10-K 1 v214650_10k.htm Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-K
 
ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
(Mark One)
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2010
 
OR
 
¨
TRANSITION REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 
For the transition period from __________ to __________
 
Commission file number 000-21430

RIVIERA HOLDINGS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
   
Nevada
88-0296885
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
   
2901 Las Vegas Boulevard South
 
Las Vegas, Nevada
89109
(Address of principal executive offices)
(Zip code)
   
Registrant’s telephone number, including area code:  (702) 734-5110

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Name of each exchange on which registered
NONE
NONE

Securities registered pursuant to Section 12 (g) of the Act:
 
Common Stock, $.001 par value
(Title of class)

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes ¨   No x
 
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes ¨   No x
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x   No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes ¨   No ¨
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):
 
Large accelerated filer
¨
 
Non-accelerated filer
¨
         
Accelerated filer
¨
 
Smaller Reporting Company
x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.   Yes ¨   No x
 
Based on the closing sale price of the registrant’s common stock on the Pink OTC Markets over-the-counter electronic quotation system on June 30, 2010, the aggregate market value of the common stock held by non-affiliates of the registrant was $3,609,791.
 
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes   ¨     No   ¨
 
As of March 18, 2011, the number of outstanding shares of the registrant’s common stock was 12,447,555.
 
 
 

 
 
RIVIERA HOLDINGS CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 2010
 
TABLE OF CONTENTS
 
Item 1.
 
Business
 
1
         
   
General
 
1
   
Recent Developments
 
1
   
Riviera Las Vegas
 
5
   
Riviera Black Hawk
 
8
   
Competitive Environment
 
10
   
Employees and Labor Relations
 
12
   
Regulation and Licensing
 
13
   
Federal Registration
 
23
         
Item 1A.
 
Risk Factors
 
23
         
Item 1B.
 
Unresolved Staff Comments
 
37
         
Item 2.
 
Properties
 
37
         
Item 3.
 
Legal Proceedings
 
37
         
Item 4.
 
Reserved
 
38
         
Item 5.
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
38
         
Item 6.
 
Selected Financial Data
 
39
         
Item 7.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
39
         
   
Bankruptcy Proceedings
 
39
   
Overview
 
42
   
Results of Operations
 
43
   
2010 Compared to 2009
 
43
   
2009 Compared to 2008
 
51
   
Liquidity and Capital Resources
 
57
   
Current Economic Environment
 
62
   
Off-Balance Sheet Arrangements
 
62
   
Critical Accounting Policies and Estimates
 
63
   
Recently Issued Accounting Standards
 
65
   
Forward-Looking Statements
 
66
         
Item 7A.
 
Quantitative and Qualitative Disclosures about Market Risk
 
67
         
Item 8.
 
Financial Statements and Supplementary Data
 
68
         
Item 9.
 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
68
 
 
i

 
 
Item 9A.
 
Controls and Procedures
 
68
         
Item 9B.
 
Other Information
 
69
         
Item 10.
 
Directors, Executive Officers and Corporate Governance
 
69
         
Item 11.
 
Executive Compensation
 
73
         
Item 12.
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
82
         
Item 13.
 
Certain Relationships and Related Transactions and Director Independence
 
84
         
Item 14.
 
Principal Accounting Fees and Services
 
85
         
Item 15.
 
Exhibits, Financial Statement Schedules
 
86
 
 
ii

 
 
PART I
 
Item 1.
Business
 
General
 
Riviera Holdings Corporation, a Nevada corporation (“RHC” or the “Company”), through its wholly-owned subsidiary, Riviera Operating Corporation (“ROC”), owns and operates the Riviera Hotel & Casino (“Riviera Las Vegas”) located on the Las Vegas Boulevard in Las Vegas, Nevada. Riviera Las Vegas, which opened in 1955, has a long-standing reputation for delivering traditional Las Vegas-style gaming, entertainment and other amenities.  The Company was incorporated in Nevada on January 27, 1993.
 
The Company, through its wholly owned subsidiary, Riviera Black Hawk, Inc. (“RBH”), owns and operates the Riviera Black Hawk Casino (“Riviera Black Hawk”), a casino in Black Hawk, Colorado, which opened on February 4, 2000.
 
The Company determines segments based upon geographic gaming markets and reviews corporate expenses separately.  The Company has two segments: the Las Vegas, Nevada market and the Black Hawk, Colorado market.  Operating results for each segment are disclosed in Note 19 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K.
 
The Company maintains an Internet website at www.rivierahotel.com and makes available on the website, free of charge, the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any and all amendments to such reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the United States Securities and Exchange Commission (the “SEC”).  The Company has included its website address in this filing only as a textual reference.  The information contained on that website is not incorporated by reference into this Annual Report on Form 10-K.
 
Recent Developments
 
Bankruptcy Proceedings
 
On July 12, 2010 (the “Petition Date”), RHC, RBH and ROC (collectively the “Debtors”) filed voluntary petitions in the United States Bankruptcy Court for the District of Nevada (the “Bankruptcy Court”) for reorganization of its business and to have the Chapter 11 cases (the “Chapter 11 Cases”) jointly administered, as disclosed in a Form 8-K filed with the SEC on July 14, 2010 (the “July 14th 8-K”).
 
A webpage has been established which provides access to all pleadings filed in the Chapter 11 Cases.  The web address is http://www.gardencitygroup.com/cases/riviera.
 
On the Petition Date and prior to the commencement of the Chapter 11 Cases, the Company entered into a restructuring and lock-up letter agreement (the “Lock-Up Agreement”) with holders (the “Consenting Lenders”), in the aggregate, of in excess of 66 2/3% in the amount of all of the outstanding claims under the Company’s credit and fixed rate swap agreements which are described in detail in Note 9 to the audited Consolidated Financial Statements included in this Annual Report on Form 10-K.  Pursuant to the Lock-Up Agreement, the Consenting Lenders are contractually obligated to support the restructuring of the Company in accordance with the Debtor’s Joint Plan of Reorganization (as amended, the “Plan of Reorganization”) together with the proposed disclosure statement (as amended, the “Disclosure Statement”), which supports the Plan of Reorganization.  Moreover, the Lock-Up Agreement contractually obligated the parties to move forward with the Plan of Reorganization for each of the Debtors.  The original Joint Plan of Reorganization, together with the Disclosure Statement, was filed with the Bankruptcy Court on the Petition Date.  The First Amended Joint Plan of Reorganization and Disclosure Statement to Accompany Debtors’ First Amended Joint Plan of Reorganization were filed with the Bankruptcy Court on September 7, 2010 and the Second Amended Joint Plan of Reorganization and Disclosure Statement to Accompany Debtors’ Second Amended Joint Plan of Reorganization were filed with the Bankruptcy Court on September 17, 2010.
 
 
1

 
 
On the Petition Date, the Debtors filed several emergency motions with the Bankruptcy Court, including a motion to have the Chapter 11 Cases jointly administered and a motion (the “Cash Collateral Motion”) to approve a stipulation authorizing the use of cash collateral and granting adequate protection (the “Cash Collateral Stipulation”).  Under the Cash Collateral Stipulation, the Debtors, the administrative agent and the signatories to the Lock-up Agreement agreed that all disputes between the administrative agent, Consenting Lenders and the Debtors regarding Debtors’ cash on hand and operating cash flows and the use thereof as provided for by Section 363 of the Bankruptcy Court are reserved.  Furthermore, Debtors may use their operating cash flows and cash on hand to fund their operations and capital expenditure needs during the period commencing on the approval of the Cash Collateral Stipulation by the Bankruptcy Court and ending on the date the Plan of Reorganization is substantially consummated (the “Substantial Consummation Date”) in accordance with the 13 week budget which accompanies the Cash Collateral Stipulation and is updated for each 13 week period until the Substantial Consummation Date.  The Cash Collateral Motion was approved by the Bankruptcy Court on an emergency basis on July 15, 2010, however, all of the other first-day motions were granted final approval on July 15, 2010.  The Cash Collateral Motion was approved on a final basis on August 5, 2010 but with the proviso that payments made to professionals retained by either the holders of or the administrative agent of the Debtors credit and fixed rate swap agreement as adequate protection subject to being re-characterized as principal reductions against the credit and fixed rate swap obligations.
 
Pursuant to the approved Cash Collateral Stipulation, the Company is funding existing operations and capital needs during the reorganization period from operating cash flows and cash on hand.  There can be no assurances that the Company will have the ability to maintain sufficient funds to meet future obligations or abide the requirements outlined in the Cash Collateral Stipulation.  As a result, the Company may be required to obtain debtor in possession, or DIP, financing, which may be unavailable or only available on terms that are prohibitive.  The challenges of obtaining DIP financing are exacerbated by adverse conditions in the general economy and the credit markets.
 
During the Chapter 11 Cases, the Debtors, under the direction of the Company’s existing management team, continue to manage their properties and operate their business under the jurisdiction of the Bankruptcy Court and in accordance with Title 11 of the United States Bankruptcy Code.  The Debtors anticipate that they will continue to pay employees and vendors, and honor customer deposits and commitments without interruption or delay through the Substantial Consummation Date of the Plan of Reorganization.
 
On the Petition Date, in connection with the Lock-Up Agreement, the Debtors and Backstop Lenders executed a Backstop Commitment Agreement (as amended, the “Backstop Agreement”) to provide assurance that the Designated New Money Investment will be funded in the aggregate amount of $20 million and the Working Capital Facility will be committed in the aggregate principal amount of $10 million. The Backstop Agreement provides that the Backstop Lenders have committed to fund their pro rata share of the Designated New Money Investment and pro rata share of the Working Capital Facility, and, further, to backstop an additional percentage of the Designated New Money Investment and Working Capital Facility as specified therein to the extent that any Senior Secured Lender (other than a Backstop Lender) elects not to participate according to its full pro rata share in funding the Designated New Money Investment and Working Capital Facility.  The original Backstop Agreement was filed with the Bankruptcy Court on the Petition Date.  The First Amended Backstop Agreement was filed with the Bankruptcy Court on September 14, 2010 and the Second Amended Backstop Agreement was filed with the Bankruptcy Court on October 28, 2010.
 
 
2

 
 
Additionally, the Backstop Agreement provides for the payment of commitment fees by Debtors, as more fully described in the Backstop Agreement.  If (i) the Budget Contingency is satisfied, (ii) the Total New Money Investment Alternative is effectuated under the Plan of Reorganization, (iii) the Substantial Consummation Date occurs and (iv) the Series B Term Loan is fully funded and the entire Working Capital Facility is made available as provided for in the Plan of Reorganization, 5.0% of the Class B Shares (subject to dilution only under those certain conditions specified in the Plan of Reorganization) will be fully earned, payable and non-refundable to the Backstop Lenders. If the Budget Contingency is satisfied, but either the Backstop Agreement is terminated pursuant to its terms or the Substantial Consummation Date does not occur, $1,000,000 in cash will be fully earned, payable and non-refundable upon such date to the Backstop Lenders; provided, however, that to the extent (i) the Backstop Agreement is materially breached by any Backstop Lender (ii) the Backstop Agreement is terminated in connection with the Lockup Agreement having been terminated solely as a result of a breach thereof by any Backstop Lender in its capacity as a Designated Consenting Lender, or (iii) the Substantial Consummation Date does not occur other than as a result of the actions and/or inactions of the Debtors that are in breach of the Lockup Agreement, the Debtors will not be required to pay the Backstop Lenders the $1,000,000 cash fee. If (i) either the Budget Contingency is not satisfied or the Budget Contingency is satisfied but the Designated New Money Election is not made, (ii) the Partial New Money Investment Alternative is effectuated under the Plan of Reorganization, (iii) the Substantial Consummation Date occurs and (iv) the entire Working Capital Facility is made available as provided for in the Plan of Reorganization, $300,000 in cash will be fully earned, non-refundable and payable to the Backstop Lenders.  The Budget Contingency was satisfied on October 21, 2010.
 
On September 21, 2010, the Bankruptcy Court found that the Disclosure Statement as modified to reflect changes, if any, made or ordered on the record contained “adequate information” within the meaning of Section 1125 of the Bankruptcy Code.  The Bankruptcy Court held a hearing to consider confirmation of the Plan of Reorganization on November 8, 2010 (the “Confirmation Hearing”).  Beforehand, ballots along with the Disclosure Statement and Plan of Reorganization were distributed to classes of creditors entitled to vote on the Plan of Reorganization.  At the Confirmation Hearing, the Bankruptcy Court concluded that the Plan of Reorganization, as amended and as modified at the Confirmation Hearing, met the requirements for confirmation, including that the requisite classes of creditors voted in favor of the Plan of Reorganization and confirmed the Plan of Reorganization.  The Plan of Reorganization became effective on December 1, 2010, but,the Plan of Reorganization cannot be substantially consummated until various regulatory and third party approvals are obtained.  The Substantial Consummation Date will be the 3rd business day following the day the last approval is obtained.  There is no assurance that all regulatory and third party approvals will be obtained.  If the Plan of Reorganization is not substantially consummated: (a) the Plan of Reorganization will be deemed null and void and the Company will then seek to reorganize pursuant to a different plan which will need to meet the confirmation standards of the Bankruptcy Code; (b) the Lockup Agreement will no longer be in effect; and (c) the Company may be required to obtain interim financing, if available, and liquidate its assets which may have a material adverse effect on the financial position, results of operations, or cash flows of the Company.
 
 
3

 
 
The material terms of the confirmed Plan of Reorganization include the following:
 
(Capitalized terms used in this subsection, but not defined herein, have the meaning assigned to them by the Plan of Reorganization or the Backstop Agreement, as applicable.)
 
 
·
on the Substantial Consummation Date, all existing Equity Interests of the Company will be cancelled, and such Equity Interest holders will receive nothing;
 
 
·
on the Substantial Consummation Date, each holder of a First Priority Senior Secured Claim, which are Claims (i) arising under the Senior Secured Credit Agreement (also referred to in this Annual Report on Form 10-K as the “Credit Agreement”) for prepetition interest and fees, and (ii) with respect to the periodic payments due under the Swap Agreement and any interest accrued thereon, will receive in full and final satisfaction of such Claim a portion of a new $50 million term loan (the “Series A Term Loan”) in principal amount equal to such First Priority Senior Secured Claim to be evidenced by a first lien credit agreement;
 
 
·
the Company, as it exists on and after the Substantial Consummation Date (“Reorganized Riviera”), will receive additional funding by way of a $20 Million term loan to be evidenced by a Series B Term Loan (the “Designated New Money Investment”), subject to an affirmative election being made by Reorganized Riviera within a certain time period and various other conditions, and a $10 million working capital facility (the “Working Capital Facility”);
 
 
·
on the Substantial Consummation Date, holders of the Senior Secured Claims will receive: (i) a portion of the Series A Term Loan in a principal amount up to such holder’s pro rata share of the Series A Term Loan less the portion of the Series A Term Loan received by holders of the First Priority Senior Secured Claims; and (ii) such holder’s pro rata share of 80% of the new limited-voting common stock to be issued by Reorganized Riviera pursuant to the Plan of Reorganization (the “Class B Shares”);
 
 
·
since both the $10 million Working Capital Facility will be made available and the Designated New Money Investment will be effectuated, on the Substantial Consummation Date, holders of Senior Secured Claims participating in making the Series B Term Loan and the loans under the Working Capital Credit Facility will receive: (i) a pro rata share of the Series B Term Loan; and (ii) 15% of the Class B Shares to be issued by Reorganized Riviera, subject to dilution;
 
 
·
on the Substantial Consummation Date, holders of Allowed General Unsecured Claims, other than with respect to any deficiency claims of holders of Senior Secured Claims, will receive in full and final satisfaction of such claim, payment in full thereof, but in no event will the total payment to holders of Allowed General Unsecured Claims exceed $3,000,000; if such total payment were to exceed $3,000,000, the holders of Allowed General Unsecured Claims will instead receive their pro rata share of $3,000,000 in full satisfaction of their Allowed General Unsecured Claims;
 
 
·
the receipt by Riviera Voteco, L.L.C. (“Voteco”) of 100% of new fully-voting common stock to be issued by Reorganized Riviera pursuant to the Plan of Reorganization on the Substantial Consummation Date;
 
 
4

 
 
 
·
the membership interests of Voteco (the “Voteco Interests”) will be issued on the Substantial Consummation Date as follows: (i) 80.00% of the Voteco Interests ratably to those holders of the Senior Secured Claims or their designees, as applicable, (ii) 15.0% of the Voteco Interests ratably to those holders of Senior Secured Claims (including the Backstop Lenders) electing to participate in the New Money Investment or their designees, as applicable, and (iii) 5.0% of the Voteco Interests ratably to the Backstop Lenders in accordance with the Backstop Commitment Agreement or their designees, as applicable; provided however, the above distributions are subject to such persons first obtaining all applicable licensing from Gaming Authorities; and
 
 
·
approval of the Backstop Agreement.
 
The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classifications of assets or the amounts and classifications of liabilities should an asset liquidation occur. The original Joint Plan of Reorganization, Lock-Up Agreement and Backstop Agreement are filed as Exhibits to the July 14th 8-K.  The Second Amended Joint Plan of Reorganization, as confirmed, was filed as an exhibit to the Current Report on From 8-K filed December 7, 2010 and Amendment No. 1 to the Backstop Agreement is filed as an Exhibit to this Annual Report on Form 10-K.
 
Board of Directors and Management Changes
 
As disclosed in a Form 8-K filed with the SEC on April 19, 2010, William L. Westerman, the Company’s Chief Executive Officer (“CEO”) and Chairman of the Board of Directors (the “Board”), passed away on April 18, 2010.  In conjunction, the Board announced the creation of the Office of the CEO to temporarily fulfill the CEO responsibilities and the election of Vincent L. DiVito to Chairman of the Board.  The Board named Tullio J. Marchionne, the Company’s Secretary and General Counsel, Robert A. Vannucci, ROC’s President and Chief Operating Officer, and Phillip B. Simons, the Company’s Treasurer and Chief Financial Officer as members of the Office of the CEO.
 
