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Alliance Gaming Profit Up for Q4

25 July 2002

LAS VEGAS – (Press Release) -- Alliance Gaming Corporation (Nasdaq: ALLY) today announced earnings before non-recurring items of $14.8 million, or $0.30 per diluted share for its fourth fiscal quarter ending June 30, 2002, compared to earnings before non-recurring items of $8.4 million, or $0.19 per diluted share in the prior year quarter. Including the non-recurring items, the Company earned $27.7 million, or $0.56 per share compared to a loss of $1.2 million, or $0.03 in the prior year quarter. For the fiscal year June 30, 2002, earnings before non-recurring items totaled $51.0 million or $1.07 per diluted share, compared to $24.1 million or $0.57 per diluted share for the prior year. Earnings including the non-recurring items totaled $63.8 million or $1.34 per share for the current year, compared to $14.5 million or $0.34 for the prior year.

Results for the June 2002 quarter include:

-- Record consolidated revenues of $159.0 million, an increase of 13% from the $140.2 million in the prior year quarter. Contributing to this increase was a 45% increase in revenues at the Bally Gaming and Systems business unit.

-- Consolidated EBITDA, before non-recurring items, of $29.3 million, an increase of 22% from the $24.0 million in the prior year quarter.

-- Earnings before non-recurring items of $0.30 per diluted share, a 57% increase compared to the prior year quarter.

-- Earnings including non-recurring items of $0.56 per diluted share, a 1,867% increase compared to the prior year quarter. Results for the fiscal year ended 2002 include:

-- Record consolidated revenues of $594.1 million, an increase of 13% from the $528.1 million in the prior fiscal year. Contributing to this increase was a 39% increase in revenues at the Bally Gaming and Systems business unit.

-- Record consolidated EBITDA, before non-recurring items, of $112.4 million, an increase of 27% from the $88.6 million in the prior fiscal year. This increase was led by a 59% increase in EBITDA at Bally Gaming and Systems.

-- Record earnings before non-recurring items of $1.07 per diluted share, an 88% increase compared to the prior year.

-- Earnings including non-recurring items of $1.34 per diluted share, a 294% increase compared to the prior year.

-- Two strategic acquisitions totaling approximately $26 million, funded from cash flow.

-- The achievement of net positive shareholders' equity (book value) for the first time since the acquisition of Bally Gaming International, Inc. in 1996.

Description of non-recurring items recorded in the June 2002 quarter:

-- A one-time tax benefit resulting from the reduction of previously recorded valuation reserves against net deferred tax assets, primarily Net Operating Loss carry forwards, generated in the 1990's, totaling $37.0 million. The Company currently has approximately $80 million of NOLs remaining which can be used to offset pre-tax income in future periods.

-- The Company has performed required reviews of all of its subsidiaries goodwill and long-lived assets in accordance with FASB No. 142 "Goodwill and Other Intangibles" and the newly adopted FASB No. 144

"Accounting for the Impairment or Disposal of Long-Lived Assets". As a result of this review process, we took a non-cash charge against goodwill and other long-lived assets related to our Bally Wulff business unit in Germany, totaling $24.1 million.

Other financial highlights:

-- Consolidated net interest expense for the current quarter totaled $6.4 million compared to $7.8 million in the prior year period, resulting from substantially lower interest rates on the Company's term loan facility.

-- Excluding the one-time tax benefit of $37 million related to the reduction of deferred tax valuation reserves, the Company incurred no net tax expense in the current quarter compared to a tax benefit of $0.2 million in the prior year quarter.

Cash and Capital Expenditures:

-- As of June 30, 2002, the Company had $63.4 million of cash and cash equivalents, an increase of $8.6 million from June 30, 2001. As of June 30, 2002, our cash and cash equivalents included approximately $23.8 million which was held for operational purposes in vaults, cages and change banks and $7.1 million which was held in restricted jackpot reserve accounts.

-- For the quarter ended June 30, 2002, consolidated capital expenditures, including manufacturing costs for proprietary games totaled $6.7 million as compared to $8.0 million for the prior year quarter.

The current period capital expenditures were driven primarily by the continued deployment of wide-area progressive and daily-fee games.

