared to $30.7 million for the third quarter of 1999.

EBITDA for the nine months ended September 30, 2000, is presented before giving effect to a non-cash pre-tax charge of $6.8 million related to the write-off of the former Alton landing facility incurred in the second quarter. For the nine months ended September 30, 2000, the Company reported that its economic share of EBITDA increased 21% to $109.1 million from $90.2 million for the same period the prior year.

Third Quarter Updates

Financial Update

Argosy reported that as a result of its refinancing in mid-year 1999, interest expense decreased $2.8 million to $7.9 million for the third quarter ended September 30, 2000, as compared to $10.7 million for the third quarter the prior year. For the nine months ended September 30, 2000, interest expense decreased $11.1 million to $27.4 million from $38.5 million in 1999.

The Company reported that net borrowings on its credit facility decreased by $32.7 million during the third quarter to $41.0 million at September 30, 2000. Argosy said it anticipates debt levels to increase in the fourth quarter due to its $10.8 million interest payment in December, tax payments of approximately $9.7 million due in the fourth quarter, and funding of capital expenditures. The Company reported that it expended $2.3 million for progress payments related to the 300-room convention hotel under construction in Baton Rouge, Louisiana and $2.2 million in other capital expenditures during the third quarter.

The Company also announced that it has signed a management contract with Starwood Hotels who will operate the 300-room convention hotel in Baton Rouge under the Sheraton flag. The Company anticipates opening the hotel in the first quarter of next year.

Argosy said it expects to make approximately $20.3 million of additional capital expenditures for the balance of the year including $9.0 million in progress payments for the Baton Rouge hotel, $3.0 million for additional gaming equipment in Alton, $6.2 million for maintenance expenditures and approximately $2.2 million related to a garage study in Baton Rouge, a barge study in Riverside and a relocation study in Sioux City.

Lawrenceburg Update

As previously reported, the Company's two minority interest partners have exercised their 'put' options in the Lawrenceburg casino. The Company is currently in the appraisal and negotiation process with its limited partners in order to establish the value of these interests.

Outlook

The Company said that while little or no new competition is anticipated for the near term at its western properties, it is well prepared and positioned to meet the challenge of the new competition for Lawrenceburg, which is expected to commence operations later this month.

Argosy anticipates that it will maintain its dominant position in this market, however, increased marketing, promotional and employee costs, as well as the potential loss of admissions revenues, are expected to impact margins going forward. Argosy also said that it has converted its slot equipment in Riverside to allow for 'Vend-to-Meter', which allows customers to play off machine credits rather than having to insert tokens for each play.

The Company expects an increase in slot revenues due to this change in regulations (effective August 28, 2000) as it speeds up play, especially on multi-coin games. Additionally, the Company anticipates adding approximately 100 new slot machines at its Alton casino in the first quarter of 2001.

The Company reported that in view of the above expectations, it is currently comfortable in estimating operating earnings on a diluted basis of $0.30 to $0.33 for the fourth quarter ended December 31, 2000. In looking forward to fiscal year 2001, any forecast becomes much more opaque, especially considering the outcome of the ongoing negotiations surrounding the ownership of the Lawrenceburg partnership.

Before consideration of these negotiations and further assuming no other material changes other than the above, the Company is currently comfortable in estimating operating earnings on a diluted basis of $1.70 to $1.80 for fiscal year 2001.

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