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Alliance Gaming Reports Mixed Results for Q1

14 October 2002

LAS VEGAS – (Press Release) -- Alliance Gaming Corporation (Nasdaq: ALLY) today announced earnings for its first fiscal quarter ending September 30, 2002. Net income (after tax) for the first quarter totaled $6.3 million, or $0.13 per diluted share, on revenues of $146.7 million. For the comparable quarter ended September 30, 2001, the Company reported net income of $7.4 million, or $0.16 per diluted share, on revenues of $130.0 million. Due to the utilization of net operating loss carryforwards and other tax credits, no Federal income tax expense was recognized during the quarter ended September 30, 2001. Assuming Federal income taxes had been recognized, net income and EPS for the quarter ended September 30, 2001 would have been $4.2 million or $0.09 per share, respectively.

Results for the September 2002 quarter include:

-- Consolidated revenues of $146.7 million, an increase of 13% from the $130.0 million in the prior year quarter. Contributing to this increase was a 40% increase in revenues at the Bally Gaming and Systems business unit.

-- Consolidated EBITDA, of $26.2 million, an increase of 16% from the $22.6 million in the prior year quarter, led by a 55% increase at Bally Gaming and Systems.

-- Net income (after tax) of $0.13 per diluted share, an increase of 44% compared to the prior year quarter after-tax earnings of $0.09 per share.

Cash and Capital Expenditures:

-- As of September 30, 2002, the Company had $63.5 million of cash and cash equivalents. As of September 30, 2002, our cash and cash equivalents included approximately $20.5 million held for operational purposes in vaults, cages and change banks and $8.0 million held in restricted jackpot reserve accounts.

-- For the quarter ended September 30, 2002, consolidated capital expenditures, including manufacturing costs for proprietary games totaled $9.0 million as compared to $6.3 million for the prior year quarter. The current period capital expenditures were driven by the continued deployment of wide-area progressive and daily-fee games, the implementation of a new ERP system for Bally Gaming, and the remodeling occurring at the Rainbow Casino.

Other financial highlights:

-- Consolidated net interest expense for the current quarter totaled $6.4 million compared to $7.3 million in the prior year period, resulting from substantially lower interest rates on the Company's term loan facility.

-- As was previously disclosed, beginning in the September 2002 quarter, the Company began recognizing Federal income tax expense based on 35% of pre-tax domestic income. Consistent with the prior year, the Company recorded state income taxes at a rate of approximately 2% of domestic income, and there was no tax benefit recorded for the operating loss generated in Germany.

Business Unit Detail

Bally Gaming and Systems Revenues Increase 40%, EBITDA Increase 55%

Bally Gaming and Systems business unit reported a 40% increase in revenues over the prior year's quarter. Revenues from sales of gaming devices increased 61% over the prior year's quarter primarily as a result of a 61% increase in the number of units sold to 4,000 games and 15% increase in average selling price. Bally Systems revenues increased 18% over the prior year quarter as the lower game monitoring units shipped was more than offset by significantly higher average selling price per unit driven by the larger proportion of player tracking and promotion software revenues and higher levels of recurring hardware and software support revenues resulting from the larger base of installed systems. Gaming Operations revenues increased 27% over the prior year's quarter as a result of a 9% increase in the installed base of wide-area progressive (WAP) and daily-fee games deployed, which now total 2,065 and 1,715, respectively, and an increase in the average revenue earned per device. During the quarter we deployed an additional 600 WAP and daily-fee games, and had returns totaling 460 games, resulting in a net increase in the installed base of approximately 140 games on a sequential basis as of September 30, 2002 compared to June 30, 2002. During the first two weeks of October 2002, the Company installed an additional 300 units that were delayed due to scheduling issues during the two weeks surrounding G2E. Our backlog going into the December quarter remains at near all-time high levels.

The Bally Gaming and Systems EBITDA improved 55% to a new quarterly record of $18.4 million, compared to $11.9 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 margin player tracking software revenues.

Route Operations Revenues Increase 2%, EBITDA Decreases 10%

For the Nevada route operations, revenue increased 2% and EBITDA decreased 9% compared prior year quarter. The average number of games deployed increased 2% over the prior year quarter and a 1% increase in the average net win per day per gaming machine to $66.65 from $66.30. At September 30, 2002, the Gamblers Bonus product was available at 400 locations and was installed in over 4,135 gaming machines or 50% of the Nevada route's total installed base of gaming machines.

The increase in revenues at VSI is due primarily to a 9% increase in the number of units deployed, offset by a decrease in net win per day per gaming machine to $56.65 from $59.70 in the prior year quarter.

Casino Operations Revenues Decrease 2%, EBITDA Decreases 9%

For the quarter, the combined casino operations business unit reported an overall 2% decrease in revenues and a 9% decrease in EBITDA. Rail City reported a 3% increase in revenues driven by a 5% increase in the average number of games offset by a 2% decrease in slot win. EBITDA at Rail City increased 3% to $1.4 million. Revenues and EBITDA at Rainbow declined 4% and 12%, respectively, compared with the same quarter in fiscal 2002. The Vicksburg gaming market grew approximately 3% in the September 2002 quarter compared to the prior year quarter. Early in the quarter, Rainbow commenced a number of significant remodeling projects to return the property to its competitive position. The first of these projects, consisting of a new entertainment lounge, is scheduled to open early in the December 2002 quarter. Additional projects will be completed in the March 2003 quarter.

Wall Machines & Amusement Games Revenues Decrease 17%

Wall Machines and Amusement Games business unit revenues decreased 17% as a result of a 62% decrease in new units sold offset by 22% increase in the average selling price and a 22% increase in revenues from leased games.

The Company's newest model, Sky, is performing very well, however due to competitive sales promotions, revenue recognition for an additional 1,000 Sky games placed on trial with customers during the September quarter was deferred until the December 2002 quarter. In general, the wall machines industry in Germany is experiencing a slow down that is tied to the overall slowness in the German economy, and the adverse effects of the flooding that effected large portions of the country.

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