Herbst Gaming Reports Second Quarter Earnings

LAS VEGAS, Aug. 13 /PRNewswire/ -- Herbst Gaming, Inc. and Subsidiaries ("HGI" or "Company") today announced the results of their operations for the second quarter and six-month period ended June 30, 2007.

The Company reported net revenues of $364.6 million for the six months ended June 30, 2007, an increase of 29%, or $80.9 million, compared with $283.7 million in the prior year's first six months. The Company recorded a net loss of $5.2 million for the six months ended June 30, 2007, compared with net income of $28.5 million in the prior year's first six months. The decline was primarily a result of the impact of the December 2006 legislation in Nevada banning smoking in bars, taverns, grocery and convenience stores and restaurants, as well as other public places, on our route operations in Nevada during the quarter. The Company's Consolidated EBITDA (as defined below) was $51.1 million for the six months ended June 30, 2007, a decrease of 21%, or $13.7 million, compared with Consolidated EBITDA of $64.8 million for the same period in 2006.

The first six months ended June 30, 2007 numbers included almost a full quarter of the operations of the three casinos located in Primm, Nevada we acquired on April 10, 2007 from a subsidiary of MGM Mirage. The six month results also include the operations of the casinos located in northern Nevada we acquired as a result of our purchase of the stock of The Sands Regent on January 3, 2007.

See footnote 7 to "Selected Financial Information" below for a detailed definition of Consolidated EBITDA and a discussion of the reasons the Company uses Consolidated EBITDA as a performance measure. Included in the Selected Financial Information is a reconciliation of Consolidated EBITDA, a non-GAAP measure, to net income.

Conference Call Information

The Company will host a conference call to discuss its second quarter 2007 financial results on Tuesday, August 14, 2007 beginning at 12 p.m. EST/ 9 a.m. PST. Interested participants may access the call by dialing into our conference operator at (866) 277-1184, PIN No. 41982864. International participants dial (617) 597-5360.

A replay of the call will be available beginning one hour after the completion of the call and until Wednesday, August 21, 2007 at 8 p.m. Eastern/5 p.m. Pacific Time. To access the replay, call (888) 286-8010, PIN No. 85178652. International participants dial (617) 801-6888. A copy of the second quarter earnings call will be available on the Company's web site, http://www.herbstgaming.com/ , in the "Investors Relations" section, which will be accessible on the Company's web site for a period of at least 12 months.

HERBST GAMING SELECTED FINANCIAL INFORMATION (unaudited) Three Months Ended Six months Ended June 30, June 30, 2006 2007 2006 2007 (dollars in thousands) Income Statement Data Revenues Route operations $87,022 $71,720 $177,894 $146,469 Casino operations Nevada 23,364 95,287 47,909 139,220 Other states 34,331 35,991 69,682 71,597 Other 2,286 28,615 4,200 36,001 Total revenues 147,003 231,613 299,685 393,287 Promotional allowances - route (23) (11) (37) (36) Promotional allowances - casino Nevada (3,365) (12,254) (6,565) (18,373) Other states (4,819) (5,135) (9,379) (10,276) (8,207) (17,400) (15,981) (28,685) Net revenues 138,796 214,213 283,704 364,602 Cost of revenues Route operations 67,434 64,217 136,380 129,089 Casino operations Nevada 15,799 67,859 31,567 98,058 Other states 21,655 22,402 43,369 44,710 Other operations 1,385 24,162 2,156 29,803 Depreciation and amortization 8,929 16,668 17,489 29,000 General and administrative(3) 2,939 8,303 5,845 12,487 Total costs and expenses 118,141 203,611 236,806 343,147 Income from operations 20,655 10,602 46,898 21,455 Interest income 188 388 396 678 Interest expense (9,557) (20,418) (18,786) (34,092) Increase in value of derivative instruments - 8,074 - 6,741 Net income (loss) $11,286 $(1,354) $28,508 $(5,218) December 31, June 30, 2006 2007 (dollars in thousands) Balance Sheet Data Cash and cash equivalents $65,640 $92,100 Total assets $568,450 $1,166,491 Total debt (1) $522,618 $1,104,690 Stockholders' equity $18,771 $3,253 Six-months ended June 30, 2006 2007 Other data: Ratio of earnings to fixed charges (2) 2.5x 0.8x Net cash provided by operating activities $43,241 $21,773 Net cash used in investing activities $(36,126) $(557,376) Net cash provided by (used in) financing activities $(11,753) $562,063 Capital expenditures $35,510 $16,195 Three months ended Six-months ended June 30, June 30, 2006 2007 2006 2007 Route EBITDA (4) $19,565 $7,492 $41,477 $17,344 Casino EBITDA (5) Nevada (5) 4,200 15,174 9,777 22,789 Other states (5) 7,857 8,454 16,934 16,611 31,622 31,120 68,188 56,744 Other and Corporate Adjusted(6) (1,850) (3,462) (3,405) (5,611) Consolidated EBITDA (7) $29,772 $27,658 $64,783 $51,133 (1) Total debt consists of the current and long-term portions of long- term debt for all periods presented. (2) For purposes of determining the ratio of earnings to fixed charges, earnings are defined as earnings before fixed charges. Fixed charges consist of interest expensed and capitalized. (3) Effective January 1, 2007, we have changed the classification of certain costs from general and administrative to route and casino operations. The 2006 amounts have been reclassified to be consistent with the current classification and have no impact on net income. Three months ended Six-months ended June 30, June 30, revised Previously revised Previously reported reported 2006 2006 2006 2006 Costs and expenses: Route operations $67,434 $67,130 $136,380 $135,767 Casino operations 37,454 36,601 74,936 73,130 General and administrative $2,939 $4,096 $5,845 $8,264 (4) Route EBITDA consists of net income plus depreciation and amortization and interest expense, net of capitalized interest, and is calculated before allocation of overhead. (5) Casino EBITDA consists of net income plus depreciation and amortization, interest expense, net of capitalized interest and costs associated with the retirement of assets. Casino EBITDA for casinos in Nevada and other states are calculated before allocation of overhead. (6) Other and Corporate Adjusted consists of other non-gaming revenues, general and administrative expenses and interest income. (7) Consolidated EBITDA consists of the Company's consolidated net income plus depreciation and amortization and interest expense, net of capitalized interest. EBITDA is presented because it is used as a performance measure to analyze the performance of our business segments and because it is frequently used by securities analysts, investors and others in the evaluation of companies in our industry. However, other companies in our industry may calculate EBITDA differently. EBITDA is not a measurement of financial performance under generally accepted accounting principles and should not be considered as an alternative to cash flow from operating activities, as a measure of liquidity, as an alternative to net income or as an indicator of operating performance or any other measure of performance derived in accordance with generally accepted accounting principles. The following table is a reconciliation of net income to EBITDA. Three months ended Six months ended June 30, June 30, 2006 2007 2006 2007 (dollars in thousands) (dollars in thousands) Net Income (loss) $11,286 $(1,354) $28,508 $(5,218) Interest expense 9,557 20,418 18,786 34,092 Depreciation and amortization 8,929 16,668 17,489 29,000 Increase in value of derivative instruments - 8,074 - 6,741 Consolidated EBITDA $29,772 $27,658 $64,783 $51,133