As described in the Plan of Reorganization, from the Effective Date until the Substantial Consummation Date, the Company will continue to be managed by the existing managers, officers and directors.  On the Substantial Consummation Date, the existing board of directors of RHC (the “Old Board”) will be deemed to have resigned without any further action on the part of RHC or the Old Board, and the initial board of directors of Reorganized RHC (the “New Board”) will be comprised of five directors, including a chairman.  A chief executive officer and directors of Reorganized RHC were named by Voteco prior to the Confirmation Hearing.
 
Riviera Las Vegas
 
General
 
Riviera Las Vegas is located on the corner of Las Vegas Boulevard and Riviera Boulevard in Clark County, Nevada, across Las Vegas Boulevard from the Circus Circus Las Vegas Resort and Casino and the Echelon construction project and just south of the Fontainebleau project.  Boyd Gaming Corporation, the owner of the Echelon project, suspended construction on the project indefinitely as a result of economic issues.  The Fontainebleau project was owned by Fontainebleau Las Vegas LLC which filed for Chapter 11 bankruptcy protection in June 2009.  The property was acquired by Icahn Nevada Gaming Acquisition LLC in January 2010.  Plans for the Fontainebleau project are unknown.
 
Gaming
 
Riviera Las Vegas has approximately 100,000 square feet of casino space.  The casino currently has approximately 900 slot machines, 34 gaming tables and 8 poker tables.  The casino also includes a race and sports book, which is operated by Leroy’s, a subsidiary of American Wagering, Inc.  The operating agreement with Leroy’s terminates effective April 30, 2011.  The Company is currently evaluating proposals from various race and sports book operators.
 
 
5

 
 
Hotel
 
Riviera Las Vegas’ hotel is comprised of five towers with 2,075 guest rooms, including 177 suites, as follows:
 
Tower Description
 
Year
Built
 
Std.
Rooms
   
Suites
   
Total
   
Latest
Remodel
Year
 
                             
North Tower
 
1955
    379       11       390       2008  
South Tower
 
1967
    132       30       162       2008  
Monte Carlo
 
1974
    216       81       297       2005  
San Remo
 
1977
    241       6       247       2008  
Monaco
 
1988
    930       49       979       2008  
Total
        1,898       177       2,075          

Restaurants
 
Riviera Las Vegas owns and operates four bars and three restaurants and offers banquet event service as well as room service.  The following outlines the type of service provided and total seating capacity for each restaurant:
 
Name
 
Type
 
Seating
Capacity
 
           
Kady’s
 
Coffee Shop
    290  
Kristofer’s
 
Steak and Seafood
    162  
Garden Fresh Buffet
 
All-you-can-eat
    366  
             
Total
        818  

In addition, Riviera Las Vegas operates three snack bars and has a 200 seat fast-food “food court” which had several fast food locations operating during 2010.  The food court operation was managed by and leased to a third party until November 2008 when we commenced leasing out the food court locations to independent fast food operators.  As of December 31, 2010, all nine food court locations were leased to independent fast food operators.  In addition, Riviera Las Vegas leases space to the operator of The Banana Leaf Restaurant, which is a full service restaurant serving Asian cuisine, and The Queen Victoria Pub, which is a full service restaurant and pub serving pub style cuisine and a large variety of draft and bottled beers.  The Banana Leaf Restaurant and the Queen Victoria Pub are located adjacent to the casino floor.  The Banana Leaf Restaurant opened during the first quarter of 2007 and the Queen Victoria Pub opened during the second quarter of 2010.  The Queen Victoria Pub is located in the space previously occupied by Ristorante Italiano which closed February 2009.
 
Convention Center
 
Riviera Las Vegas features approximately 160,000 square feet of convention, meeting and banquet space.  The convention center is one of the larger convention facilities in Las Vegas and is an important feature that attracts customers. The facility can be reconfigured for multiple meetings of small groups or large gatherings of up to 5,000 people.  Features include ample convention, meeting and banquet facilities in addition to teleconferencing, wireless internet, satellite uplink capabilities and 12 skyboxes.
 
 
6

 
 
Entertainment
 
Riviera Las Vegas has an extensive entertainment program.  The following outlines the type of service provided and total seating capacity for each entertainment center:
 
Name
 
Type
 
Seating Capacity
 
           
Versailles
 
Variety
    875  
La Cage
 
Variety
    575  
Crazy Girls
 
Adult Revue
    375  
Comedy Club
 
Comedy
    350  
Le Bistro
 
Variety
    190  

As of December 31, 2010, all of our shows are owned and operated by third parties.  We receive ticket sales commissions and a predetermined number of complimentary tickets that we use primarily for marketing and promotions.  In addition, we receive any gaming and food and beverage revenues from show patrons.  Select show operators pay rent.  We are searching for a new show for The Versailles entertainment center which has been vacant since 2009.  Currently, “DAO”, a Chinese acrobatic show, is performing in the La Cage entertainment center and several shows are using the Le Bistro entertainment center.
 
Marketing Strategies - Gaming
 
Our current marketing programs are directed at mid-level stakes gaming customers (customers that wager less on average) as opposed to high stakes customers (customers that wager more on average).  Mid-level stakes gaming customers tend to provide us with a less volatile, more consistent gaming revenue stream.  Consistent with our focus on mid-level stakes gaming customers, we offer lower table game limits, stricter credit policies and higher emphasis on developing more slot machine play.  Our principal strategy is to continue to invest in our slot machines and table game products, market to our customer base primarily through a multi-tiered player’s club program (“Club Riviera”) and to methodically offer slot machine and poker tournaments and other special events and promotions.
 
Generating customer loyalty is a critical component of our business strategy as retaining customers is less expensive than attracting new ones.  Consequently, we store all of our Club Riviera player’s information in a proprietary database program which we use for sending special offerings to Club Riviera members based on a variety of criteria.  We frequently use discounted or complimentary meals at our restaurants, accommodations at our hotel and tickets at our shows to incentivize Club Riviera members and other prospective customers to come and game at our property.   All slot machine and table game players are encouraged to join Club Riviera.  We entice customers to enroll in the players club with a variety of incentives including free slot machine play offers.  Once a player joins Club Riviera, we can track their level of play and gain useful information about their preferences.  We offer qualifying customers personalized service, credit availability and access to a variety of complimentary or reduced-rate hotel room, dinner and entertainment options.  We have found that an individualized marketing approach has been successful in generating revenue and repeat business.
 
 
7

 
 
We also seek to maximize the number of people who patronize the Riviera Las Vegas but who are not guests in the hotel by capitalizing on Riviera Las Vegas’ Las Vegas Strip location and proximity to the Las Vegas Convention Center, the Circus Circus, the Sahara, the Las Vegas Hilton, the Wynn Las Vegas, the Wynn Encore and various time-share and condominium properties.  To attract walk-in traffic, we added the 11,000 square foot Leroy’s Race & Sports Book, Bar & Grill which opened February 2008 adjacent to the Las Vegas Strip sidewalk.  However, the dormant Echelon and Fontainebleau projects have resulted in and continue to cause a significant reduction in walk-in traffic.
 
Marketing Strategies - Rooms
 
We continue to focus on our convention customer.  To better market to these customers, we have conducted extensive research to better understand their preferences.  We have learned that an upgraded hotel room is a primary differentiator.  As a result, we upgraded most of our rooms during 2007 and 2008.  Our sales team uses our remodeled hotel rooms to sell prospective convention customers.
 
The convention market consists of two groups:  (1) those trade organizations and groups that hold their events in the banquet and meeting space provided by a single hotel and (2) those attending city-wide events, usually held at the Las Vegas Convention Center.  We target convention business because it typically provides patrons willing to pay higher room rates and we are able to capitalize on certain advance planning benefits because conventions are often booked one to two years in advance of the event date.  We focus our marketing efforts on conventions whose participants have the most active gaming profile and higher room rates, banquet and function spending habits.  We also benefit from our proximity to the Las Vegas Convention Center, which makes us attractive to city-wide conventioneers looking to avoid the congestion that occurs during a major convention, particularly at the south end of the Las Vegas Strip.  In 2010, we derived approximately 20.5% of our hotel occupancy and approximately 31.7% of our room revenues from convention customers and we consider them to be a critical component of our customer base.
 
In addition to our convention customer, we have found that our customers also use tour and travel “package” options to reduce the cost of travel, lodging and entertainment.  These packages are produced by wholesale operators and travel agents and often emphasize mid-week and longer duration stays.  Tour and Travel patrons often book at off-peak periods, helping us to maintain occupancy levels throughout the year.  We have developed specialized marketing programs and cultivated relationships with wholesale operators, travel agents and major domestic air carriers to expand this market.  We make an effort to convert many tour and travel customers who meet our target customer gaming profile into repeat slot customers.
 
Finally, we are increasingly focused on customers that book their stay using the internet.  These customers are in search of convenience, a bargain, and the ability to reserve a hotel room shortly before arrival.  This market segment continues to grow as consumers grow increasingly comfortable using the internet.  Approximately 45% of our 2010 occupied rooms were from customers that booked their stay using the internet compared to 39% in the prior year.  We can quickly and efficiently adjust our room rate offerings on various internet websites.  As a result, we often utilized the internet as a vehicle for quickly booking hotel room reservations on dates with lower occupancy.
 
Riviera Black Hawk
 
Business
 
Riviera Black Hawk, which opened on February 4, 2000, is located in Black Hawk, Colorado, approximately 40 miles west of Denver.  Our casino is the first casino encountered by visitors arriving from Denver on Highway 119.  It features the fourth largest number of gaming devices in the market with approximately 750 slot machines and 9 table games.  For Colorado gaming and tax law purposes, each slot machine or table game is considered one gaming device.
 
 
8

 
 
We also offer a variety of non-gaming amenities designed to help differentiate our casino, including:
 
 
·
parking spaces for 520 vehicles, of which 92% are covered, with convenient and free self-park and valet options;
 
 
·
a 252 seat casual buffet-styled restaurant;
 
 
·
a delicatessen;
 
 
·
one casino bar; and
 
 
·
a ballroom with seating for approximately 200 people.
 
Marketing Strategy
 
We attract customers to our casino by implementing marketing strategies and promotions designed specifically for the Black Hawk/Central City market.  We utilize a player’s club at Riviera Black Hawk which was modeled after Club Riviera in Las Vegas.  Our Riviera Black Hawk player’s club is our primary tool for building customer loyalty in Black Hawk.  Players earn points, based on gaming play, which can be redeemed for cash, food and beverage and various other items.  In order to generate additional visits and increase gaming revenues, we regularly pre-select players from our player’s club database to receive various rewards such as cash coupons, logo gift items, invitations to special events and complimentary accommodations at our Las Vegas property.  In addition, we promote our Riviera Black Hawk casino by advertising in local newspapers and on the radio.
 
We benefit from strong walk-in traffic, which is primarily the result of our proximity to the Lady Luck and Isle of Capri properties.  We have and continue to develop specific marketing programs designed to attract these walk-in customers.  We emphasize that the Riviera Black Hawk offers quality food and beverage, friendly service and promotions designed specifically for the Black Hawk/Central City consumer.
 
Until 2009, only limited stakes gaming, which is defined as a maximum single bet of $5, was legal in the Black Hawk/Central City market.  However, Colorado Amendment 50, which was approved by voters on November 4, 2008, allowed residents of Black Hawk and Central City to vote to extend casino hours, approve additional games, and increase the maximum bet limit.  On January 13, 2009, residents of Black Hawk voted to enable Black Hawk casino operators to extend casino hours, add the table games of craps and roulette and increase the maximum betting limit to $100.  On July 2, 2009, the first day permissible to implement the changes associated with the passage of Colorado Amendment 50, we increased betting limits, extended hours and commenced operating roulette.  To increase awareness of the increased betting limits, extended hours and the addition of roulette at Riviera Black Hawk, we aggressively promoted the property employing several media sources including television.  We continue to refine our marketing and promotional strategies in order to maximize the benefits associated with the passage of Colorado Amendment 50.
 
 
9

 
 
Competitive Environment
 
Las Vegas, Nevada
 
Las Vegas is a highly competitive environment offering a variety of hospitality and entertainment options.   The Las Vegas Convention and Visitors Authority (LVCVA) reported that the number of people visiting Las Vegas increased 2.7% to 37.3 million visitors in 2010 from 36.4 million visitors in 2009.  While there was a slight increase in visitation in 2010, the number of people visiting Las Vegas has declined 5.0% since 2007.  Additionally, more options became available during 2010 with new openings and expansions.  However, the LVCVA reported that available room inventory did not change significantly during 2010 with 148,941 rooms available as of December 31, 2009 and 148,935 rooms available as of December 31, 2010.
 
To entice customers to their properties, our competitors continue to offer prospective customers significantly discounted pricing and complimentary offerings.  The LVCVA reported that Las Vegas hotel room occupancy, which is defined as occupied hotel rooms divided by total available hotel rooms, declined 1.8% to 83.5% for the year ended December 31, 2010.  LVCVA also reported that average daily room rate, which is defined as hotel room revenue divided by occupied hotel rooms, increased $1.98, or 2.1%, to $94.91 from $92.93 for the twelve months ended December 31, 2010 and 2009, respectively. While average daily room rates increased slightly in 2010, average daily room rates declined significantly since 2007.  Average daily room rates were $119.19 and $132.09 for the twelve months ended December 31, 2008 and 2007, respectively.
 
Riviera Las Vegas competes with all Las Vegas area casinos but primarily with certain large casino/hotels located on or near the Las Vegas Strip.  Most of these properties offer more and better amenities than those offered by Riviera Las Vegas and many of our direct competitors have significantly greater resources than we do.  To compete, we have to lower our average daily room rates as these properties lower their average daily room rates.  Because of our position within the market, the challenges associated with our location (see below) and the impact of the weak economy on consumer spending, our average daily rates declined $3.59, or 5.9%, to $57.01 from $60.60 in the prior year.  Conversely, our hotel room occupancy (based on total rooms) increased to 74.9% from 73.9% in the prior year.
 
We also compete for people who come and spend money at Riviera Las Vegas who are not guests in our hotel.  We capitalize on our location on the Las Vegas Strip across from the Circus Circus Hotel and Casino.  However, our location at the north end of the Las Vegas Strip poses additional challenges as the dormant Echelon and Fontainebleau projects have resulted in and continue to cause a significant reduction in walk-in traffic.
 
In addition to competing with other casinos/hotels in the Las Vegas area, we compete to some extent with casinos in other states, riverboat and Native American gaming ventures, state-sponsored lotteries, on and off track wagering, card parlors and other forms of cruise ship gaming and other forms of legalized gaming in the United States.  To a lesser extent, we also compete with gaming on cruise ships and gaming in other parts of the world.  In addition, certain states recently legalized or are considering legalizing casino gaming in specific geographical areas within those states and internationally.  Any future development of casinos, lotteries or other forms of gaming in other states and internationally could have a material adverse effect on our results of operations.
 
The number of casinos on Native American lands has increased since the enactment of the Indian Gaming Regulatory Act of 1988.  California voters addressed this issue on March 7, 2000 when they voted in favor of an amendment to the California Constitution that allows Las Vegas-style gambling on Native American lands in that state.  Additionally, California voters passed Propositions 94, 95, 96 and 97 which allow two tribes near San Diego to each increase their slot machine volume from 2,000 slot machines to 7,500 slot machines and two tribes near Palm Springs to each increase their slot machine volume from 2,000 slot machines to 5,000 slot machines.  While new gaming jurisdictions generally have not materially impacted Las Vegas, the expansion of gaming in California poses a more serious threat due to its proximity to Las Vegas.
 
 
10

 
 
Our current business is highly dependent on gaming in Las Vegas. Riviera Las Vegas derives a substantial percentage of its business from tourists, including customers from southern California and the southwestern United States. The current economic recession has had an adverse effect on the number of visitors traveling to Las Vegas.  A continued economic downturn along with events in the future similar to the terrorist attacks of September 11, 2001 could have an adverse effect on both the number of visitors traveling to Las Vegas and our financial results.
 
As a result of the abovementioned competitive environment challenges in the Las Vegas market, there can be no assurance that we will compete successfully in the future.
 
Black Hawk, Colorado
 
The Black Hawk gaming market is characterized by intense competition.  The primary competitive market differentiators are location, availability and convenience of parking, number of gaming devices, promotional incentives, hotel rooms, types and pricing of non-gaming amenities, name recognition and overall atmosphere.  We have determined that our primary competitors are the Ameristar Black Hawk, the Isle/Lady Luck, the Lodge and the Mardi Gras.  These are the larger gaming facilities located in our immediate area offering considerable amenities with established reputations in the local market.
 
As described above, effective July 2, 2009, due to the passage of Colorado Amendment 50, Black Hawk casino operators were permitted to increase betting limits, extend hours and implement additional games.  To capitalize on these changes, our primary competitors invested and continue to invest in their properties.  The Ameristar Black Hawk added a 536 room hotel tower, expanded its parking garage to 1,550 parking spaces and added a diner.  The Isle/Lady Luck added four craps tables and three roulette tables and has plans to upgrade the casino floor.  The Lodge expanded its gaming space and added 100 slot machines, two craps tables and two roulette tables.  Lastly, the Mardi Gras remodeled one of its restaurants and added two craps tables and a roulette table.
 
Currently, Ameristar Black Hawk has 1,640 slot machines, 33 gaming tables, 536 hotel rooms and several food and beverage outlets.  The Isle/Lady Luck has 1,900 slot machines, 42 gaming tables, 402 hotel rooms and various food and beverage outlets.  The Lodge has 1,000 slot machines, 39 gaming tables, 50 hotel rooms and various food and beverage outlets.  Finally, the Mardi Gras has 680 slot machines, 16 gaming tables and various food and beverage outlets.
 