Fiscal Year 2003 Guidance:

For fiscal 2003, the Company updated its EPS guidance to at least $0.84 on a fully-taxed basis, on revenues of approximately $675 million and generating EBITDA of approximately $130 million. The fiscal 2003 earnings guidance reflects a 20% increase in earnings per share as compared to $0.70 on a fully taxed basis in fiscal 2002 (excluding non-recurring items).

With approximately $80 million of NOLs available, we will be able to produce cash flows which are free of any Federal tax payments in 2003.

Bally Gaming and Systems business unit reported a 45% increase in revenues over the prior year's quarter. Revenues from sales of gaming devices increased 36% over the prior year's quarter primarily as a result of a 43% increase in the number of units sold to 4,400 games, which is a level not achieved since 1997. Bally Systems revenues increased 45% over the prior year quarter primarily as a result of continued strength in new system installations and higher levels of recurring hardware and software support revenues resulting from the larger base of installed systems.

Gaming Operations revenues increased 74% over the prior year's quarter as a result of a 14% increase in the installed base of wide-area progressive (WAP) and daily-fee games deployed, which now total 2,285 and 1,350, respectively. During the quarter we deployed an additional 310 WAP and daily-fee games, and had returns totaling 440 games, resulting in a net decrease in the installed base of approximately 130 games on a sequential basis compared to the March 31, 2002 quarter end. Our signed backlog for WAP and daily-fee games going into the September quarter is at an all-time high, which should result in a net increase in the installed base for the September quarter.

The Bally Gaming and Systems EBITDA improved 37% to a new record of $16.7 million, compared to $11.8 million in the comparative prior year quarter. This increase resulted from the above mentioned improvements in revenues and margins driven by the larger proportion of high margin gaming operations revenues and high revenue margin player tracking software revenues.

For the Nevada route operations, revenue declined 3.6% and EBITDA was flat compared to the prior year quarter. The slight increase in the average number of games deployed was offset by a 4.5% decrease in the average net win per day per gaming machine to $69.20 from $72.50. At June 30, 2002, the Gamblers Bonus product was available at 400 locations and was installed in over 4,125 gaming machines or 49% of the Nevada route's total installed base of gaming machines.

The increase in revenues at VSI is due primarily to a 8% increase in the number of units deployed, and net win per day per gaming machine increased slightly to $59.95 from $59.70 in the prior year quarter.

For the quarter, the combined casino operations business unit reported an overall 4% decrease in revenues and a 17% decrease in EBITDA. Rail City reported a 7% increase in revenues driven by a 7% increase in slot win. EBITDA at Rail City remained flat at $1.4 million with a respectable 28% EBITDA margin. Revenues and EBITDA at Rainbow declined 7% and 21% respectively compared with the same quarter in fiscal 2001. Contributing to this decline was the significant impact from the substantial capital improvements at one of its major competitors within the market.

Although the overall economy in the Vicksburg market remains relatively slow, the gaming market is strengthening and has shown a 4.7% growth in gaming revenues for the twelve month period ending June 2002, when compared to the previous year. For the quarter ended June 2002, the market growth was a robust 7.7%. Considering the resurgent of the market, Rainbow will undertake a number of substantial capital improvement initiatives during fiscal 2003, to return the casino to its former competitive position. These projects will include an interior and exterior remodel, along with a substantial improvement in its current restaurant.

Wall Machines and Amusement Games business unit revenues decreased 1% as a result of a 31% decrease in new units sold offset by 40% increase in the average selling price and a 29% increase in revenues from leased games. Fiscal year 2002 results benefited from the introduction of new 12-second games and the required conversion to Euro currency, both of which were external factors which do not have any ongoing benefit to the Company or the wall machine industry. Excluding the write down of goodwill and other long-lived assets, operating income totaled $1.6 million, an improvement compared to the operating loss of $0.3 million in the prior year quarter.

The continued slowness in the German economy and the lack of significant changes in the regulations impacting the playability of the wall machines compared to other amusement devices led us conclude that the goodwill and substantially all other long-lived assets of Bally Wulff were to be written down by $24.1 million.

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