RIVIERA BLACK HAWK ACQUISITION TRANSACTION

9 Months Ended

Sep. 30, 2012

RIVIERA BLACK HAWK ACQUISITION TRANSACTION

RIVIERA BLACK HAWK ACQUISITION TRANSACTION

NOTE 9. RIVIERA BLACK HAWK ACQUISITION TRANSACTION

On September 29, 2011, Monarch entered into a definitive Stock Purchase Agreement (the “Agreement”) with Riviera Operating Corporation, a Nevada corporation, Riviera Holdings Corporation, a Nevada corporation (collectively the “Seller” and together with Monarch, the “Parties”) and Riviera Black Hawk, Inc., a Colorado corporation (“Riviera Black Hawk”).  Pursuant to the Agreement, the Seller agreed to sell all of the issued and outstanding shares of common stock of Riviera Black Hawk to Monarch.

On April 26, 2012 (the “Closing”) Monarch completed the acquisition of Riviera Black Hawk.  Monarch paid $76 million (the “Purchase Price”), subject to certain post-Closing working capital adjustments.  At Closing, Seller paid substantially all of Riviera Black Hawk’s indebtedness and left Monarch $2.1 million of net working capital.  In order to fund the Purchase Price and related transaction costs, Monarch borrowed $72.3 million under its New Credit Facility (see NOTE 7).  $2.28 million of the Purchase Price was escrowed to secure the Seller’s indemnification obligations under the Purchase Agreement.

The acquisition was treated as a purchase transaction. Accordingly, the purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. The final allocation of the purchase price will be completed by December 31, 2012. In establishing its preliminary purchase price allocation, the Company obtained a third-party valuation of the assets acquired and liabilities assumed, and preliminarily assigned the following values based upon the Company’s review of the third-party valuation (amounts in thousands):

Cash consideration	$	75,885
Liabilities assumed by Monarch	3,505
Working capital adjustment	604
Total consideration	$	79,994

The preliminary allocation of pro forma purchase price is as follows (in thousands):

Tangible Assets:
Current assets	$	6,241
Land	8,700
Site improvements	30
Building improvements	15,200
Furniture and equipment	5,737
Total tangible assets	35,908
Intangible Assets:
Customer list	10,490
Trade name	1,590
Goodwill	26,576
Total intangible assets	38,656
Deferred tax asset	5,430
Total assets	$	79,994

The Company recognized $455 thousand and $2.2 million of acquisition related cost in the three and nine month periods ended September 30, 2012, respectively.

The amounts of net revenue and operating income of Riviera Black Hawk Casino included in the Company’s unaudited condensed consolidated statement of income, since the Closing, after elimination of intercompany transactions, for the nine month period ended September 30, 2012 are as follows (amounts in thousands except per share amounts):

Net revenues	$	18,956
Income from operations	$	4,344
Net income	$	2,693
Basic earnings per common share	$	0.17
Diluted earnings per common share	$	0.17

The pro forma consolidated results of operations, as if the acquisition of Riviera Black Hawk had occurred on January 1, 2011 and 2012, are as follows (amounts in thousands except per share amounts):

	Nine Months Ended
	September 30,
	2012		2011
Pro forma:
Net revenues	$	139,394	$	136,687
Income from operations	$	14,647	$	13,816
Net income	$	9,241	$	10,536
Basic earnings per share	$	0.57	$	0.66
Diluted earnings per share	$	0.57	$	0.64