While the passage of Colorado Amendment 50 benefited the Black Hawk/Central City gaming market, the Colorado smoking ban, which became effective for Black Hawk/Central City casinos on January 1, 2008, has had an adverse effect on our results of operations.  While we have installed outdoor smoking decks to accommodate our guests who smoke, we believe that that the smoking ban in Colorado has had and will continue to have an adverse affect.
 
Gasoline prices affect our customers’ willingness to travel to the Black Hawk/Central City gaming market.  We believe that recent gasoline prices increases have had and any additional gasoline price increases will have an adverse affect on our result of operations.
 
 
11

 
 
The competitive environment in Colorado continues to change and the future is uncertain.  Limited stakes gaming in Colorado is constitutionally authorized in Central City, Black Hawk, Cripple Creek and two Native American reservations in southwest Colorado.  However, gaming could be approved in other Colorado communities in the future.  The legalization of gaming closer to Denver would likely have a material adverse effect on our results of operations.
 
We compete with other forms of gaming in Colorado, including the state lottery, horse and dog racing, as well as other forms of entertainment.  Colorado voters previously rejected a proposal that would have authorized video lottery terminals in five racetracks in Colorado.  However, there is no guarantee that such a proposal or similar one will be rejected in the future.  If these or similar initiatives are pursued in Colorado and gain the necessary approvals, then our Colorado operations would likely be adversely affected.
 
As a result of the abovementioned competitive environment challenges in the Black Hawk gaming market, there can be no assurance that we will compete successfully in the future.
 
Employees and Labor Relations
 
Riviera Las Vegas
 
As of December 31, 2010, Riviera Las Vegas had 947 full-time equivalent employees and had collective bargaining contracts with eight unions covering approximately 600 employees, including food and beverage employees, rooms department employees, carpenters, engineers, stagehands, musicians, electricians and painters.  Riviera Las Vegas’ agreement with the Painters’ Union expired on May 31, 2010 and the agreement Carpenters’ Union will expire on July 31, 2011.  We are continuing to negotiate the terms of the Painters’ Union contract and are currently operating under the terms of the expired agreement.  Agreements with the Southern Nevada Culinary and Bartenders Union, which cover the majority of our unionized employees, were renewed in 2007 and expires in 2013 (term of agreement was extended for one year during 2009).  Our agreement with the Stagehands Union was renewed in 2009 and expires in 2012.  Our agreement with the Teamsters Union (primarily covers rooms department employees) was renewed in 2008 and expires in 2013.  Our Operating Engineers Union agreement was renewed in 2009 and expires in 2011 and our Electrician Union agreement was renewed in 2009 and expires in 2012.  Our collective bargaining agreement with the Musicians Union expired in 1999 and we continue to operate under the terms of that agreement.  Although unions have been active in Las Vegas, Riviera Las Vegas considers its employee relations to be satisfactory.  There can be no assurance, however, that new agreements will be reached without union action or on terms satisfactory to Riviera Las Vegas.
 
Riviera Black Hawk
 
As of December 31, 2010, Riviera Black Hawk had 228 full-time equivalent employees none of whom are covered by collective bargaining agreements.  There can be no assurance that unions will not succeed in organizing parts or all of our labor force at Riviera Black Hawk.  If any union is successful in organizing at Riviera Black Hawk, there can be no assurance that an agreement will be reached without union action or on mutually satisfactory terms.
 
 
12

 
 
Regulation and Licensing
 
Nevada
 
Nevada Gaming Authorities
 
The ownership and operation of casino gaming facilities in Nevada are subject to: (1) The Nevada Gaming Control Act and the regulations promulgated thereunder (collectively, the “Nevada Act”) and (2) various local ordinances and regulations.  Our gaming operations are subject to the licensing and regulatory control of the Nevada Gaming Commission (the “Nevada Commission”), the State of Nevada Gaming Control Board (the “Nevada Board”), the Clark County Business License Department and the Clark County Liquor and Gaming Licensing Board (collectively, the “Clark County Board”), all of which are collectively referred to as the “Nevada Gaming Authorities.”
 
The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy which are concerned with, among other things:  (1) the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time and in any capacity; (2) the establishment and maintenance of responsible accounting practices and procedures; (3) the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities; (4) the prevention of cheating and fraudulent practices; and (5) providing a source of state and local revenues through taxation and licensing fees.  Changes in such laws, regulations and procedures could have an adverse effect on our operations.
 
Riviera Operating Corporation is required to be and is licensed by the Nevada Gaming Authorities (a “Corporate Licensee”).  The gaming license held by Riviera Operating Corporation requires the periodic payment of fees and taxes and is not transferable.  Riviera Operating Corporation is also licensed as a manufacturer and distributor of gaming devices.  Such licenses require the periodic payment of fees and are not transferable.  We are registered by the Nevada Commission as a publicly traded corporation (a ”Registered Corporation”) and have been found suitable to own the stock of Riviera Operating Corporation.  As a Registered Corporation, we are required periodically to submit detailed financial and operating reports to the Nevada Commission and to furnish any other information, which the Nevada Commission may require.  No person may become a stockholder of, or receive any percentage of profits from, Riviera Operating Corporation without first obtaining licenses and approvals from the Nevada Gaming Authorities.  We and Riviera Operating Corporation have obtained, from the Nevada Gaming Authorities, the various registrations, approvals, permits, findings of suitability and licenses required in order to engage in gaming activities and manufacturing and distribution activities in Nevada.
 
The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, us or Riviera Operating Corporation in order to determine whether such individual is suitable or should be licensed as a business associate of a gaming licensee.  Officers, directors and certain key employees of Riviera Operating Corporation must file applications with the Nevada Gaming Authorities and may be required to be licensed or found suitable by the Nevada Gaming Authorities.  Our officers, directors and key employees who are actively and directly involved in the gaming activities of Riviera Operating Corporation may be required to be licensed or found suitable by the Nevada Gaming Authorities.  The Nevada Gaming Authorities may deny an application for licensing for any cause, which they deem reasonable.  A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. The applicant for licensing or a finding of suitability must pay all the costs of the investigation.  Any change in a corporate position by a licensed person must be reported to the Nevada Gaming Authorities. In addition to their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a change in a corporate position.
 
 
13

 
 
If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with Riviera Operating Corporation or us, we would have to sever all relationships with such person.  In addition, the Nevada Commission may require us or Riviera Operating Corporation to terminate the employment of any person who refuses to file appropriate applications.  Determinations of suitability or questions pertaining to licensing are not subject to judicial review in Nevada.
 
We and Riviera Operating Corporation are required to submit detailed financial and operating reports to the Nevada Commission.  Substantially all material loans, leases, sales of securities and similar financing transactions by Riviera Operating Corporation must be reported to or approved by the Nevada Commission.
 
If it were determined that the Nevada Act was violated by Riviera Operating Corporation, the gaming license it holds could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures.  In addition, we or Riviera Operating Corporation and the persons involved could be subject to substantial fines for each violation of the Nevada Act, at the discretion of the Nevada Commission.  Further, a supervisor could be appointed by the Nevada Commission to operate our casino and, under certain circumstances, earnings generated during the supervisor’s appointment (except for reasonable rental value of the casino) could be forfeited to the State of Nevada.  Limitation, conditioning or suspension of the gaming license of Riviera Operating Corporation or the appointment of a supervisor could (and revocation of any gaming license would) materially adversely affect our gaming operations.
 
Any beneficial holder of our voting securities, regardless of the number of shares owned, may be required to file an application, be investigated, and have its suitability as a beneficial holder of our voting securities determined if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the State of Nevada.  The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in conducting any such investigation.
 
The Nevada Act requires any person who acquires more than 5% of a Registered Corporation’s voting securities to report the acquisition to the Nevada Commission.  The Nevada Act requires that beneficial owners of more than 10% of our voting securities apply to the Nevada Commission for a finding of suitability within thirty days after the Chairman of the Nevada Board mails the written notice requiring such filing.  However, an “institutional investor,” as defined in the Nevada Act, which acquires more than 10%, but not more than 11% of our voting securities as a result of a stock repurchase by us may not be required to file such an application.  Further, an institutional investor that acquires more than 10% but not more than 25% of our voting securities may apply to the Nevada Commission for a waiver of such finding of suitability if such institutional investor holds our voting securities for investment purposes only.  An institutional investor that has obtained a waiver may hold more than 25% but not more than 29% of our voting securities and maintain its waiver where the additional ownership results from a stock repurchase by us.  An institutional investor shall not be deemed to hold our voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of our Board of Directors, any change in our corporate charter, bylaws, management, policies or operations, or any of our gaming affiliates, or any other action which the Nevada Commission finds to be inconsistent with holding our voting securities for investment purposes only.  Activities which are deemed consistent with holding our voting securities for investment purposes only include:  (1) voting on all matters voted on by stockholders; (2) making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in management, policies or operations; and (3) such other activities as the Nevada Commission may determine to be consistent with such investment intent.  If the beneficial holder of our voting securities who must be found suitable is a business entity or trust, it must submit detailed business and financial information including a list of beneficial owners.  The applicant is required to pay all costs of investigation.
 
 
14

 
 
Any person who fails or refuses to apply for a finding of suitability or a license within thirty days after being ordered to do so by the Nevada Commission or the Chairman of the Nevada Board may be found unsuitable.  The same restrictions apply to a record owner of stock if the record owner, after request, fails to identify the beneficial owner.  Any stockholder who is found unsuitable and who holds, directly or indirectly, any beneficial ownership of stock beyond such period of time prescribed by the Nevada Commission may be guilty of a criminal offense.  We are subject to disciplinary action if, after we receive notice that a person is unsuitable to be a stockholder or to have any other relationship with us or Riviera Operating Corporation, we (1) pay that person any dividend or interest upon voting our securities, (2) allow that person to exercise, directly or indirectly, any voting right conferred through securities held by that person, (3) pay remuneration in any form to that person for services rendered or otherwise, or (4) fail to pursue all lawful efforts to require such unsuitable person to relinquish his voting securities including, if necessary, the immediate purchase of said voting securities for cash at fair market value. Additionally, the Clark County Board has the authority to approve all persons owning or controlling the stock of any corporation controlling a gaming licensee.
 
The Nevada Commission may, in its discretion, require any holder of our debt securities to file applications, be investigated and be found suitable to own such securities, if it has reason to believe that such ownership would be inconsistent with the declared policies of the State of Nevada.  If the Nevada Commission determines that a person is unsuitable to own such security, then we can be sanctioned (which may include the loss of our approvals) if, without the prior approval of the Nevada Commission, we (1) pay to the unsuitable person any dividend, interest, or any distribution whatsoever, (2) recognize any voting right by such unsuitable person in connection with such securities, (3) pay the unsuitable person remuneration in any form or (4) make any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation, or similar transaction.
 
We are required to maintain a current stock ledger in Nevada, which may be examined by the Nevada Gaming Authorities at any time.  If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Nevada Gaming Authorities.  A failure to make such disclosure may be grounds for finding the record holder unsuitable. We are also required to render maximum assistance in determining the identity of the beneficial owner. The Nevada Commission has the power to require our stock certificates to bear a legend indicating that the securities are subject to the Nevada Act.  However, the Nevada Commission has not imposed such a requirement on us.
 
We may not make a public offering of our securities without the prior approval of the Nevada Commission if the securities or proceeds are intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for such purposes.
 
Changes in control of a Registered Corporation through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby he obtains control, may not occur without the prior approval of the Nevada Commission.  Entities seeking to acquire control of a Registered Corporation must meet a variety of stringent standards of the Nevada Board and Nevada Commission prior to assuming control.  The Nevada Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction.
 
 
15

 
 
The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defensive tactics affecting Nevada corporate gaming licensees and Registered Corporations that are affiliated with those operations may be injurious to stable and productive corporate gaming.  The Nevada Commission has established regulations to ameliorate the potentially adverse effects of these business practices upon Nevada’s gaming industry and to further Nevada’s policy to:  (1) assure the financial stability of corporate gaming licensees and their affiliates; (2) preserve the beneficial aspects of conducting business in the corporate form; and (3) promote a neutral environment for the orderly governance of corporate affairs.  Approvals are, in certain circumstances, required from the Nevada Commission before the Registered Corporation can make exceptional repurchases of voting securities above the current market price and before a corporate acquisition opposed by management can be consummated.  The Nevada Act also requires prior approval of a plan of recapitalization proposed by the Registered Corporation’s board of directors in response to a tender offer made directly to the Registered Corporation’s stockholders for the purposes of acquiring control of the Registered Corporation.
 
License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the State of Nevada and to the county and city in which Riviera Operating Corporation’s operations are conducted.  Depending upon the particular fee or tax involved, these fees and taxes are payable monthly, quarterly or annually and are based upon: (1) a percentage of the gross revenues received; (2) the number of gaming devices operated; or (3) the number of table games operated.  A live entertainment tax is also paid by casinos where live entertainment is furnished in connection with admission charges, the serving or selling of food, refreshments or the selling of merchandise where live entertainment is furnished.  Nevada licensees that hold a license to manufacture and distribute slot machines and gaming devices, such as Riviera Operating Corporation, also pay certain fees and taxes to the State of Nevada.
 
Any person who is licensed, required to be licensed, registered, or required to be registered, or a person who is under common control with any of such persons (collectively, “Licensees”), and who proposes to become involved in a gaming venture outside of Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation by the Nevada Board of such person’s participation in such foreign gaming.  The revolving fund is subject to increase or decrease in the discretion of the Nevada Commission.  Thereafter, Licensees are required to comply with certain reporting requirements imposed by the Nevada Act.  Licensees are also subject to disciplinary action by the Nevada Commission if they knowingly violate any laws of the foreign jurisdiction pertaining to the foreign gaming operation, fail to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations, engage in activities or enter into associations that are harmful to the State of Nevada or its ability to collect gaming taxes and fees, or employ, have contact with or associate with a person in the foreign operation who has been denied a license or finding of suitability in Nevada on the ground of personal unsuitability.
 
Other Nevada Regulation
 
The sale of alcoholic beverages at Riviera Las Vegas is subject to licensing, control and regulation by the Clark County Board.  All such licenses are revocable and none of them are transferable. The Clark County Board has full power to limit, condition, suspend or revoke any such license, and any such disciplinary action could (and revocation would) have a material adverse effect on our operations.
 
 
16

 
 
Colorado
 
Colorado Gaming and Liquor Regulation
 
Summary
 
In general, Riviera Black Hawk, its principal executive officers and those of Riviera Holdings Corporation, and any Riviera Black Hawk employees who are involved in Colorado gaming operations are required to be found suitable for licensure by the Colorado Gaming Commission (the “Colorado Commission”).  Colorado also requires that persons owning, directly or indirectly, 5% or more of our stock be certified as suitable for licensure.  Riviera Black Hawk’s original retail gaming license was approved by the Colorado Commission on November 18, 1999, and has been renewed each subsequent year.
 
Background
 
Pursuant to an amendment to the Colorado Constitution (the “Colorado Amendment”), limited stakes gaming became lawful in the cities of Central City, Black Hawk and Cripple Creek on October 1, 1991.  Until November 4, 2008, limited stakes gaming meant a maximum single bet of $5.00 on slot machines and in the card games of blackjack and poker.  On November 4, 2008, Colorado voters approved through a statewide referendum, subject to approval by each of the towns of Black Hawk, Central City and Cripple Creek with regards to casinos located in the respective towns, to (i) increase the maximum single bet up to $100.00, (ii) allow casinos to provide the table games of craps and roulette, and (iii) increase the permitted hours of operation to 24 hours per day effective July 2, 2009.  The towns of Black Hawk, Central City and Cripple Creek subsequently each approved increasing the maximum single get to $100, the addition of the table games of craps and roulette and increased permitted hours of operation to 24 hours per day.
 
Limited stakes gaming is confined to the commercial district of Black Hawk, as defined by Black Hawk on May 4, 1978.  In addition, the Colorado Amendment restricts limited stakes gaming to structures that conform to the architectural styles and designs that were common to the areas prior to World War I, and which conform to the requirements of applicable city ordinances regardless of the age of the structures.  Under the Colorado Amendment, no more than 35% of the square footage of any building and no more than 50% of any one floor of any building may be used for limited stakes gaming. Persons under the age of 21 cannot participate in limited stakes gaming.  The Colorado Amendment also allows limited stakes gaming in establishments licensed to sell alcoholic beverages.
 
Further, the Colorado Limited Gaming Act of 1991 (the “Colorado Act”) provides that, in addition to any applicable license fees, a gaming tax shall be imposed upon retail gaming licensees (casinos) up to a maximum of 40% of the adjusted gross proceeds (“AGP”) derived from limited stakes gaming.  AGP is generally defined as the total amounts wagered less payouts to players, except for poker in which AGP means the monies retained by the casino as compensation (the “rake”).  The tax rates are set by the Colorado Commission annually.
 
The Colorado Act declares public policy on limited stakes gaming to be that:  (1) the success of limited stakes gaming is dependent upon public confidence and trust that licensed limited stakes gaming is conducted honestly and competitively; the rights of the creditors of licensees are protected; gaming is free from criminal and corruptive elements; (2) public confidence and trust can be maintained only by strict regulation of all persons, locations, practices, associations and activities related to the operation of  licensed gaming establishments and the manufacture or distribution of gaming devices and equipment; (3) all establishments where limited gaming is conducted and where gambling devices are operated, and all manufacturers, sellers and distributors of certain gambling devices and equipment must therefore be licensed, controlled and assisted to protect the public health, safety, good order and the general welfare of the inhabitants of the state to foster the stability and success of limited stakes gaming and to preserve the economy, policies and free competition in Colorado; and (4) no applicant for a license or other affirmative Colorado Commission approval has any right to a license or to the granting of the approval sought.  Any license issued or other Colorado Commission approval granted pursuant to the provisions of the Colorado Act is a revocable privilege, and no holder acquires any vested rights therein.
 
