RIVIERA BLACK HAWK ACQUISITION

12 Months Ended

Dec. 31, 2012

RIVIERA BLACK HAWK ACQUISITION

RIVIERA BLACK HAWK ACQUISITION

NOTE 11.  RIVIERA BLACK HAWK ACQUISITION

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.  As required by the Agreement, the Company paid a $3.8 million deposit (the “Deposit”) against the $76 million purchase price (the “Purchase Price”).  The Company included the Deposit in prepaid and other current assets at December 31, 2011.

On April 26, 2012 (the “Closing”) Monarch completed the acquisition of Riviera Black Hawk.  Monarch paid $72.2 million, the difference between the Purchase Price and the Deposit, 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 6).  $2.28 million of the Purchase Price was escrowed for one year 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. In establishing its purchase price allocation, the Company obtained a third-party valuation of the assets acquired and liabilities assumed, and assigned the following values based upon the Company’s consideration of the third-party valuation (amounts in thousands):

Cash consideration	$	75,885
Liabilities assumed by the Company	3,505
Working capital adjustment	604
Total consideration	$	79,994
The 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	25,110
Total intangible assets	37,190
Deferred tax asset	6,896
Total assets	$	79,994

The Company recognized $2.2 million and $974 thousand of acquisition related expense in the twelve months ended December 30, 2012 and 2011, respectively.

The amounts of net revenue and operating income of Riviera Black Hawk Casino included in the Company’s consolidated statement of income, since the Closing, after elimination of intercompany transactions, for the twelve month period ended December 31, 2012 are as follows (amounts in thousands):

Net revenues	$	29,429
Income from operations	$	6,350
Net income	$	3,952

The unaudted 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):

	Twelve Months Ended
	December 31,
	2012		2011
Pro forma (unaudited):
Net revenues	$	183,043	$	180,185
Income from operations	$	17,516	$	15,919
Net income	$	9,542	$	8,499
Basic earnings per share	$	0.59	$	0.53
Diluted earnings per share	$	0.59	$	0.52