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Alliance Gaming Reports Q1 2001 Results

11 October 2001

LAS VEGAS –(Press Release) -- Oct. 11, 2001 -- Alliance Gaming Corporation (Nasdaq: ALLY) today announced earnings for its first fiscal quarter ending September 30, 2001. Net income for the first quarter totaled $7.4 million, or $0.32 per diluted share, on revenues of $129.8 million. For the comparable quarter ended September 30, 2000, the Company reported earnings of $3.4 million, or $0.16 per diluted share, on revenues of $119.3 million.

The Company's financial performance was led by its Bally Gaming and Systems business unit which reported a 34% increase in revenues to $45.2 million, and a 55% increase in EBITDA to $11.9 million, which is a new record for this business unit. Although the Route Operations and Casino Operations business units each experienced reduced revenues in the days after the September 11th attacks, activity has generally returned to historical levels.

Our Route Operations still recorded an overall increase in revenue for the quarter of 2% and an increase in EBITDA of 12%. Our Rainbow Casino was impacted more than the Rail City Casino, reporting a modest decline in both revenue and EBITDA, while the Rail City Casino reported strong increases in both revenue and EBITDA. As previously disclosed, Bally Wulff's revenues were impacted as expected as customers delayed purchases in the face of impending new regulations, and as discussed further below, these regulatory issues have now been resolved. Finally, the corporate office expenses continue to trend below prior year based primarily on lower levels of professional fees.

Earnings before interest, taxes, depreciation and amortization (EBITDA) for the Company's business units are as follows:

     EBITDA Summary
                                                        Three Months Ended
                                                           September 30,
                                                        2001           2000
                                                       (Dollars in Millions)
     Bally Gaming and Systems                          $11.9           $7.7
     Route Operations                                    6.6            5.9
     Casino Operations                                   6.4            6.7
     Bally Wulff                                        (0.1)           1.9
     Corporate office expense                           (2.2)          (2.6)
      Alliance total EBITDA                            $22.6          $19.6

Consolidated net interest expense for the current quarter totaled $7.0 million compared to $8.9 million in the prior year period, with the decrease resulting from both a lower average debt balance outstanding and lower interest rates.

The Company recorded an income tax provision of $0.1 million in the current quarter compared to $0.5 million in the prior year quarter. The current quarter tax provision represents primarily estimated state income and franchise taxes.

As of September 30, 2001, the Company had $57.5 million of cash and cash equivalents, approximately $23.4 million of which was held for operational purposes in vaults, cages and change banks.

Consolidated capital expenditures for the quarter ended September 30, 2001, totaled $3.4 million, compared to $2.1 million for the prior year period. The increase was primarily driven by capital expenditures in the Nevada Route Operations.

Effective July 1, 2001, the Company elected to adopt the provisions of Financial Accounting Standard No. 142, ``Goodwill and Other Intangible Assets,'' whereby amortization of goodwill ceased, and will instead be tested for impairment annually. Ceasing amortization increased earnings per share for the quarter by $0.01.

     Business Unit Detail

     Bally Gaming and Systems Revenues Increase 34%, EBITDA Increases 55%

    The following chart summarizes the financial information for the Bally
    Gaming and Systems business unit:
                                                        Three Months Ended
                                                           September 30,
                                                        2001           2000
                                                       (Dollars in Millions)
     Revenues
      Game sales                                       $20.9          $17.1
      System sales                                      12.9            9.6
      Gaming operations                                 11.4            7.0
        Total revenues                                 $45.2          $33.7

     Gross Margin %                                      57%            54%

     EBITDA                                            $11.9           $7.7
     EBITDA Margin                                       26%            23%

     Operating Income                                   $9.9           $5.7

     New Gaming Devices Sold                           2,500          2,100
     Game Monitoring Units Sold                        9,200          6,000
     End of period installed base of WAP and
      daily-fee games                                  3,460          2,700
     Average installed base of WAP and
      daily-fee games                                  3,370          2,790

Bally Gaming and Systems business unit reported a 34% increase in revenues over the prior year's quarter. Revenues from sales of gaming devices increased 22% over the prior year's quarter primarily as a result of a 19% increase in the number of units sold. Bally Systems revenues increased 34% 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 64% over the prior year's quarter as a result of a 28% increase in number of wide-area progressive (WAP) and daily-fee games deployed, which now total 2,080 and 1,380, respectively. During the quarter we deployed an additional 190 Blondie units, 300 Millionaire 777's units, and our newest WAP offering, Popeye (R) was introduced in California and Connecticut just before quarter end with initial placements totaling 20 units.

The Bally Gaming and Systems EBITDA improved 55% to $11.9 million which is a new record for this business unit, compared to $7.7 million in the comparative prior year period, and resulted from above mentioned increases in revenues, and improved margins driven by the larger proportion of high margin gaming operations revenues.

The current quarter unit sales for Bally Gaming included approximately 620 units to the Nevada and Atlantic City markets, 500 units to international markets, 90 units in California and 1,290 units to other Native American casinos, riverboats, and other domestic markets.