 
17

 
 
Regulatory Structure
 
The Colorado Act subjects the ownership and operation of limited stakes gaming facilities in Colorado to extensive licensing and regulation by the Colorado Commission.  The Colorado Commission has full and exclusive authority to promulgate, and has promulgated, rules and regulations governing the licensing, conduct and operation of limited stakes gaming.  The Colorado Act also created the Colorado Division of Gaming (the “Division of Gaming”) within the Colorado Revenue Department to license, regulate and supervise the conduct of limited stakes gaming in Colorado.  The division is supervised and administered by the Director of the Division of Gaming.
 
Gaming Licenses
 
The Colorado Commission may issue the following licenses applicable to the operation of Riviera Black Hawk:
 
 
·
operator;
 
 
·
retail gaming;
 
 
·
support; and
 
 
·
key employee.
 
The first two licenses require annual or biannual renewal by the Colorado Commission. Support and key employee licenses are issued for two-year periods and are renewable by the Division of Gaming Director.  The Colorado Commission has broad discretion to condition, suspend for up to six months, revoke, limit or restrict a license at any time and also has the authority to impose fines.
 
An applicant for a gaming license must complete comprehensive application forms, pay required fees and provide all information required by the Colorado Commission and the Division of Gaming.  Prior to licensure, applicants must satisfy the Colorado Commission that they are suitable for licensing. Applicants have the burden of proving their qualifications and must pay the full cost of any background investigations.  There is no limit on the cost of, or the time it takes to complete, such background investigations.
 
Gaming employees must hold either a support or key employee license.  Every large retail gaming licensee, such as Riviera Black Hawk, must have a key employee licensee on premises and in charge of all limited stakes gaming activities when limited stakes gaming is being conducted.  The Colorado Commission may determine that a gaming employee is a key employee and require that such person apply for a key employee license.
 
 
18

 
 
A retail gaming license is required for all persons conducting limited stakes gaming on their premises.  In addition, an operator license is required for all persons who engage in the business of placing and operating slot machines on the premises of a retailer.  However, a retailer is not required to hold an operator license.  No person may have an ownership interest in more than three retail gaming licenses.  The definition of “ownership interest” for purposes of the multiple license prohibition, however, has numerous exclusions based on percentages of ownership interest or voting rights.
 
A slot machine manufacturer or distributor license is required for all persons who manufacture, import and distribute slot machines in Colorado.  No manufacturer or distributor of slot machines or associated equipment may knowingly, without notification being provided to the Colorado Division within ten days, have any interest in any casino operator, allow any of its officers or any other person with a substantial interest in such business to have such an interest, employ any person employed by a casino operator, or allow any casino operator or any person having a substantial interest therein, to have any interest in such business.
 
The Colorado Act and regulations thereunder (the “Colorado Regulations”) require that every officer, director, and stockholder of private corporations, or equivalent office or ownership holders for non-corporate applicants, and every officer, director or stockholder holding a 5% or greater interest or controlling interest in a publicly traded corporation, or owners of an applicant or licensee, shall be a person of good moral character and submit to a full background investigation conducted by the Division of Gaming and the Colorado Commission.  The Colorado Commission may require any person having an interest, of any kind, in a license to undergo a full background investigation and pay the cost of investigation in the same manner as an applicant.
 
Persons found unsuitable by the Colorado Commission may be required immediately to terminate any interest, association, or agreement with, or relationship to, a licensee.  A finding of unsuitability with respect to any officer, director, employee, associate, lender or beneficial owner of a licensee or applicant also may jeopardize the licensee’s license or the applicant’s application.  A license approval may be conditioned upon the termination of any relationship with unsuitable persons.  A person may be found unsuitable because of prior acts, associations or financial conditions.  Acts that would lead to a finding of unsuitability include, among others, those that would violate the Colorado Act or the Colorado Regulations or that contravene the legislative purpose of the Colorado Act.
 
Duties of Licensees
 
A licensee must keep the Division of Gaming advised of its business operations including, but not limited to, gaming contracts and leases.  All rules for the conduct of gaming activity pursuant to the Colorado Act or the Colorado Regulations must be strictly followed.
 
Licensees, such as Riviera Black Hawk, have a continuing duty to report immediately to the Division of Gaming the name, date of birth and social security number of each person who obtains an ownership, financial or equity interest in the licensee of 5% or greater, who has the ability to control the licensee, who has the ability to exercise significant influence over the licensee or who loans any money or other thing of value to the licensee.  Licensees must report to the Division of Gaming all gaming licenses, and all applications for gaming licenses, in foreign jurisdictions.
 
With limited exceptions applicable to licensees that are publicly traded entities, no person may sell, lease, purchase, convey or acquire any interest in a retail gaming or operator license or business without the prior approval of the Colorado Commission.
 
All agreements, contracts, leases, or arrangements in violation of the Colorado Amendment, the Colorado Act or the Colorado Regulations are void and unenforceable.
 
 
19

 
 
A licensee must comply with Colorado’s Gambling Payment Intercept Act, which governs the collection of unpaid child support costs on cash winnings from limited gaming.
 
Taxes, Fees and Fines
 
The Colorado Amendment requires retail gaming licensees to pay in monthly increments an annual tax of up to 40% of its AGP derived from limited stakes gaming. Annually during April, May, and June, the Colorado Commission, as mandated by the Colorado Regulations, conducts rule-making hearings concerning the gaming tax rate and device fee rate for the subsequent gaming year.  The gaming year begins on July 1st.  However, during such hearings rigid adherence to addressing only specific, designated subjects related to the gaming taxes is not required, and there is not a limit to the time or practical restriction on the subject matters which the Colorado Commission may consider in determining the various tax rates.  Currently, the gaming tax is:
 
 
·
0.25% on the first $2 million of these amounts;
 
 
·
2% on amounts from $2 million to $5 million;
 
 
·
9% on amounts from $5 million to $8 million;
 
 
·
11% on amounts from $8 million to $10 million;
 
 
·
16% on amounts from $10 million to $13 million; and
 
 
·
20% on amounts over $13 million.
 
The City of Black Hawk assesses an annual device fee of $750.00 per device on all gaming devices exceeding 50. There is no statutory limit on state or city device fees, which may be increased at the discretion of the Colorado Commission or the city.  In addition, the City of Black Hawk also has imposed other fees, including a business improvement district fee and a monthly transportation authority device fee, calculated based on the number of devices and may revise the same or impose additional fees.
 
Black Hawk also imposes taxes and fees on other aspects of the businesses of retail gaming licensees, such as parking, alcoholic beverage licenses and other municipal taxes and fees.  Significant increases in these fees and taxes, or the imposition of new taxes and fees, may occur.
 
Violation of the Colorado Act or the Colorado Regulations generally constitutes a class 1 misdemeanor, except as may be specifically provided otherwise in the Colorado Act, which may subject the violator to fines or incarceration or both.  A licensee who violates the Colorado Act or Colorado Regulations or Gambling Payment Intercept Act is subject to suspension of the license for a period of up to six months, fines or both, or to license revocation.
 
Requirements for Publicly Traded Corporations
 
The Colorado Commission has enacted Rule 4.5, which imposes requirements on publicly traded corporations holding gaming licenses in Colorado and on gaming licenses owned directly or indirectly by a publicly traded corporation, whether through a subsidiary or intermediary company.  The term “publicly traded corporation” includes corporations, firms, limited liability companies, trusts, partnerships and other forms of business organizations.  Such requirements automatically apply to any ownership interest held by a publicly traded corporation, holding company or intermediary company thereof, where the ownership interest directly or indirectly is, or will be upon approval of the Colorado Commission, 5% or more of the entire licensee.  In any event, if the Colorado Commission determines that a publicly traded corporation, or a subsidiary, intermediary company or holding company, has the actual ability to exercise influence over a licensee, regardless of the percentage of ownership possessed by said entity, the Colorado Commission may require the entity to comply with the disclosure regulations contained in Rule 4.5.
 
 
20

 
 
Under Rule 4.5, gaming licensees, affiliated companies and controlling persons commencing a public offering of voting securities must notify the Colorado Commission no later than ten business days after the initial filing of a registration statement with the SEC.  Licensed, publicly traded corporations are also required to send proxy statements to the Division of Gaming within five days after their distribution. Licensees to whom Rule 4.5 applies must include in their charter documents provisions that: restrict the rights of the licensees to issue voting interests or securities except in accordance with the Colorado Act and the Colorado Regulations; limit the rights of persons to transfer voting interests or securities of licensees except in accordance with the Colorado Act and the Colorado Regulations; and provide that holders of voting interests or securities of licensees found unsuitable by the Colorado Commission may, within 60 days of such finding of unsuitability, be required to sell their interests or securities back to the issuer at the lesser of the cash equivalent of the holders’ investment or the market price as of the date of the finding of unsuitability.  Alternatively, the holders may, within 60 days after the finding of unsuitability, transfer the voting interests or securities to a suitable person, as determined by the Colorado Commission.  Until the voting interests or securities are held by suitable persons, the issuer may not pay dividends or interest, the securities may not be voted, they may not be included in the voting or securities of the issuer, and the issuer may not pay any remuneration in any form to the holders of the securities.
 
Pursuant to Rule 4.5, persons (including institutional investors) who acquire direct or indirect beneficial ownership of either (1) 5% or more of any class of voting securities of a publicly traded corporation that is required to include in its articles of organization the Rule 4.5 charter provisions, or (2) a 5% or greater beneficial interest in a gaming licensee, directly or indirectly through any class of voting securities of any holding company or intermediary company of a licensee (collectively such persons are hereinafter referred to as the “qualifying persons”), must notify the Division of Gaming within 10 days of such acquisition, must submit all requested information, and are subject to a finding of suitability as required by the Division of Gaming or the Colorado Commission.  It is the current practice of the gaming regulators to require findings of suitability for persons or entities beneficially owning 5% or more of a direct or indirect beneficial ownership or interest, other than certain institutional investors discussed below.  Licensees also must notify any qualifying persons of these requirements.
 
A qualifying person (other than certain institutional investors discussed below) whose interest equals 10% or more must apply to the Colorado Commission for a finding of suitability within 45 days after acquiring such securities.  Licensees must also notify any qualifying persons of these requirements.  Whether or not notified, qualifying persons are responsible for complying with these requirements.
 
A qualifying person who is an institutional investor under Rule 4.5 and who, individually or in association with others, acquires, directly or indirectly, the beneficial ownership of 15% or more of any class of voting securities must apply to the Colorado Commission for a finding of suitability within 45 days after acquiring such interests.  Rule 4.5 defines an institutional investor to include certain classes of banks, insurance companies, investment companies, investment advisors, collective trust funds, employee benefit plans, pension funds, and groups composed of persons otherwise individually qualifying pursuant to the definition in the rule.  If certain institutional investors provide specified information to the Division of Gaming within 45 days after acquiring their interest (which, under the current practice of the Division of Gaming is an interest of 5% or more, directly or indirectly) and are holding for investment purposes only, those institutional investors, in the Colorado Commission’s discretion, may be permitted to own up to a 15% interest before being required to be found suitable.
 
 
21

 
 
The Colorado Regulations also provide for exemption from the requirements for a finding of suitability when the Colorado Commission finds such action to be consistent with the purposes of the Colorado Act.  Notwithstanding the foregoing, the Colorado Commission may require any person having or acquiring an interest, however limited or indirect, in a license or a licensee to undergo a full suitability investigation and pay the cost of the investigation in the same manner as an applicant.
 
Where there is a distinction between the record owner and the beneficial owner of stock or other interests in a licensee or applicant, the Division of Gaming will review the circumstances to determine, in its discretion, whether either or both must apply for suitability.
 
Pursuant to Rule 4.5, persons found unsuitable by the Colorado Commission must be removed from any position as an officer, director, or employee of a licensee, or from a holding or intermediary company.  Such unsuitable persons also are prohibited from any beneficial ownership of the voting securities of any such entities.  Licensees, or affiliated entities of licensees, are subject to sanctions for paying dividends or distributions to persons found unsuitable by the Colorado Commission, or for recognizing voting rights of, or paying a salary or any remuneration for services to, unsuitable persons. Licensees or their affiliated entities also may be sanctioned for failing to pursue efforts to require unsuitable persons to relinquish their interest.  The Colorado Commission may determine that anyone with a material relationship to, or material involvement with, a licensee or an affiliated company must apply for a finding of suitability or must apply for a key employee license.
 
Alcoholic Beverage Licenses
 
The sale of alcoholic beverages in gaming establishments is subject to strict licensing, control and regulation by state and local authorities.  Alcoholic beverage licenses are revocable and nontransferable.  State and local licensing authorities have full power to limit, condition, suspend for as long as six months or revoke any such licenses.  Violation of state alcoholic beverage laws may constitute a criminal offense resulting in incarceration, fines, or both.
 
There are various classes of retail liquor licenses, which may be issued under the Colorado Liquor Code.  A gaming licensee may sell malt, vinous or spirituous liquors only by the individual drink for consumption on the premises.  Even though a retail gaming licensee may be issued one of the various classes of retail liquor licenses, such gaming licensee, and persons affiliated with that licensee, are subject to restrictions concerning what other types of liquor licenses they may hold.  An application for an alcoholic beverage license in Colorado requires notice, posting and a public hearing before the local liquor licensing authority (e.g., the City of Black Hawk) prior to approval of the same.  The Colorado Department of Revenue’s Liquor Enforcement Division must also approve the application.  Riviera Black Hawk’s hotel and restaurant license has been approved by both the local licensing authority and the State Division of Liquor Enforcement.  Such license must be, and has been, renewed annually since its issuance.
 
Trademarks, Service Marks and Logos
 
Pursuant to a license agreement, Riviera Las Vegas licenses the use at Riviera Black Hawk of all of the trademarks, service marks and logos used by Riviera Las Vegas.  The license agreement provides that additional trademarks, service marks and logos acquired or developed by us and used at our other facilities will be subject to the license agreement.
 
 
22

 
 
Federal Registration
 
Riviera Operating Corporation is required to annually file with the Attorney General of the United States in connection with the sales, distribution, or operations of slot machines.  All requisite filings for 2010 have been made.
 
Item 1A.
Risk Factors
 
An investment in our securities involves a high degree of risk. We operate in a highly competitive, dynamic and rapidly changing industry that involves numerous risks and uncertainties.  Moreover, our debt instruments impose restrictions on us that are for the benefit of certain of our creditors, but not necessarily for our stockholders or us.  Anyone who is making an investment decision regarding our securities should carefully consider the following risk factors, as well as the other information contained or incorporated by reference in this report.  The risks and uncertainties described below are those that we currently believe may materially affect our company or your investment.  Other risks and uncertainties that we do not presently consider to be material, or of which we are not presently aware, may become important factors that adversely affect our security holders or us in the future.  If any of the risks discussed below actually materialize, our business, financial condition, operating results, cash flows and future prospects, or your investment in our securities, could be materially and adversely affected, resulting in a loss of all or part of your investment.
 
Risks Related to our Current Reorganization cases under Chapter 11 of the U.S. Bankruptcy Code
 
If the Plan of Reorganization is Substantially Consummated, our shareholders will receive nothing.
 
If the Plan of Reorganization is Substantially Consummated (see “Bankruptcy Proceedings” under Item 1 above), all existing equity interests of the Company shall be cancelled and such equity holders shall receive nothing.  As a result, current and potential investors should be aware that any interest they hold in the Company will decrease in value and become worthless through the bankruptcy proceeding.
 
Specific Risks Related to our Current Reorganization
 
On the Petition Date (July 12, 2010), the Debtors (RHC, RBH and ROC) filed voluntary petitions in the Bankruptcy Court for reorganization of its business and to have the Chapter 11 Cases jointly administered, as disclosed on a Form 8-K filed with the SEC on July 14, 2010.  On the Petition Date and prior to the commencement of the Chapter 11 Cases, the Company entered into the Lock-Up Agreement with holders (the Consenting Lenders), in the aggregate, of in excess of 66 2/3% in the amount of all of the outstanding claims under Debtors’ credit and fixed rate swap agreements, which are described in detail in Note 9 to the audited consolidated financial statements accompanying this Form 10-K.  Pursuant to the Lock-Up Agreement, the Consenting Lenders were contractually obligated to support the restructuring of the Debtors in accordance with the Plan of Reorganization.  Moreover, the Lock-Up Agreement contractually obligated the parties to move forward with the Plan of Reorganization for each of the Debtors.
 
At the Confirmation Hearing on November 8, 2010, the Bankruptcy Court concluded that the Plan of Reorganization, as previously amended and modified at the Confirmation Hearing, met the requirements for confirmation, including that the requisite classes of creditors voted in favor of the Plan of Reorganization, and confirmed the Plan of Reorganization.  The entry of a formal order by the Bankruptcy Court confirming the Plan of Reorganization was approved by the Bankruptcy Court and became effective on December 1, 2010.
 
 
23

 
 
During the Chapter 11 Cases and until the Substantial Consummation Date, our operations are subject to the risks and uncertainties associated with bankruptcy including, but not limited to, the following:
 
 
·
The Chapter 11 Cases may adversely affect our business prospects and/or our ability to operate during the reorganization.
 
 
·
The Chapter 11 Cases and expected difficulties of operating our properties while attempting to reorganize the business in bankruptcy may make it more difficult to maintain and promote our properties and attract customers to our properties.
 
 
·
The Chapter 11 Cases may cause our vendors and service providers to require stricter terms and conditions.
 
 
·
The Chapter 11 Cases may adversely affect our ability to maintain our gaming licenses in the jurisdictions in which we operate.
 
 
·
The Chapter 11 Cases may adversely affect our ability to maintain, expand, develop and remodel our properties.
 
