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Argosy Gaming Reports Mixed 2002 Results

The Company's net income was $71.5 million or $2.43 per diluted share for the year ended December 31, 2002, as compared to $2.25 per diluted share on net income of $66.1 million for the year ended December 31, 2001, after giving effect to a $1.1 million after-tax charge in the third quarter of 2001. In addition, the adoption of the Financial Accounting Standards Board Statement No. 142 on January 1, 2002 eliminated goodwill amortization and impacted year over year comparisons as the Company had recorded pre-tax goodwill amortization of $7.8 million, or $0.16 per diluted share for the full year 2001.

For the year ended December 31, 2002, Argosy's casino revenues increased 20.6% to $944.7 million, reflecting an increase of $161.3 million over the year ended 2001. The increase is primarily the result of owning the Empress Casino Joliet for all of 2002, versus for five months of 2001. Empress contributed $237.6 million of casino revenues in 2002 versus $102.1 million in 2001. At Lawrenceburg, casino revenues increased $27.3 million to $373.7 million, due primarily to the implementation of dockside operations in August of 2002.

The Company's EBITDA (earnings before interest, taxes, depreciation and amortization) for the year ended December 31, 2002 increased $27.0 million to $257.5 million. The Empress casino contributed EBITDA of $63.7 million in 2002, versus $30.4 million for the five months ended December 31, 2001. These results were achieved despite increases in the gaming tax and admission tax rates that affected the Company's properties in Illinois and Indiana. EBITDA for 2002 was approximately $33 million lower than it would have been before the tax rate changes based on 2002 casino revenues. EBITDA at the Company's Alton property was down $6.5 million, from $40.9 million to $34.4 million, in part because of the increase in the Illinois tax rate, and in part because of the highly competitive environment in the St. Louis market due to capital expansions and promotional activities by competitors.

In Lawrenceburg, EBITDA was down $2.2 million, from $132.2 million to $130.0 million, as the benefit from increased revenues due to dockside operations was not sufficient to offset the negative impact of the tax increases. The EBITDA at the Company's other properties was similar to the levels achieved in 2001, with the exception of Joliet. The EBITDA at the Company's Joliet property was $33.3 million higher, due to the impact of owning the property for all of 2002, offset by the Illinois tax rate increases and significant competitive pressures in the Chicago market.

James B. Perry, Chief Executive Officer, commenting on the full year results said, "It was certainly a challenging year, as significant tax increases and competitive pressures impacted both operating performance and capital plans at our largest properties. Coupled with the current economic environment, our focus on strong operations was more important than ever. I am very proud of the efforts taken at our properties to continue to maximize margins in what turned out to be a difficult setting this year."

Fourth Quarter

The Company's fourth quarter 2002 earnings per diluted share was $0.56 on net income of $16.5 million, as compared to $0.70 per diluted share on net income of $20.7 million for fourth quarter 2001. The elimination of goodwill amortization also impacted quarter over quarter comparisons, as the Company had recorded pre-tax goodwill amortization of $2.1 million, or $0.04 per diluted share for the fourth quarter of 2001.

Argosy's fourth quarter 2002 casino revenues were essentially flat, at $228.3 million, compared to $229.0 million in fourth quarter 2001. Fourth quarter 2001 revenues were 9% higher than in 2000 on a comparable basis, as local gaming markets benefited from the decline in travel following the events of September 11. In 2002, fourth quarter casino revenues benefited from the implementation of dockside operations in Lawrenceburg, but were negatively impacted in Joliet, Kansas City and Alton due to increased competition caused by significant capital improvements and increased promotions by competitors.

The Company's EBITDA decreased to $61.8 million for the fourth quarter 2002, as compared to $69.8 million for the fourth quarter 2001. The decrease is primarily related to the lower revenues at Joliet, Kansas City and Alton and the impact of increased gaming tax rates that affected the Company's Illinois and Indiana properties.

Capital Structure

Argosy's debt on December 31, 2001 was $890.8 million. As of that date, the Company had $58.3 million outstanding under the revolving portion of its senior secured credit facility and had the ability to draw down an additional $196.1 million. Argosy has no off-balance sheet debt.

Commenting on the Company's capital structure, Richard J. Glasier, President, said, "Argosy continues to maintain a conservative balance sheet. We feel that operating at these debt levels makes sense in terms of efficient use of capital, while at the same time allowing us flexibility to take advantage of growth opportunities as they arise."

Current Capital Projects

Argosy reported on the status of its major expansion projects in Riverside, MO, and Joliet, IL. These properties currently compete with barged-based casinos in their respective markets, which have experienced increased market share since opening. Argosy spent approximately $29.5 million on these two projects in 2002, and anticipates spending approximately an additional $115 million to complete them. The Company said that it plans to finance these projects from free cash flow and borrowings under its senior secured credit facility.