     Route Operations Revenues Increase 2%, EBITDA Increases 12%

     The following chart summarizes the combined financial information for
    the Nevada route operations and the Louisiana-based Video Services, Inc.
    (VSI) operations:

                                                        Three Months Ended
                                                           September 30,
                                                        2001           2000
                                                       (Dollars in Millions)
     Revenues
      Nevada                                           $50.3          $48.6
      Louisiana                                          3.5            4.3
        Total revenues                                  53.8           52.9

     EBITDA
      Nevada                                             6.0            5.0
      Louisiana                                          0.6            0.9
        Total EBITDA                                     6.6            5.9

     EBITDA Margin
      Nevada                                             12%            10%
      Louisiana                                          17%            22%

     Operating Income                                   $3.1           $3.7

     Average Number of Gaming Devices
      Nevada                                           8,170          7,980
      Louisiana                                          650            670
        Total Gaming Devices                           8,820          8,650

For the Nevada route operations, EBITDA increased $1.0 million, or 21%, compared to the prior year quarter. Net win per day per gaming machine increased 1% to $66.30 in the current quarter compared to $65.40 in the prior year quarter, and the average number of gaming machines deployed increased 2% over the prior year quarter. The level of play at the Nevada locations has generally been unaffected by the events of September 11th. At September 30, 2001, the Gamblers Bonus product was available at 384 locations and was installed in over 3,964 gaming machines or 48% of the Nevada route's total installed base of gaming machines.

The decrease in revenues at VSI is due primarily to a 16% decrease in net win per day per gaming machine to $59.70 from $70.70 in the prior year quarter and a slightly lower average number of gaming units deployed. The Fair Grounds facility at which we operate gaming devices was closed for three days following September 11th and then reopened with play levels below historical levels. These revenue declines also reflect the competitive market resulting from the significant increase in the number of truck stop casinos in the metro New Orleans area.

The Combined Route Operations EBITDA of $6.6 million increased $0.7 million, or 12%, compared to the prior year period. This increase was a result of the improved results of the Nevada Route, offset by the lower results at VSI.

     Casino Operations Revenues Increase 2%, EBITDA Decreases 4%

     The following chart summarizes combined financial information for the
    Rainbow Casino in Vicksburg, Mississippi, and the Rail City Casino in
    Sparks, Nevada:

                                                        Three Months Ended
                                                           September 30,
                                                        2001           2000
                                                       (Dollars in Millions)
     Revenues
      Rainbow Casino                                   $13.2          $13.5
      Rail City Casino                                   5.0            4.4
        Total Revenues                                  18.2           17.9

     EBITDA
      Rainbow Casino                                     5.1            5.6
      Rail City Casino                                   1.3            1.1
        Total EBITDA                                     6.4            6.7

     EBITDA Margin
      Rainbow Casino                                     38%            42%
      Rail City Casino                                   26%            26%

     Operating Income                                   $5.9           $6.2

     Average Number of Gaming Devices
      Rainbow Casino                                     940            990
      Rail City Casino                                   520            480
        Total Gaming Devices                           1,460          1,470
     Average Number of Table Games                        24             23

The Casino Operations business unit reported a 2% increase in revenues and 4% decrease in EBITDA. Rainbow Casino reported a 2% decrease in revenues compared to the prior year period. Since September 11th, weekday play has been below historical norms and contributed to a 9% decrease in slot handle, while win per unit increased slightly to $145 per day. Table game win increased 13% which resulted from a favorable hold percentage for the quarter.

Rainbow continues to be impacted by higher utility costs which have increased approximately 20% over prior year, and higher cost for complementary expenses as part of its marketing programs which have been successful in bringing play levels back to near historical levels during October. Rail City, which was significantly less impacted by the recent events, grew revenues and EBITDA by 13% and 19%, respectively. Slot revenues grew 14% over the prior year quarter and slot win per day increased 7% to $85.

     Wall Machines and Amusement Games Revenues Decrease 15%

     The following chart summarizes the financial results for the Wall
    Machines and Amusement Games business unit, which is based in Germany:

                                                        Three Months Ended
                                                           September 30,
                                                        2001           2000
                                                       (Dollars in Millions)

     Revenues                                          $12.7          $14.9

     Gross Margin                                        41%            44%

     EBITDA                                           $( 0.1)         $ 1.9

     EBITDA Margin                                      (1)%            13%

     Operating Income (Loss)                          $ (1.4)         $ 0.5

     Number of New Wall Machines Sold                  1,850          2,150
     Number of New Wall Machines Leased                  990            690
     Installed Base of Leased Machines                 6,480          5,150

Wall Machines and Amusement Games business unit revenues decreased 15% as a result of a 14% decrease in new units sold and a 9% decrease in the average selling price, offset by a 17% increase in revenues from leased games. As previously reported, there have been several recent regulatory changes impacting the German wall machine market.

First, in order to assist arcade operators with the transition to the Euro currency, the normal 48 month life for a wall machine was allowed to be extended for the period from October 1, 2001 to February 2002.

Secondly, the regulations regarding play parameters have been amended to increase the speed of play of wall machines by 25%, which we believe will make them more competitive with other amusement games at arcade locations.

Both of these regulatory changes caused customers to delay new unit purchases, which the Company expects will lead to increased unit placements in both the December 2001 and March 2002 quarters.

The Company will hold its conference call on Thursday, October 11th at 10 a.m. PDT (1 p.m. EDT).

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