 
·
Transactions by us outside the ordinary course of business are subject to the prior approval of the Bankruptcy Court, which may limit our ability to respond timely to certain events or take advantage of certain opportunities.
 
 
·
We may be unable to retain and motivate key executives and employees through the process of reorganization, and we may have difficulty attracting new employees.  In addition, so long as the Chapter 11 Cases continues, our senior management will be required to spend a significant amount of time and effort dealing with the reorganization instead of focusing exclusively on business operations.
 
 
·
There can be no assurances as to our ability to maintain sufficient funds to meet future obligations.  We are currently sustaining ourselves with cash flow from operations.  If we are required to obtain a debtor in possession, or DIP, financing, we have may be unable to obtain such financing and if obtained, may not be able to operate pursuant to the terms.  The challenges of obtaining DIP financing are exacerbated by adverse conditions in the general economy and the tightening in the credit markets.
 
 
·
There can be no assurance that we will be able to successfully consummate the Plan of Reorganization with respect to the Chapter 11 Cases that is acceptable to the Bankruptcy Court and the Company’s creditors and other parties in interest.  Additionally, third parties may seek and obtain the appointment of a Chapter 11 Trustee, or to convert the cases to Chapter 7 cases.
 
Even assuming a successful emergence from Chapter 11, there can be no assurance as to the overall long-term viability of our reorganized company.
 
 
24

 
 
We May Not Be Able To Consummate The Plan Of Reorganization.
 
Before the Plan of Reorganization can be substantially consummated, various regulatory and third party approvals must be obtained.  There is no assurance that all regulatory and third party approvals will be obtained.  If the Plan of Reorganization is not substantially consummated: (a) the Plan of Reorganization will be deemed null and void and the Company will then seek to reorganize pursuant to a different plan which will need to meet the confirmation standards of the Bankruptcy Code; (b) the Lockup Agreement will no longer be in effect; and (c) the Company may be required to obtain interim financing, if available, and liquidate its assets which may have a material adverse effect on the financial position, results of operations, or cash flows of the Company.
 
The Uncertainty Regarding The Eventual Outcome Of Our Chapter 11 Cases And The Effect Of Other Unknown Adverse Factors Could Threaten Our Existence As A Going Concern.
 
 We are currently operating under Chapter 11 of the Bankruptcy Code, and our continuation as a going concern is contingent upon, among other things, substantially consummating a reorganization plan as described in Item 1 above, maintaining our gaming licenses, complying with the terms of existing and future loan agreements, returning to profitability, generating sufficient cash flows from operations, obtaining financing sources to meet future obligations, maintaining the support of key vendors and customers and retaining key personnel, along with financial, business, and other factors, many of which are beyond our control.  Further, it is uncertain whether we will lose valuable contracts in the process of the Chapter 11 Cases.
 
The audited consolidated financial statements of Riviera Holdings Corporation included in this Form 10-K have been prepared assuming that the Company will continue as a going concern.  However, the report of our independent registered public accounting firm on the accompanying consolidated financial statements of Riviera Holdings Corporation as of and for the year ended December 31, 2010 includes an explanatory paragraph describing the existence of substantial doubt about the ability of the Company to continue as a going concern.  This report, as well as our uncertain ability to pay our debt service obligations, may adversely impact our ability to attract customers to our properties, attract and retain key executive employees and maintain and promote our properties which could materially adversely affect our results of operations.
 
Risks Relating To Our Business And Our Capital Structure
 
We Are in Breach of Covenants Under Our Credit Facility, Including Timely Payments of Interest, And May Need To Seek Debtor In Possession Financing Or Alternative Financing In The Future.
 
The Company has not complied with all covenants under the Credit Facility, including its obligation to make payments under the Credit Facility (see Note 9 to the accompanying audited consolidated financial statements).  Furthermore, the filing of the Debtors’ voluntary petitions in the Bankruptcy Court constituted an event of default that trigger certain repayment obligations arising under the Credit Facility.  Upon the occurrence of such event, the obligations arising under the Credit Agreement were automatically accelerated and all other amounts due thereunder became immediately due and payable.  The acceleration of the obligations under the Credit Agreement and the enforcement of the remedies under the Credit Facility as a result of an event of default were stayed as a result of the filings in the Bankruptcy Court.
 
 
25

 
 
Pursuant to the approved Cash Collateral Stipulation, the Company is funding existing operations and capital needs during the reorganization period from operating cash flows and cash on hand.  There can be no assurances that the Company will have the ability to maintain sufficient funds to meet future obligations or abide the requirements outlined in the Cash Collateral Stipulation.  As a result, the Company may be required to obtain debtor in possession, or DIP, financing, which may be unavailable or only available on terms that are prohibitive.  The challenges of obtaining DIP financing are exacerbated by adverse conditions in the general economy and the credit markets.
 
The Plan of Reorganization to restructure our debt became effective on December 1, 2010.  Before the Plan of Reorganization can be substantially consummated, various regulatory and third party approvals must be obtained.  There is no assurance that all regulatory and third party approvals will be obtained.  If the Plan of Reorganization is not substantially consummated: (a) the Plan of Reorganization will be deemed null and void and the Company will then seek to reorganize pursuant to a different plan which will need to meet the confirmation standards of the Bankruptcy Code; (b) the Lockup Agreement will no longer be in effect; and (c) the Company may be required to obtain interim financing, if available, and liquidate its assets which may have a material adverse effect on the financial position, results of operations, or cash flows of the Company.
 
Our Independent Auditors Have Expressed Doubt About Our Ability To Continue As A Going Concern.  This Could Make It More Difficult For Us To Raise Funds and Adversely Affect Our Relationships With Lenders, Investors and Suppliers
 
Our independent registered public accounting firm included an explanatory paragraph that expresses substantial doubt as to our ability to continue as a going concern in their audit reports contained in this Annual Report on Form 10-K for the year ended December 31, 2010 and in our Annual Reports on Form 10-K for the years ended December 31, 2009 and 2008.  We cannot provide any assurance that we will in fact operate our business profitably, maintain existing financings, or obtain sufficient financing in the future to sustain our business in the event we are not successful in our efforts to generate sufficient revenue and operating cash flow.  The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
 
The Current Disruption in the Credit Markets and its Effects on the Global and Domestic Economies Could Adversely Affect our Business.
 
Recent substantial volatility in the global capital markets and widely-documented commercial credit market disruptions had a significant negative impact on financial markets, as well as the global and domestic economies.  The effects of these disruptions are widespread and difficult to quantify, and it is impossible to predict when the global financial markets will improve.  There is now general consensus among economists that the economies of the U.S. and much of the rest of the world were in a deep recession from late 2007 through 2009 and that the effects of this recession continue to be felt.  As a result, we have and are continuing to experience reduced demand for our hotel rooms, gaming products and other services.  Continued weakness in demand and in consumer and commercial spending may drive us and our competitors to continue to reduce pricing, in particularly room rates, which would have a negative impact on our gross profit.  These adverse effects would likely be exacerbated if current global economic conditions persist or worsen resulting in wide-ranging, adverse and prolonged effects on general business conditions and our operations, financial results and liquidity.
 
 
26

 
 
We Face Intense Competition In The Two Markets Where We Operate
 
In Las Vegas, competition has continued to increase as a result of factors such as the ongoing economic recession, hotel room inventory increases, gaming floor expansions in addition to convention, trade show and meeting space additions.  Our success depends on the ability of Riviera Las Vegas to attract customers and realize corresponding revenues.  Riviera Las Vegas competes with casino resort properties and hotels in the Las Vegas area.  Currently, there are approximately 30 major gaming properties located on or near the Las Vegas Strip, approximately ten additional major gaming properties in the downtown area and many additional gaming properties located in other areas of Las Vegas.  Riviera Las Vegas competes with these properties based on overall atmosphere, range of amenities, level of service, price, location, entertainment offered, shopping and restaurant facilities, theme and size.  Companies that own and operate multiple hotel/casino facilities operate many of the gaming properties in Las Vegas.  These companies have greater name recognition and financial and marketing resources than we do and often market to the same target demographic groups as we do.
 
 In Black Hawk/Central City, the primary competitive differentiators are location, availability and convenience of parking, number of gaming devices, promotional incentives, hotel rooms, types and pricing of non-gaming amenities, name recognition and overall atmosphere.  Our main competitors are the larger gaming facilities especially those with considerable on-site or nearby parking facilities, hotel rooms and established reputations in the local market.  Two of the most successful casinos in Colorado are considerably larger than Riviera Black Hawk and are located across the street from our casino.  Three other casinos in our market offer hotel accommodations as well as gaming facilities and thereby have some competitive advantages over us.
 
There have also been efforts in Colorado by Native American tribes to acquire land to use for construction of a casino that would operate without the limitations imposed on the Colorado casino industry.  Additionally, there have been efforts by other parties to amend the Colorado Constitution to permit the installation of slot machines at five racetracks.  To date, the Native American casino initiatives in Colorado have either been rejected or have failed to win support from government authorities.  Moreover, in 2003, a race track/slot machine initiative was rejected by Colorado voters.  Our Colorado operations could be adversely affected if either one of these initiatives gain the necessary approvals.
 
In addition to the competition that we face from our competitors in Las Vegas and Colorado, we face increasing competition from other companies in the gaming industry generally, such as land-based casinos, dockside casinos, riverboat casinos, casinos located on Native American land and other forms of legalized gambling.  We risk losing market share if other casinos operate more successfully or are enhanced or expanded or are established in or around the locations where we conduct business.
 
The number of casinos on Native American lands has increased since enactment of the Indian Gaming Regulatory Act of 1988.  In 2000, California voters approved an amendment to the California Constitution that allows Las Vegas-style gaming on Native American lands in that state.  Additionally, California voters recently passed Propositions 94, 95, 96 and 97 which allow two tribes near San Diego to each increase their slot machine volume from 2,000 slot machines to 7,500 slot machines and two tribes near Palm Springs to each increase their slot machine volume from 2,000 slot machines to 5,000 slot machines.  While it is difficult to determine the impact of these new gaming jurisdictions, the continued expansion of gaming in California poses a more serious threat to the continued growth of Las Vegas.  We also compete, to some extent, with other forms of gaming on both a local and national level, including state sponsored lotteries, Internet gaming, on- and off-track wagering and card parlors.
 
In particular, the legalization of gaming or the expansion of legalized gaming in or near any geographic area from which we attract or expect to attract a significant number of our customers could have a significant adverse effect on our business, financial condition, results of operations and future prospects.
 
 
27

 
 
Increased competition may also require us to make substantial capital expenditures to maintain or enhance the competitive positions of our two properties.  Because we are highly leveraged and have considerable constraints on our available cash, we might not have sufficient financing to make such expenditures.  If we are unable to make such expenditures, our competitive position, results of operations and future prospects could be materially and adversely affected.
 
Our Company Operates In Only the Las Vegas And Black Hawk Markets Which Exposes Us To Greater Risks Than Gaming Companies With A Presence In More Markets
 
We do not have material assets or operations other than Riviera Las Vegas and Riviera Black Hawk.  Therefore, we are entirely dependent upon these two properties for our cash flow.  This makes us more sensitive to events and conditions affecting the markets in which we operate, including the following:
 
 
·
weak macroeconomic conditions;
 
 
·
weak local economic conditions;
 
 
·
increased competitive conditions;
 
 
·
inaccessibility due to weather conditions, road construction or closure of primary access routes;
 
 
·
decline in air passenger traffic due to higher ticket costs or fears concerning air travel;
 
 
·
a decline in automobile traffic due to higher gasoline prices;
 
 
·
changes in state and local laws and regulations, including those affecting gaming;
 
 
·
an increase in the cost of electrical power for Riviera Las Vegas as a result of, among other things, power shortages in California or other western states with which Nevada shares a single regional power grid;
 
 
·
a decline in the number of visitors to Las Vegas or the number of Colorado residents who visit Black Hawk;
 
 
·
a decline in hotel room rates in Las Vegas due to increased hotel room supply without offsetting hotel room demand;
 
 
·
a decline in the number of hotel guest in Las Vegas due to the 3% hotel room tax increase bill which was approved by the Nevada Legislature in March 2009; and
 
 
·
a potential increase in the gaming tax rate in any jurisdiction in which we operate.
 
We Are Dependent On Key Personnel Whom We Might Have Difficulty Replacing Due To Market Perceptions About Our Prospects
 
Our ability to operate successfully is dependent, in part, upon the continued services of certain of our executive personnel.  Our loss of any of them or our inability to attract or retain key employees in the future could have a material adverse effect on us.
 
Market perceptions about our future prospects due to the Bankruptcy Proceedings described in Item 1 above may make it more difficult for us to find suitable replacements if we lose the services of our executives or other key personnel, which in turn might make it more difficult for us to attract and retain qualified personnel at that high level.
 
 
28

 
 
Regulations Issued By Gaming Or Other Governmental Authorities Could Adversely Affect Our Operations
 
As owners and operators of gaming facilities, we are subject to extensive governmental regulation.  The ownership, management and operation of gaming facilities are subject to extensive laws, regulations and ordinances, which are administered by various federal, state and local government entities and agencies.  The gaming authorities in the jurisdictions in which we operate have broad authority and discretion to require us and our officers, directors, managers, employees and certain security holders to obtain various licenses, registrations, permits, findings of suitability or other approvals. To enforce applicable gaming regulations, gaming authorities may, among other things, limit, suspend or revoke the licenses of any gaming entity or individual, and may levy fines against us or individuals or may cause us to forfeit our assets for violations of gaming laws or regulations.  Any of these actions would have a material adverse effect on us.
 
Nevada and Colorado state and local government authorities require us to obtain gaming licenses and require our officers and key employees to demonstrate suitability to be involved in gaming operations.  Those authorities may limit, condition, suspend or revoke a license for any cause they deem reasonable.  Also, if we violate any gaming laws or regulations, those authorities may levy substantial fines against us or the individuals involved in the violations.  The occurrence of any of these events could have a material adverse effect on our business, financial condition, results of operations and future prospects.
 
We can not assure you that any new licenses, registrations, findings of suitability, permits and approvals will be granted or that our existing ones will be renewed when they expire.  Any failure to renew or maintain our licenses or receive new licenses when necessary would have a material adverse effect on us.
 
We are subject to a variety of other laws, rules and regulations, including those pertaining to zoning, environmental matters, construction, land use and the serving of alcoholic beverages.  We also pay substantial taxes and fees in connection with our operations as a gaming company, which taxes and fees are subject to increases or other changes at any time.  Any changes to these laws could have a material adverse effect on our business, financial condition, results of operations and future prospects.
 
Our compliance costs associated with these laws, regulations and licenses are significant.  A change in the laws, regulations and licenses applicable to our business or a violation of any of them could require us to make material expenditures or could otherwise materially adversely affect our business, financial condition, results of operations and future prospects.
 
In Black Hawk and in other jurisdictions from which we attract customers, gaming is subject to local referendum.  If the results of a referendum held in a jurisdiction in which we operate were to restrict gaming in whole or in part or if the results of a referendum in a nearby non-gaming jurisdiction were to permit gaming, especially video lottery terminals or slot machines in racetracks in and around the Denver area, our results of operations could be negatively impacted.
 
 
29

 
 
We Are Subject To Potential Exposure To Environmental Liabilities
 
Generally, we are subject to various federal, state and local governmental laws and regulations relating to the use, storage, discharge, emission and disposal of hazardous materials.  Failure to comply could result in the imposition of severe penalties or restrictions on our operations by governmental agencies or courts.  We experienced a diesel leak at our Las Vegas property.  Our continuing efforts to monitor and remediate the effects of this leak, which occurred in 2002, have been affected by construction at neighboring projects.  We are continuing to monitor this matter.  In order to come to final resolution regarding this issue with the Nevada Department of Environmental Protection, we may be required to take remediation steps including the excavation of the effected area.  We are unable to estimate the cost of remediation at the present time.
 
Riviera Black Hawk is located within a 400-square mile area that in 1983 was designated as the Clear Creek Central/City National Priorities List Site Study Area under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended.  Although Riviera Black Hawk is not within any of the specific areas currently identified for investigation or remediation under that statute, environmental problems may subsequently be discovered, including in connection with any future construction on our property.  Furthermore, governmental authorities could broaden their investigations and identify areas of concern within the site and as a result, we could be identified as a “potentially responsible party” and any related liability could have a material adverse effect on us.  We do not have insurance to cover environmental liabilities, if we incur any.
 
Energy Price Increases May Adversely Affect Our Costs Of Operations And Our Revenues
 
Our casino properties use significant amounts of electricity, natural gas and other forms of energy.  Recent substantial increases in the cost of electricity in the United States have negatively affected our operating results and are likely to continue to do so.  The extent of the impact is subject to the magnitude and duration of energy price increases, but this impact could be material.  In addition, energy price increases in cities that constitute a significant source of customers for our properties could result in a decline in disposable income of potential customers and a corresponding decrease in visitation to our properties which could negatively impact our revenues.
 