In Riverside, the Company is replacing its current three-level riverboat facility with a single level 58,000 square-foot barge-based facility providing for a 50% increase in gaming positions and a new high limit area. Essentially all of the slot machines available in the new facility will be cashless, which allows guests to play using tickets rather than coins. The project also includes the renovation and expansion of the current pavilion to include a new VIP club, new dining venues and an expanded buffet and dining room, plus additional surface and VIP parking areas. The Company expects to complete the project around the end of 2003, at a total cost of approximately $105 million.

Glasier said, "Aside from creating the best gaming product in the market, our new project also provides us with an opportunity to gain additional market share as well as to position the property to take advantage of a change in the loss limit, if that were to occur. We are also considering the opportunity to redeploy the current riverboat to another site, which would allow us to enhance revenues and free cash flow at another Argosy property."

In Joliet, Argosy will replace its existing two boats that currently operate a total of five levels of gaming space with a two-level barge facility that the Company purchased last year. The barge is undergoing extensive renovations and will offer approximately 50,000 square feet of gaming space, plus an additional 15,000 square feet slated for a party room and a player's lounge. The project is targeted to open in the second quarter of 2003 and will cost approximately $40 million.

Perry stated, "Customers have clearly expressed their preference for barge facilities. As always, our objective is to give our guests the experience they desire. The new facility will not only do this, but will also provide us with numerous operating efficiencies. The Joliet barge will also permit expansion if Illinois were to increase the number of allowable gaming positions."

Argosy is also completing a construction project of a barge facility in Sioux City that will include a new grill restaurant, party/function room and promotions booth, as well as office space for its employees. The work is expected to cost approximately $6 million, and will be completed later this month.

Argosy has undertaken a strategic initiative to be able to operate exclusively with cashless slot machines at its properties by the end of 2004. The Company is currently in the process of transitioning to cashless slots in Sioux City, Lawrenceburg and Kansas City. The use of cashless slots is not currently permitted in Illinois and Louisiana. In those states where cashless slots are not permitted, the Company has been using the normal replacement cycle to replace existing machines with machines capable of cashless operations. In anticipation of this transition, and because cashless slots were not allowed in several states, the Company slowed its replacement cycle in 2002. Maintenance capital expenditures in 2002 were approximately $23 million. The Company currently plans to spend approximately $40 million on maintenance capital in 2003 and approximately $35 million on average for annual maintenance capital during the three-year period ending in 2004.

Outlook

The Company announced that it expects the following items to impact financial results in 2003:

-- The Company expects margins, excluding the year-over-year incremental increases in gaming and admission taxes, to be comparable to those achieved in 2002.

-- At 2002 revenue levels, the 2003 full-year impact of the increase in gaming and admission taxes would be an incremental decrease to EBITDA of approximately $22 million ($0.42 per diluted share, after income taxes), which varies significantly by quarter.

-- The effective gaming and admission tax rate for the Company is expected to increase from approximately 34 % in 2002 to approximately 37% in 2003.

-- The year-over-year impact of major expansions by competitors in St. Louis and Chicago is expected to continue until mid-year.

-- There will be a positive impact from the Joliet barge expansion in the second half of the year.

-- The year-over-year impact of dockside gaming in Lawrenceburg will continue until August.

-- Kansas City will experience some construction disruption due to the Company's barge expansion and pavilion renovation.

-- Debt levels and interest expense will remain relatively flat due to funding requirements of the construction in Joliet and Kansas City.

-- Depreciation and amortization expense should rise to approximately $52 million, due primarily to the opening of Joliet and Sioux City barges and accelerated depreciation on items to be removed from service upon completion of the Kansas City project.

-- The effective corporate income tax rate is expected to be approximately 44.5%.

Based on the current projected revenue stream, the Company estimates that the increase in gaming and admission tax rates will result in a negative impact to 2003 first quarter diluted EPS of approximately $0.40 compared to the same quarter last year. As a result of the factors discussed above, Arogsy expects diluted EPS for the first quarter of 2003 to be in the range of $0.45 to $0.50.

"This will be a challenging year for the industry," said Glasier, "The economy has not improved recently, and many states are considering legislative changes, which creates a feeling of uncertainty in the market. However, a good deal of discussion is taking place on the expansion of gaming in some form, and we see this as a possible opportunity to develop in some new areas for the Company. Due to our reputation as strong operators, we are also regularly contacted about ideas on how to leverage our experience over a larger base. Internally, we've taken some concrete steps to be more proactive about identifying projects that make sense. Thanks to our strong balance sheet, we will be able to take advantage of the right opportunities as they present themselves. Throughout this process, our objective will continue to be to increase shareholder value by using capital prudently."

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