Our Business, Financial Condition, Results Of Operations And Future Prospects Are Dependent On Many Factors That Are Beyond Our Control
 
The economic health of our business is generally affected by a number of factors that are beyond our control, including:
 
 
·
the ability to Substantially Consummate the Plan of Reorganization as described in Item 1 above;
 
 
·
general economic conditions including the impact of a worsening macroeconomic environment;
 
 
·
economic conditions specific to our primary markets;
 
 
·
general condition of the banking and credit markets;
 
 
·
decline in tourism and travel due to concerns about homeland security, terrorism or other destabilizing events;
 
 
·
decline in the Las Vegas convention business;
 
 
·
the ability to renegotiate union contracts in Las Vegas;
 
 
30

 
 
 
·
intense competitive conditions in the gaming industry including the possibility of the approval of video lottery terminals and/or slot machines at racetracks in and around the Denver area and the effect such conditions may have on the pricing of our games and products;
 
 
·
changes in the regulatory regimes affecting our business, including changes to applicable gaming, employment, environmental or tax regulations;
 
 
·
inaccessibility to our property due to construction on adjoining or nearby properties, streets or walkways;
 
 
·
substantial increases in the cost of electricity, natural gas and other forms of energy;
 
 
·
local conditions in key gaming markets, including seasonal and weather-related factors;
 
 
·
increased transportation costs;
 
 
·
levels of disposable income of casino customers;
 
 
·
continued increases in health care costs;
 
 
·
increases in gaming taxes or fees;
 
 
·
increases in Clark County facilities inspection fees and resulting remedial actions;
 
 
·
the relative popularity of entertainment alternatives to casino gaming that compete for the leisure dollar;
 
 
·
an outbreak or suspicion of an outbreak of an infectious communicable disease; and
 
 
·
the impact of the smoking ban in Colorado on our Riviera Black Hawk property which became effective January 1, 2008 and the possible adoption of additional anti-smoking regulations.
 
Any of these factors could negatively impact our property or the casino industry generally, and as a result, our business, financial condition and results of operations.
 
We May Incur Losses That Are Not Adequately Covered By Insurance
 
Insurance may not be available in the future or adequate to cover all loss or damage to which our business or our assets might be subjected.  Since the terrorist attacks of September 11, 2001, insurance coverage has diminished for certain types of damages or occurrences and is no longer available at reasonable commercial rates.  The lack of adequate insurance for certain types or levels of risk could expose us to significant losses if a catastrophe or lawsuit occurs for which we do not have insurance coverage.  Any losses we incur that are not adequately covered by insurance may decrease our future operating income, require us to pay the costs of replacing or repairing destroyed property and reduce the funds available for payment of our debt obligations.
 
 
31

 
 
We Are Subject To Litigation, Which, If Adversely Determined, Could Cause Us To Incur Substantial Losses
 
From time to time during the normal course of operating our business, we are subject to various litigation claims and other legal disputes.  Some of the litigation claims may not be covered under our insurance policies or our insurance carriers may seek to deny coverage.  As a result, we might be required to incur significant legal fees, which may have a material adverse effect on us.  In addition, because we cannot predict the outcome of any legal action, it is possible that as a result of litigation, we will be subject to adverse judgments or settlements that could significantly reduce our results from operations.
 
Homeland Security, Terrorism And War Concerns, As Well As Other Factors Affecting Discretionary Consumer Spending, May Harm Our Operating Results
 
The strength and profitability of our business depend on consumer demand for hotel/casino resorts, gaming in general and the types of amenities we offer.  Changes in consumer preferences or discretionary consumer spending could harm our business.  The terrorist attacks of September 11, 2001, ongoing war activities and concerns about terrorism and homeland security have had a negative impact on travel and leisure expenditures, including lodging, gaming (in some jurisdictions) and tourism.  We cannot predict the extent to which those events may continue to affect us, directly or indirectly, in the future.  An extended period of reduced discretionary spending or disruptions or declines in travel could significantly harm our operations.
 
In addition to concerns about war, homeland security and terrorism, other factors affecting discretionary consumer spending include; consumers’ confidence in general or regional economic conditions, consumers’ disposable income, consumers fears of a continued or worsening economic recession or an economic depression.  Negative changes in factors affecting discretionary spending could reduce customer demand for the products and services we offer, thus imposing practical limits on our pricing and harming our operations.
 
If the State of Nevada or Clark County increases gaming taxes and fees, our results of operations could be adversely affected.
 
State and local authorities raise a significant amount of revenue through taxes and fees on gaming activities. From time to time, legislators and officials have proposed changes in tax laws, or in the administration of such laws, affecting the gaming industry. In addition, worsening economic conditions could intensify the efforts of state and local governments to raise revenues through increases in gaming taxes.  If the State of Nevada or Clark County, Nevada were to increase gaming taxes and fees, our results of operations could be adversely affected.  There are several gaming tax increase proposals currently circulating in Nevada. One such proposal, a 3% increase in the hotel room revenue tax, was approved in March 2009 by the Nevada legislature. These proposals would take the form of voter referendum.  If successfully implemented, such an increase would have a material adverse affect on our financial condition, results of operations or cash flows.
 
If Clark County increases facilities inspection fees and such inspections result in significant remedial actions, our results of operations could be adversely affected.
 
During the last several months, Clark County Authorities commenced a program to inspect the facilities at Las Vegas hotels and casinos primarily for building code compliance and life and safety issues.  Inspections of Riviera Las Vegas are scheduled for 2011 and we are responsible for the inspection costs as well as the cost to correct any significant issues outlined in the inspector’s report.  If the costs of these inspections and related corrective actions are significant, it could have a material adverse affect on our financial condition, results of operations or cash flows.
 
 
32

 
 
Risks Relating To Our Common Stock
 
Our Stock Price Has Been Volatile Which Could Result In Substantial Losses For Our Stockholders.
 
During the 52 weeks ended December 31, 2010, our stock’s average closing sale price as reported on the Pink OTC Markets quotation system fluctuated from a high of $0.51 per share to a low of $0.03 per share.  On average, 43,344 shares traded per day for the three months ended December 31, 2010.  The volatility of the trading price of our stock could be due to many factors including, but not limited to:
 
 
·
effect that if the Plan of Reorganization is Substantially Consummated (see “Bankruptcy Proceedings” under Item 1 above), all existing equity interests of the Company shall be cancelled and such equity holders shall receive nothing;
 
 
·
the effect of the Credit Defaults, as described in Note 9 to the accompanying audited consolidated financial statements;
 
 
·
the effect of the Company filing for protection under Chapter 11 of the U. S. Bankruptcy Code;
 
 
·
the effect of our independent auditors expressing doubt about our ability to continue as a going concern;
 
 
·
the relatively low liquidity and marketability associated with trading in the over-the-counter market;
 
 
·
the relatively low trading price of and trading volume for our stock;
 
 
·
current economic conditions and expectation regarding future economic conditions;
 
 
·
quarterly fluctuations in our financial results;
 
 
·
the effect that fluctuations in our stock price will have on other parties’ willingness to make a proposal to acquire us;
 
 
·
ownership of a large number of our outstanding shares by a small group of stockholders, coupled with our 60% affirmative vote requirement to effectuate a successful merger, may inhibit other parties from engaging in merger negotiations with us;
 
 
·
fluctuations in Las Vegas real estate values, particularly as they affect property on the Las Vegas Strip;
 
 
·
the current credit market and banking environment;
 
 
·
changes in analysts’ estimates of our financial performance or future prospects;
 
 
·
announcements of new services or programs;
 
 
33

 
 
 
·
additions or departures of key personnel;
 
 
·
general conditions in our industry and in the financial markets; and
 
 
·
a variety of other risk factors including the ones described elsewhere in this report.
 
Interruption in the quotation of our common stock on the Pink Sheets has negatively affected the trading volume and price of our common stock.
 
Due to an administrative error by FINRA and the Pink Sheets relating to the Bankruptcy Cases, quotation of our common stock on the Pink Sheets was interrupted but then reinstated during February 2011.  Quotation of our common stock continues to be negatively affected by this interruption, which, in addition to the Bankruptcy Cases, has contributed to the decline in trading volume and price of our common stock.
 
There Are Requirements and Limitations On Changes In Control Of Our Company That Could Reduce The Ability To Sell Our Shares In Excess Of Current Market Prices
 
Our Credit Facility consists of a seven year $225 million term loan which matures on June 8, 2014 and a $3 million five year revolving credit facility.  The terms of the Credit Facility restrict the ability of anyone to effect a change in control of our company.  If anyone acquires 35% or more of our outstanding stock or if other events occur that constitute a change in control according to our Credit Facility, we have to make a prompt offer to repay the Credit Facility.  It is unlikely that we would have the funds to repay the Credit Facility within the required time frame unless we obtained the necessary funding as part of the change in control transaction which adds significantly to the funding that a buyer would need to acquire our company.  Our Credit Facility also would require us to obtain the consent of holders of a majority of the outstanding principal amount of the Credit Facility in order for us to be a party to a merger or to sell all or substantially all of our assets unless, after giving effect to the transaction, we meet certain net worth or financial ratio tests, which might be difficult or impossible for us to meet.
 
In addition to the above, a buyer would be required to pay our Swap balance of $22.1 million.  Moreover, a buyer would be required to pay accrued interest on the Credit Facility and Swap which was $26.0 million as of December 31, 2010.
 
Furthermore, our Articles of Incorporation and bylaws contain provisions that could reduce the likelihood of a change in control or acquisition of our company.  These could limit your ability to sell your shares at a premium or otherwise affect the price of our common stock.  These provisions:
 
 
·
limit the voting power of persons who acquire more than 10% of our outstanding stock without our prior approval;
 
 
·
permit us to issue up to 60 million shares of common stock;
 
 
·
permit us to increase the size of our Board of Directors and fill the resulting vacancies without a vote by stockholders; and
 
 
·
limit the persons who may call special meetings of stockholders.
 
 
34

 
 
In addition, Nevada law contains provisions governing the acquisition of a substantial or controlling interest in certain publicly-held Nevada corporations, including our company.  Those laws provide generally that any person who acquires more than a specified percentage of our outstanding stock must obtain certain approvals from us before the acquisition or they might be denied voting rights or the ability to engage in various transactions with us, unless our disinterested stockholders vote to restore those rights.  The ownership percentage that triggers some of these restrictions is 10%, and further restrictions can be triggered at the 20%, 33-1/3% or 50.1% ownership level.
 
Also, a person that seeks to acquire control must satisfy the licensing requirements of the Nevada and Colorado gaming authorities.  The gaming authorities may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with a person proposing to acquire control to be investigated and licensed as part of the approval process relating to the transaction.
 
Nevada law also provides that we may resist a change or potential change in control if our Board of Directors determines that the change is not in the best interest of our company.
 
On November 19, 2008, we entered into a separate investment agreement (each an “Investment Agreement”) with each of Plainfield Special Situations Master Fund Limited (“Plainfield”) and Desert Rock Enterprises LLC (“Desert Rock”) relating, among other things, to the acquisition of our common stock.   We currently do not have any plans to issue and sell any shares of our common stock to either Plainfield or Desert Rock.  The principal terms of each agreement provides for, among other things, (a) that our Board of Directors has, in connection with their potential acquisition of our common stock, (i) waived, in accordance with subsection 7(g) of Article III of our Articles of Incorporation, the voting limitation set forth in subsection 7(b) of Article III of the Articles of Incorporation with respect to Desert Rock and Plainfield (and their respective affiliates and related entities collectively, the “Investor Group”), and (ii) approved the acquisition of our common stock pursuant to the Investment Agreements in accordance with the provisions of subsection 78.438(1) of Title 7 of the Nevada Revised Statutes, (b) each Investor Group’s agreement not to directly or indirectly acquire any of our common stock, or otherwise become part of a group, if immediately after giving effect to such acquisition or group formation, the Investor Group, or any group of which it is a part, would have beneficial ownership of our common stock in excess of fifteen percent (15%) of the outstanding common stock, unless specifically approved in writing by our Board of Directors, subject to certain limited exceptions, (c) an agreement by each of Plainfield and Desert Rock to a standstill period (which ended on September 1, 2010) during which time it could not take certain actions involving the Company including without limitation to solicit proxies or become a participant in a proxy solicitation with respect to our securities or submit a proposal or offer involving a merger, business combination, acquisition tender or other similar type transaction, except under certain limited circumstances, (d) ) an agreement by each of Plainfield and Desert Rock not to vote any securities it holds in excess of the amount permitted to be purchased pursuant to clause (b) above, and (e) ) each of Plainfield and Desert Rock to seek to obtain any approvals that may be required from the Nevada and Colorado gaming authorities in connection with the acquisition of our common stock pursuant to the Investment Agreements.
 
We Have Never Paid Dividends, Do Not Intend To Pay Dividends In The Foreseeable Future And Cannot Pay Dividends To Any Unsuitable Person
 
We have never paid dividends on our stock, nor do we anticipate paying dividends in the foreseeable future.  We intend to retain our cash flow or earnings, if any, to use in our ongoing operations.  Also, due to gaming law considerations, our Articles of Incorporation prohibit the payment of dividends to anyone who is deemed an “unsuitable person” or is an affiliate of an “unsuitable person.”
 
 
35

 
 
Certain Owners Of Our Stock May Have To File An Application With, And Be Investigated By, The Nevada And/Or Colorado Gaming Authorities.  If That Owner Is Deemed “Unsuitable,” That Stockholder Could Lose Most Of The Attributes Of Being A Stockholder And It Could have a Detrimental Effect On Us
 
As defined in Nevada gaming regulations, any person who acquires more than 5% of a Registered Corporation’s voting securities must report the acquisition to the Nevada Commission.  Nevada gaming regulations also require that beneficial owners of more than 10% of our voting securities apply to the Nevada Commission for a finding of suitability within thirty days after the Chairman of the Nevada Board mails the written notice requiring such filing.  However, an “institutional investor,” as defined in the Nevada gaming regulations, which acquires more than 10%, but not more than 11% of our voting securities as a result of a stock repurchase by us may not be required to file such an application.  Further, an institutional investor that acquires more than 10% but not more than 25% of our voting securities may apply to the Nevada Commission for a waiver of such finding of suitability if such institutional investor holds our voting securities for investment purposes only.  An institutional investor that has obtained a waiver may hold more than 25% but not more than 29% of our voting securities and maintain its waiver where the additional ownership results from a stock repurchase by us.  However, any beneficial owner of our voting securities, regardless of the number of shares owned, may be required, at the discretion of the Nevada Commission, to apply for a finding of suitability.  A finding of suitability is comparable to licensing, and the applicant must pay all costs of investigation incurred by the Nevada gaming authorities in conducting the investigation.
 
Any such person who fails to apply for a finding of suitability within 30 days after being ordered to do so by the Nevada Commission may be found to be unsuitable.  Any person who is found by the Nevada Commission to be unsuitable to be a beneficial owner of our voting securities but continues such beneficial ownership beyond the period of time prescribed by the Nevada Commission may be guilty of a criminal offense.  We will be subject to disciplinary action if, after we receive notice that a person is unsuitable to be a beneficial owner of our voting securities or to have any other relationship with us, we:
 
 
·
pay that person any dividend or interest on our voting securities;
 
 
·
allow that person to exercise, directly or indirectly, any voting right conferred through our voting securities held by that person;
 
 
·
pay that person any remuneration in any form for services rendered or otherwise; or
 
 
·
fail to pursue all lawful efforts to require that person to relinquish our voting securities for cash at fair market value.
 
Colorado requires that persons owning, directly or indirectly, 5% or more of our stock be certified as suitable for licensure.  Persons found unsuitable by the Colorado Commission may be required immediately to terminate any direct or indirect beneficial interest in our voting securities.  A finding of unsuitability with respect to any beneficial owner also may jeopardize our license.  The annual renewal of our license may be conditioned upon the termination of any beneficial interest in our voting securities by unsuitable persons.
 
 
36

 
 
We May Redeem Shares Due To Gaming Law Considerations, Either As Required By Gaming Authorities Or In Our Discretion
 
Our articles of incorporation provide that if a gaming authority determines that any stockholder or its affiliates are unsuitable, or if deemed necessary or advisable by us for gaming law considerations, we may redeem shares of our stock that the stockholder or the stockholder’s affiliates own or control.  The redemption price will be the amount required by the gaming authority or, if the gaming authority does not determine the price, the price deemed reasonable by us.  If we determine the redemption price, that price will be capped at the market price of the shares on the date we give the redemption notice.  We may pay the redemption price in cash, by promissory note, or both, as required by the applicable gaming authority and, if not so required, as we elect.
 
Item 1B.
Unresolved Staff Comments
 
None.
 
Item 2.
Properties
 
Riviera Las Vegas
 
Riviera Las Vegas is located on the Las Vegas Strip, at 2901 Las Vegas Boulevard South, Las Vegas, Nevada and occupies approximately 26 acres.  The building comprises approximately 1.8 million square feet.  The building includes approximately 100,000 square feet of casino space, approximately 160,000 square feet of convention, meeting and banquet facility space, 2,075 hotel rooms, three restaurants, a buffet, three snack bars, four showrooms, a lounge and approximately 2,300 parking spaces.  In addition, the building houses Riviera Las Vegas executive and administrative offices.
 
There are approximately 35 food and retail concessions operated under individual leases with third parties.  The leases are for periods from one month to several years.
 
Riviera Black Hawk
 
Riviera Black Hawk is located on 1.63 acres of land at 400 Main Street, Black Hawk, Colorado. The buildings include approximately 325,000 square feet and comprise 32,000 square feet of gaming space, parking spaces for approximately 520 vehicles (substantially all of which are covered), a 252-seat buffet, one bar, a banquet room with seating for approximately 200 people and three outdoor patio areas where patrons can smoke.
 
The Riviera Las Vegas and Riviera Black Hawk properties are encumbered by deeds of trust securing our $225 million Term Loan, which mature in June 2014.
 
Item 3.
Legal Proceedings
 
As discussed in Item 1 above under “Bankruptcy Proceedings”, on July 12, 2010 (the Petition Date), the Debtors filed voluntary petitions in the United States Bankruptcy Court for the District of Nevada for reorganization of its business and to have the Chapter 11 Cases jointly administered, as disclosed in a Form 8-K filed with the SEC on July 14, 2010.  During the Chapter 11 Cases, the Debtors, under the direction of the Company’s existing management team, continue to manage their properties and operate their business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with Title 11 of the United States Bankruptcy Code.  It is not possible to predict with certainty the outcome of the Chapter 11 Case or its effect on our business or the actions described below. (see “Bankruptcy Proceedings” under Item 1 above).
 
We are party to routine lawsuits, either as plaintiff or as defendant, arising from the normal operations of a hotel or casino. We do not believe that the outcome of such litigation, in the aggregate, will have a material adverse effect on our financial position or results of our operations.
 
 
37

 
 
Item 4.
Reserved
 
PART II
 
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Commencing June 26, 2009, our common stock was available for quotation on the OTC Pink market tier of OTC Markets Group Inc. (the “Pink Sheets”) under the symbol “RVHLQ”.  Prior to that, our common stock had been traded on the NYSE AMEX under the symbol “RIV”.  Due to an administrative error by FINRA and the Pink Sheets relating to the Bankruptcy Cases, quotation of our common stock on the Pink Sheets was interrupted but then reinstated during February 2011.  Quotation of our common stock continues to be negatively affected by this interruption.  The “Pink Sheets” is an over-the-counter market which generally provides significantly less liquidity than established stock exchanges such as the NYSE AMEX, and quotes for stocks included in the “pink sheets” are not listed in the financial sections of newspapers. Therefore, prices for securities traded solely in the “pink sheets” may be difficult to obtain, and shareholders may find it difficult to resell their shares. As of March 17, 2011, we had approximately 450 stockholders of record and individual participants in security position listings.  There are a significantly greater number of stockholders whose shares are held in street name. We estimate that we have at least 2,300 beneficial holders in total.
 
We have never paid dividends on our common stock and do not expect to pay dividends (cash or otherwise) on our common stock for the foreseeable future.  Our ability to pay dividends is primarily dependent upon receipt of dividends and distributions from our subsidiaries, which include the operations of Riviera Las Vegas and Riviera Black Hawk.
 
The table below sets forth (a) the high and low sale prices of the Common Stock for the first two fiscal quarters of 2009, based on closing prices of Common Stock reported on the NYSE AMEX exchange and (b) the high and low bid prices of the Common Stock by quarter for the last two fiscal quarters of 2009 and all four fiscal quarters of 2010, based on closing prices of Common Stock reported on the Pink Sheets, which quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions:
 
   
First
   
Second
   
Third
   
Fourth
 
   
Quarter
   
Quarter
   
Quarter
   
Quarter
 
2010
                       
HIGH
  $ 0.51     $ 0.40     $ 0.29     $ 0.07  
LOW
    0.32       0.26       0.04       0.03  
                                 
2009
                               
HIGH
  $ 4.79     $ 2.42     $ 0.79     $ 0.74  
LOW
    1.05       0.34       0.40       0.30  

 
38

 
 
Equity Compensation Plan Information (as of December 31, 2010)
 
    A     B     C  
Plan category 
 
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
   
Weighted-average
exercise price of
outstanding options,
warrants and rights
   
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column A)
 
Equity compensation plans approved by security holders
    204,000     $ 7.93       1,060,000  
                         
Equity compensation plans not approved by security holders (2)
    0       N/A       208,872 (1)
                         
Total
    204,000     $ 7.93       1,268,872  

(1)
Of the 208,872 shares referenced in column C of the above table, 162,852 are from our Restricted Stock Plan and 46,020 are from our Stock Compensation Plan for Directors Serving on the Compensation Committee, which are described in Notes 13 and 14 of our audited consolidated financial statements included in this report.  We have a Stock Compensation Plan, under which directors who are members of the Compensation Committee have the right to receive all or part of their annual fees in the form of Common Stock having a fair market value equal to the amount of their fees.  Of the 50,000 shares that are allocated to this plan, 46,020 remain available for issuance.
 
(2)
Restricted Stock for employees issued in 2005, which was not approved by security holders, fully vested during 2010.
 
Item 6.
Selected Financial Data
 
Not Applicable
 
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Bankruptcy Proceedings
 
On July 12, 2010 (the Petition Date), RHC, RBH and ROC (collectively the Debtors) filed voluntary petitions in the United States Bankruptcy Court for the District of Nevada (the Bankruptcy Court) for reorganization of its business and to have the Chapter 11 cases (the Chapter 11 Cases) jointly administered, as disclosed in a Form 8-K filed with the SEC on July 14, 2010 (the July 14th 8-K).  The bankruptcy filings constitute an event of default under the Credit Facility and obligations arising under the Credit Agreement are automatically accelerated and all other amounts due become immediately due and payable.  Under bankruptcy law, actions by creditors to collect upon liabilities of the Debtors incurred prior to the Petition Date are stayed and certain other pre-petition contractual obligations may not be enforced against the Debtors without approval of the Bankruptcy Court.
 
 
39

 
 
On the Petition Date and prior to the commencement of the Chapter 11 Cases, the Company entered into a restructuring and lock-up letter agreement (the Lock-Up Agreement) with holders (the Consenting Lenders), in the aggregate, of in excess of 66 2/3% in the amount of all of the outstanding claims under the Company’s credit and fixed rate swap agreements which are described in detail in Note 9 to the audited Consolidated Financial Statements included in this Annual Report on Form 10-K.  Pursuant to the Lock-Up Agreement, the Consenting Lenders are contractually obligated to support the restructuring of the Company in accordance with the Debtor’s Joint Plan of Reorganization (as amended, the Plan of Reorganization) together with the proposed disclosure statement (as amended, the Disclosure Statement), which supports the Plan of Reorganization.  Moreover, the Lock-Up Agreement contractually obligated the parties to move forward with the Plan of Reorganization for each of the Debtors.  The original Joint Plan of Reorganization, together with the Disclosure Statement, was filed with the Bankruptcy Court on the Petition Date.  The First Amended Joint Plan of Reorganization and Disclosure Statement to Accompany Debtors’ First Amended Joint Plan of Reorganization were filed with the Bankruptcy Court on September 7, 2010 and the Second Amended Joint Plan of Reorganization and Disclosure Statement to Accompany Debtors’ Second Amended Joint Plan of Reorganization were filed with the Bankruptcy Court on September 17, 2010.
 
On the Petition Date, the Debtors filed several emergency motions with the Bankruptcy Court, including a motion to have the Chapter 11 Cases jointly administered and a motion (the Cash Collateral Motion) to approve a stipulation authorizing the use of cash collateral and granting adequate protection (the Cash Collateral Stipulation).  Under the Cash Collateral Stipulation, the Debtors, the administrative agent and the signatories to the Lock-up Agreement agreed that all disputes between the administrative agent, Consenting Lenders and the Debtors regarding Debtors’ cash on hand and operating cash flows and the use thereof as provided for by Section 363 of the Bankruptcy Court are reserved.  Furthermore, Debtors may use their operating cash flows and cash on hand to fund their operations and capital expenditure needs during the period commencing on the approval of the Cash Collateral Stipulation by the Bankruptcy Court and ending on the date the Plan of Reorganization is substantially consummated (the Substantial Consummation Date) in accordance with the 13 week budget which accompanies the Cash Collateral Stipulation and is updated for each 13 week period until the Substantial Consummation Date.  The Cash Collateral Motion was approved by the Bankruptcy Court on an emergency basis on July 15, 2010, however, all of the other first-day motions were granted final approval on July 15, 2010.  The Cash Collateral Motion was approved on a final basis on August 5, 2010 but with the proviso that payments made to professionals retained by either the holders of or the administrative agent of the Debtors credit and fixed rate swap agreement as adequate protection subject to being re-characterized as principal reductions against the credit and fixed rate swap obligations.
 
Pursuant to the approved Cash Collateral Stipulation, the Company is funding existing operations and capital needs during the reorganization period from operating cash flows and cash on hand.  There can be no assurances that the Company will have the ability to maintain sufficient funds to meet future obligations or abide the requirements outlined in the Cash Collateral Stipulation.  As a result, the Company may be required to obtain debtor in possession, or DIP, financing, which may be unavailable or only available on terms that are prohibitive.  The challenges of obtaining DIP financing are exacerbated by adverse conditions in the general economy and the credit markets.
 
During the Chapter 11 Cases, the Debtors, under the direction of the Company’s existing management team, continue to manage their properties and operate their business under the jurisdiction of the Bankruptcy Court and in accordance with Title 11 of the United States Bankruptcy Code.  The Debtors anticipate that they will continue to pay employees and vendors, and honor customer deposits and commitments without interruption or delay through the Substantial Consummation Date of the Plan of Reorganization.
 
 
40

 
 
On the Petition Date, in connection with the Lock-Up Agreement, the Debtors and Backstop Lenders executed a Backstop Commitment Agreement (as amended, the Backstop Agreement) to provide assurance that the Designated New Money Investment will be funded in the aggregate amount of $20 million and the Working Capital Facility will be committed in the aggregate principal amount of $10 million. The Backstop Agreement provides that the Backstop Lenders have committed to fund their pro rata share of the Designated New Money Investment and pro rata share of the Working Capital Facility, and, further, to backstop an additional percentage of the Designated New Money Investment and Working Capital Facility as specified therein to the extent that any Senior Secured Lender (other than a Backstop Lender) elects not to participate according to its full pro rata share in funding the Designated New Money Investment and Working Capital Facility.  The original Backstop Agreement was filed with the Bankruptcy Court on the Petition Date.  The First Amended Backstop Agreement was filed with the Bankruptcy Court on September 14, 2010 and the Second Amended Backstop Agreement was filed with the Bankruptcy Court on October 28, 2010.
 
Additionally, the Backstop Agreement provides for the payment of commitment fees by Debtors, as more fully described in the Backstop Agreement.  If (i) the Budget Contingency is satisfied, (ii) the Total New Money Investment Alternative is effectuated under the Plan of Reorganization, (iii) the Substantial Consummation Date occurs and (iv) the Series B Term Loan is fully funded and the entire Working Capital Facility is made available as provided for in the Plan of Reorganization, 5.0% of the Class B Shares (subject to dilution only under those certain conditions specified in the Plan of Reorganization) will be fully earned, payable and non-refundable to the Backstop Lenders. If the Budget Contingency is satisfied, but either the Backstop Agreement is terminated pursuant to its terms or the Substantial Consummation Date does not occur, $1,000,000 in cash will be fully earned, payable and non-refundable upon such date to the Backstop Lenders; provided, however, that to the extent (i) the Backstop Agreement is materially breached by any Backstop Lender (ii) the Backstop Agreement is terminated in connection with the Lockup Agreement having been terminated solely as a result of a breach thereof by any Backstop Lender in its capacity as a Designated Consenting Lender, or (iii) the Substantial Consummation Date does not occur other than as a result of the actions and/or inactions of the Debtors that are in breach of the Lockup Agreement, the Debtors will not be required to pay the Backstop Lenders the $1,000,000 cash fee. If (i) either the Budget Contingency is not satisfied or the Budget Contingency is satisfied but the Designated New Money Election is not made, (ii) the Partial New Money Investment Alternative is effectuated under the Plan of Reorganization, (iii) the Substantial Consummation Date occurs and (iv) the entire Working Capital Facility is made available as provided for in the Plan of Reorganization, $300,000 in cash will be fully earned, non-refundable and payable to the Backstop Lenders.  The Budget Contingency was satisfied on October 21, 2010.
 
On September 21, 2010, the Bankruptcy Court found that the Disclosure Statement as modified to reflect changes, if any, made or ordered on the record contained “adequate information” within the meaning of Section 1125 of the Bankruptcy Code.  The Bankruptcy Court held a hearing to consider confirmation of the Plan of Reorganization on November 8, 2010 (the Confirmation Hearing).  Beforehand, ballots along with the Disclosure Statement and Plan of Reorganization were distributed to classes of creditors entitled to vote on the Plan of Reorganization.  At the Confirmation Hearing, the Bankruptcy Court concluded that the Plan of Reorganization, as amended and as modified at the Confirmation Hearing, met the requirements for confirmation, including that the requisite classes of creditors voted in favor of the Plan of Reorganization, and confirmed the Plan of Reorganization.  The Plan of Reorganization became effective on December 1, 2010.  Before the Plan of Reorganization can be substantially consummated, various regulatory and third party approvals must be obtained.  There is no assurance that all regulatory and third party approvals will be obtained.  If the Plan of Reorganization is not substantially consummated: (a) the Plan of Reorganization will be deemed null and void and the Company will then seek to reorganize pursuant to a different plan which will need to meet the confirmation standards of the Bankruptcy Code; (b) the Lockup Agreement will no longer be in effect; and (c) the Company may be required to obtain interim financing, if available, and liquidate its assets which may have a material adverse effect on the financial position, results of operations, or cash flows of the Company.
 
 
41

 
 
Overview
 
We own and operate Riviera Las Vegas on the Las Vegas Strip in Las Vegas, Nevada, and Riviera Black Hawk in Black Hawk, Colorado.
 
Our capital expenditures for Riviera Las Vegas are geared primarily toward maintaining and upgrading our hotel rooms, gaming products, convention space, restaurants, bars and entertainment venues.  Our capital expenditures for Riviera Black Hawk are geared primarily toward maintaining and upgrading our gaming products, food and beverage venues and overall facility.
 
Our primary marketing focus in Las Vegas is to maximize gaming revenues and grow revenue per available room, or RevPar.  To maximize gaming revenues, we market directly to members of our Club Riviera utilizing customized mail offerings and special promotions to entice players to visit and game at the property.  We frequently use complimentary room, food and beverage and entertainment products to increase player visits and gaming revenues.  We also use various promotions to entice hotel guests that are not members of Club Riviera to join the Club Riviera and game at the property.  To grow RevPar, we are leveraging our remodeled hotel rooms and significant convention space to entice meeting planners and convention coordinators to choose Riviera Las Vegas for their events.  Moreover, we are showcasing our new hotel room product to grow our tour and travel and Internet sales.
 
In addition to the above, we continuously strive to maximize the number of people who patronize Las Vegas but who are not guests in our hotel.  We achieve this by capitalizing on our Las Vegas Strip location, convention center proximity and availability of our entertainment productions and other amenities.  We are well situated for walk-in traffic on the Las Vegas Strip near several major properties including Circus Circus, Las Vegas Hilton, Las Vegas Convention Center, Wynn Las Vegas, Wynn Encore and several timeshare and condominium projects.  While we benefit from our proximity to several major properties, the dormant Echelon and Fontainebleau construction projects have caused a major reduction in walk-in traffic.  We anticipate that our walk-in traffic will be adversely impacted for the foreseeable future.
 
The Black Hawk market caters primarily to slot machine players from the Denver area.  Therefore, our primary marketing focus in Black Hawk is to grow and maintain the number of quality players in our players club and utilize effective direct marketing techniques, including direct mail offers and special promotions, to entice customers to visit and game at our property.  Our location is conducive to walk-in customers as the Isle of Capri, which is one of the largest casinos in Black Hawk, is located directly across the street from our casino.  Also, Riviera Black Hawk is the first property off of Main Street as you drive into Black Hawk from the Denver Metro area and our parking garage is the first and most easily accessible in the area.
 
Until recently, only limited stakes gaming, which is defined as a maximum single bet of $5.00, was legal in the Black Hawk/Central City market.  However, Colorado Amendment 50, which was approved by voters on November 4, 2008, allowed residents of Black Hawk and Central City to vote to extend casino hours, approve additional games, and increase the maximum bet limit.  On January 13, 2009, residents of Black Hawk voted to enable Black Hawk casino operators to extend casino hours, add craps and roulette gaming and increase the maximum betting limit to $100 per bet.  On July 2, 2009, the first day permissible to implement the changes associated with the passage of Colorado Amendment 50, we increased betting limits, extended hours and commenced roulette gaming.  We are continuing to evaluate our strategy pertaining to the passage of Colorado Amendment 50.
 
 
42

 
 
While the passage of Colorado Amendment 50 benefited the Black Hawk/Central City gaming market, the Colorado smoking ban, which became effective for Black Hawk/Central City casinos on January 1, 2008, has had an adverse effect on our results of operations.  We have installed outdoor smoking decks to accommodate our guests who smoke, however, we believe that that the smoking ban in Colorado has had and will continue to have an adverse affect.
 
Results of Operations
 
2010 Compared to 2009
 
The following table sets forth, for the periods indicated, certain operating data for Riviera Las Vegas and Riviera Black Hawk. Net revenues displayed in this table and discussed in this section are net of cash rebates and promotional allowances. EBITDA from properties is presented on the following schedule:
 
(Dollars in thousands)
 
2010
   
2009
   
Variance $
   
Variance %
 
Net Revenues:
                       
Riviera Las Vegas
  $ 79,335     $ 91,880     $ (12,545 )     -13.7 %
Riviera Black Hawk
    39,821       42,169       (2,348 )     -5.6 %
Total Net Revenues
  $ 119,156     $ 134,049     $ (14,893 )     -11.1 %
                                 
Property EBITDA
                               
Riviera Las Vegas
  $ 1,423     $ 9,635     $ (8,212 )     -85.2 %
Riviera Black Hawk
    8,851       9,892       (1,041 )     -10.5 %
Property EBITDA (1)
  $ 10,274     $ 19,527     $ (9,253 )     -47.4 %
                                 
Other costs and expenses:
                               
Corporate expenses
                               
Share-based compensation
    115       579       (464 )     -80.1 %
Other corporate expense
    3,260       3,496       (236 )     -6.8 %
Depreciation
    13,543       14,870       (1,327 )     -8.9 %
Restructuring fees
    1,270       2,233       (963 )     -43.1 %
Gain on retirement of bonds
    -       (161 )     161    
NM
 
Change in fair value of derivative instruments
    -       5,320       (5,320 )  
NM
 
Interest expense, net
    8,300       18,049       (9,749 )     -54.0 %
      26,488       44,386       (17,898 )     -40.3 %
Loss before reorganization items and income tax provision
    (16,214 )     (24,859 )     8,645       34.8 %
Reorganization items
    (4,623 )     -       (4,623 )  
NM
 
Loss before income tax provision
    (20,837 )     (24,859 )     4,022       16.2 %
Income tax provision
    -       -       -    
NM
 
Net loss
  $ (20,837 )   $ (24,859 )   $ 4,022       16.2 %
                                 
Property EBITDA Margins (2)
                               
Riviera Las Vegas
    1.8 %     10.5 %     -8.7 %        
Riviera Black Hawk
    22.2 %     23.5 %     -1.3 %        
 
 
43

 
 
(1)
Property EBITDA consists of earnings before interest, income taxes, depreciation and amortization. EBITDA is presented solely as a supplemental disclosure because we believe that it is a widely used measure of operating performance in the gaming industry and a principal basis for valuation of gaming companies by certain investors.  We use property-level EBITDA (EBITDA before corporate expenses) as the primary measure of operating performance of our properties, including the evaluation of operating personnel.  EBITDA should not be construed as an alternative to operating income, as an indicator of operating performance, as an alternative to cash flow from operating activities, as a measure of liquidity, or as any other measure determined in accordance with accounting principles generally accepted in the United States of America.  We have significant uses of cash flows, including capital expenditures, interest payments and debt principal repayments that are not reflected in EBITDA.  Also, other gaming companies that report EBITDA information may calculate EBITDA in a different manner than we do (see Note 19 to the audited consolidated financial statements in this report for the reconciliation of EBITDA to net loss).
 
(2)
Property EBITDA margins represent property EBITDA as a percentage of net revenues by property.
 
The following tables sets forth for the twelve months ended December 31, 2010 and 2009 certain costs and expenses, excluding intercompany management fee income and expenses, for Riviera Las Vegas, Riviera Black Hawk and Corporate:
 
2010 Segmented Direct Costs and Expenses
 
(Dollars in thousands)
 
Riviera
Las Vegas
   
Riviera
Black Hawk
   
Corporate
   
Consolidated
 
                         
Operating costs and expenses:
                       
Casino
  $ 19,877     $ 20,797     $ -     $ 40,674  
Room rental
    18,527       -       -       18,527  
Food and beverage
    13,236       1,125       -       14,361  
Entertainment
    2,385       -       -       2,385  
Other
    1,129       -       -       1,129  
General and administrative
    22,758       9,048       3,260       35,066  
                                 
Other operating costs and expenses:
                               
Corporate expenses
                               
Share-based compensation
    -       -       115       115  
Depreciation
    9,812       3,731       -       13,543  
Restructuring fees
    -       -       1,270       1,270  
Total direct costs and expenses
  $ 87,724     $ 34,701     $ 4,645     $ 127,070  

 
44

 
 
2009 Segmented Direct Costs and Expenses
 
(Dollars in thousands)
 
Riviera
Las Vegas
   
Riviera
Black Hawk
   
Corporate
   
Consolidated
 
                         
Operating costs and expenses:
                       
Casino
  $ 22,240     $ 21,465     $ -     $ 43,705  
Room rental
    18,824       -       -       18,824  
Food and beverage
    14,202       1,485       -       15,687  
Entertainment
    3,320       -       -       3,320  
Other
    1,169       -       -       1,169  
General and administrative
    22,491       9,326       3,496       35,313  
                                 
Other operating costs and expenses:
                               
Corporate expenses
                               
Share-based compensation
    -       -       579       579  
Depreciation
    10,762       4,108       -       14,870  
Restructuring fees
    -       -       2,233       2,233  
Total direct costs and expenses
  $ 93,008     $ 36,384     $ 6,308     $ 135,700  

 
Riviera Las Vegas
 
Revenues
 
Net revenues for the twelve months ended December 31, 2010 were $79.3 million, a decrease of $12.6 million, or 13.7%, from $91.9 million for the comparable period in the prior year.
 
Casino revenues for the twelve months ended December 31, 2010 were $35.3 million, a decrease of $5.9 million, or 14.3%, from $41.2 million for the comparable period in the prior year.  Casino revenues are comprised primarily of slot machine and table game revenues.  In comparison to the same period in the prior year, slot machine revenue was $28.6 million, a decrease of $4.3 million, or 13.1%, from $32.9 million and table game revenue was $6.0 million, a decrease of $1.3 million, or 17.6% from $7.3 million.  Slot machine and table game revenues decreased primarily due to less wagering as a result of the slower economy and less walk-in customers due to reduced activity at the North end of the Las Vegas Strip.  Slot machine win per unit per day for the twelve months ended December 31, 2010 was $89.47, a decrease of $5.37, or 5.7%, from $94.84 for the comparable period in the prior year.  There were 875 slot machines on the floor, on average, during the twelve months ended December 31, 2010 compared with 950 slot machines on the floor, on average, during the same period in the prior year.  To add excitement to the casino floor and capture more gaming revenues from hotel guests, we established a new table gaming pit with six table games and two stages for exotic pole dancers.  The exotic pole dancing commenced October 2010 with performances primarily on the weekends and in conjunction with expanded entertainment offerings in the Le Bistro Bar Lounge adjacent to the casino floor.
 
Room revenues for the twelve months ended December 31, 2010 were $33.4 million, a decrease of $2.1 million, or 5.9%, from $35.5 million for the comparable period in the prior year.  The decrease in room revenues was primarily due to a $3.59, or 5.9%, reduction in average daily room rates, or ADR, to $57.01 for the twelve months ended December 31, 2010 from $60.60 for the comparable period in the prior year.  The $3.59 decrease in ADR resulted in a $2.0 million decline in room revenues.  The decrease in ADR was largely the result of a $1.49, or 3.6%, decrease in leisure segment room rates and a $14.97, or 15.5%, decrease in convention segment room rates.  Leisure segment room rates were $41.42 and $39.93 and convention segment room rates were $96.40 and $81.43 for the twelve months ended December 31, 2010 and 2009, respectively.  We have had to lower our convention ADR to retain convention business and remain competitive. Increased hotel room and convention space supply has weakened demand.  As market conditions soften, other properties have aggressively marketed convention groups that have traditionally held their functions at the Riviera Las Vegas.  We are evaluating and identifying possible new target markets and niches to offset eroding convention segment demand.  For the twelve months ended December 31, 2010, leisure segment ADR was $39.93 and convention segment ADR was $81.43.
 
 
45

 
 
Hotel room occupancy percentage (based on available room) for the twelve months ended December 31, 2010, was 80.8% compared to 77.4% for the same period in the prior year.  5.9% of total hotel rooms were unavailable during the twelve months ended December 31, 2010 in comparison to 3.5% during the same period in the prior year.  Hotel room occupancy percentage (based on total rooms) for the twelve months ended December 31, 2010, was 74.9% compared to 73.9% for the same period in the prior year.  The number of leisure segment occupied rooms increased by 4.5% while the number of rooms provided to our convention customers and to our casino customers on a complimentary or discounted basis declined by 0.4% and 8.7%, respectively.  Revenue per available room, or RevPar, was $46.07 for the twelve months ended December 31, 2010, a decrease of $0.86, or 1.8%, from $46.93 for the comparable period in the prior year.  The decrease in RevPar was due to the $3.59 decrease in ADR as described above.  RevPar is total revenue from hotel room rentals divided by total hotel rooms available for sale.  Room revenues included $6.8 million in revenues related to hotel room nights offered to high-value guests on a complimentary basis for both of the twelve months ended December 31, 2010 and 2009.  These revenues are included in promotional allowances which are deducted from total revenues to arrive at net revenues.
 
Food and beverage revenues for the twelve months ended December 31, 2010 were $14.6 million, a decrease of $2.6 million, or 15.1%, from $17.2 million for the comparable period in the prior year.  The decrease was due to $1.8 million decrease in food revenues and $0.8 million decrease in beverage revenues.  The decrease in food revenues was due less customer demand primarily in our coffee shop and buffet due to weaker economic conditions and increased competition from the Queen Victoria Pub, which opened during the second quarter of 2010, and the food court, which is now fully leased.  Food covers decreased 23.4% compared to the prior year.  Conversely, the average check increased $1.47, or 11.6% to $14.19.  Beverage revenues decreased as a result of a 14.8% reduction in drinks served primarily due to fewer drinks served from our casino bars correlating with reduced casino patronage.  Food and beverage revenues included $3.5 million and $4.1 million in revenues related to food and beverages offered to high-value guests on a complimentary basis for the twelve months ended December 31, 2010 and 2009, respectively.  These revenues are included in promotional allowances which are deducted from total revenues to arrive at net revenues.
 
Entertainment revenues for the twelve months ended December 31, 2010 were $4.1 million, a decrease of $3.9 million, or 48.8%, from $8.0 million for the comparable period in the prior year.  The decrease in entertainment revenues is primarily due to weak economic conditions resulting in the closure of select entertainment acts and an overall reduction in ticket sales at all entertainment venues.  Entertainment revenues included $2.0 million and $3.4 million in revenues related to show tickets offered to high-value guests on a complimentary basis for the twelve months ended December 31, 2010 and 2009, respectively.  These revenues are included in promotional allowances which are deducted from total revenues to arrive at net revenues.
 
Other revenues for the twelve months ended December 31, 2010 were $4.3 million, a decrease of $0.7 million, or 15.7%, from $5.0 million for the same period in the prior year.  The decrease in other revenues was primarily due a $0.5 million decline in tenant rental income as a result of vacancies and rent concessions.  In addition, during 2009, we reclassified $0.2 million in outstanding chip liability to miscellaneous income based on our determination that the chips were unlikely to be redeemed.
 
Promotional allowances were $12.3 million and $14.9 million for the twelve months ended December 31, 2010 and 2009, respectively.  Promotional allowances are comprised of food, beverage, hotel room nights and other items provided on a complimentary basis primarily to our high-value casino players and convention guests.  Promotional allowances decreased primarily due to less complimentary offering redemptions.
 
 
46

 
 
Costs and Expenses
 
Costs and expenses for the twelve months ended December 31, 2010 were $87.7 million, a decrease of $5.6 million, or 5.7%, from $93.0 million for the comparable period in the prior year.
 
Casino costs and expenses for the twelve months ended December 31, 2010 were $19.9 million, a decrease of $2.4 million, or 10.6%, from $22.2 million for the comparable period in the prior year.  The decrease in casino expenses was primarily due to a $1.5 million decrease in casino marketing and promotional costs, a $0.7 million reduction in slot and table game payroll and related costs and a $0.3 million reduction in gaming taxes due to the decline in casino revenues.  The decline in casino marketing and promotional costs was due primarily to less redemptions of direct mail and other offerings and the reduction in slot and table game payroll was due to a concerted effort to reduce costs to offset gaming revenue declines.
 
Room rental costs and expenses for the twelve months ended December 31, 2010 were $18.5 million, a decrease of $0.3 million, or 1.6%, from $18.8 million for the comparable period in the prior year.  The decrease in room rental costs and expenses was mostly due to a $0.8 million decrease in payroll and related costs partially offset by a $0.2 million increase in marketing costs and expenses and a $0.2 million increase in rooms department operating costs and expenses.  The reduction in payroll and related costs was due to a concerted effort to reduce costs despite a 1.3% increase in the number of occupied hotel rooms.  The increase in marketing costs and expenses was related to additional complimentary offerings and higher convention and leisure segment sales related costs and the increase in rooms department operating costs and expenses was due to higher data processing costs and higher convention and travel agent commission costs.
 
Food and beverage costs and expenses for the twelve months ended December 31, 2010 were $13.2 million, a decrease of $1.0 million, or 6.8%, from $14.2 million for the comparable period in the prior year.  The decrease was primarily due to a $1.0 million reduction in food and beverage payroll and related costs to partially offset the $2.6 million decline in food and beverage revenues.
 
Entertainment department costs and expenses for thetwelve months ended December 31, 2010 were $2.4 million, a decrease of $0.9 million, or 28.2%, from $3.3 million for the comparable period in the prior year.  The decrease in entertainment department costs and expenses is primarily due to a $1.6 million reduction in contractual payments to the entertainment producers as a result of less ticket sales due to the weak economy and the closure of select entertainment acts partially offset by higher costs and expenses associated with expanded complimentary entertainment offerings in the Le Bistro Bar Lounge adjacent to the casino floor.
 
General and administrative expenses for the twelve months ended December 31, 2010 were $22.8 million, an increase of $0.3 million, or 1.2%, from $22.5 million for the comparable period in the prior year.  The increase in other general and administrative expenses was due to a $0.5 million increase in workers compensation and health insurance costs and a $0.1 million increase in other general and administrative costs and expenses offset by a $0.3 million reduction in payroll expenses.
 
Property EBITDA
 
Property EBITDA for the twelve months ended December 31, 2010 was $1.4 million compared to Property EBITDA of $9.6 million for the comparable period in the prior year.  The decline of $8.2 million was principally due to decreased net revenues that were not offset with equivalent reductions in costs and expenses.
 
 
47

 
 
Property EBITDA margins for the twelve months ended December 31, 2010 was 1.8% in comparison to 10.5% for the same period in the prior year.  Property EBITDA margins decreased primarily due to the $3.59, or 5.9%, reduction in average daily room rates and the $5.9 million decrease in casino revenues.
 
Riviera Black Hawk
 
Revenues
 
Net revenues for the twelve months ended December 31, 2010 were $39.8 million, a decrease of $2.4 million, or 5.6%, from $42.2 million for the comparable period in the prior year.  The decrease was due primarily to a $2.1 million decrease in casino revenues to $38.9 million for the twelve months ended December 31, 2010 from $41.0 million for the same period in the prior year.  Casino revenues are comprised of revenues from slot machines and table games.
 
Slot machine revenues decreased $2.2 million, or 5.7%, to $37.2 million from $39.4 million for the comparable period in the prior year.  As noted above, on July 2, 2009, the first day permissible to implement the changes associated with the passage of Colorado Amendment 50, we increased betting limits, extended hours and commenced roulette gaming.  Slot machine revenues surged in the initial months after we implemented these changes.  In 2010, consumer interest in the changes associated with the passage of Colorado Amendment 50 has waned and competition has increased.  As a result, slot machine revenues declined for the twelve months ended December 30, 2010.
 
The Black Hawk market slot machine coin-in grew 1.3% for the twelve months ended December 31, 2010 in comparison to the same period in the prior year.  However, Riviera Black Hawk’s slot machine coin-in declined by 7.5% for the twelve months ended December 31, 2010 in comparison to the same period in the prior year.  Riviera Black Hawk’s share of the Black Hawk Market slot machine coin-in for the twelve months ended December 31, 2010 was 9.8% in comparison to 10.8% for the same period in the prior year.  Our market share eroded as our competitors utilized complimentary hotel stays and aggressive cash offers to entice customers to play at their facilities.  Ameristar added a 536 guestroom hotel tower to its Black Hawk property which opened during the fall of 2009.  Ameristar has aggressively used the guestrooms to draw customers to their property.
 
Our total slot machine coin-in decreased $57.0 million, or 7.5%, to $700.0 million for the twelve months ended December 31, 2010 compared to $757.0 million for the same period in the prior year.  Slot machine win per unit per day declined $5.75, or 3.1%, to $179.34 from $185.09 for the same period in the prior year.  The decrease in slot win per unit per day was due to the $2.2 million decline in slot machine revenues.  On average, there were 750 and 759 slot machines on the casino floor during the twelve months ended December 31, 2010 and 2009, respectively.
 
Table games revenues increased $0.1 million to $1.7 million for the twelve months ended December 31, 2010 from $1.6 million for the same period in the prior year.  Table games revenues increased as a result of twelve months of increased limits, extended hours and roulette gaming in the current year in comparison to six months in the prior year.   As noted above, on July 2, 2009, the first day permissible to implement the changes associated with the passage of Colorado Amendment 50, we increased betting limits, extended hours and commenced roulette gaming.
 
Food and beverage revenues were $5.0 million and $6.3 million for the twelve months ended December 31, 2010 and 2009, respectively.  Food and beverage revenues include revenues related to items offered high-value guests on a complimentary basis.  Revenues related to food and beverage offered on a complimentary basis were $4.3 million and $5.5 million for the twelve months ended December 31, 2010 and 2009, respectively.  Food and beverage revenues declined primarily due to a $1.2 million reduction in food and beverage offered on a complimentary basis as a result of a $0.7 million reduction due to less redemptions of promotional offers and more stringent criteria for earning complimentary items and a $0.5 million reduction due to a change in the method for accounting for employee meals.
 
 
48

 
 
Other revenues were $0.2 million for the twelve months ended December 31, 2010, a decrease of $0.2 million, from $0.4 million for the prior year.  The decline was primarily due to a $0.1 million loss on the sale of slot machines recorded during the twelve months ended December 31, 2010 in comparison to a $0.1 million gain on the sale of slot machines recorded during the twelve months ended December 31, 2009.
 
Promotional allowances were $4.3 million and $5.5 million for the twelve months ended December 31, 2010 and 2009, respectively.  Promotional allowances are comprised of food and beverage items provided on a complimentary basis to our high-value casino players.  The decline in promotional allowances was due to a decline in food and beverage revenues related to items offered on a complimentary basis as described above.
 
Costs and Expenses
 
Costs and expenses for the twelve months ended December 31, 2010 were $34.7 million, a decrease of $1.7 million, or 4.6%, from $36.4 million for the comparable period in the prior year.
 
Costs and expenses decreased primarily due to a $0.7 million decrease in casino costs and expenses, a $0.4 million decrease in food and beverage costs and expenses, a $0.4 million decrease in depreciation expenses and a $0.3 million reduction in general and administrative costs.
 
Casino costs and expenses decreased primarily due to a $0.3 million decrease in marketing costs and expenses, a $0.3 million decrease in gaming taxes due to lower casino revenues and a $0.2 million decrease in payroll and related costs as a result of lower volume partially offset by a $0.1 increase in slot rental costs.  Casino marketing costs and expenses declined due to lower advertising costs.
 
In conjunction with the $1.3 million decline in food and beverage revenues, food and beverage costs and expenses decreased $0.4 million due to a $0.2 million decline in food and beverage costs of sales, a $0.1 million decrease in payroll and related costs and a $0.1 million reduction in contract labor costs.
 
Property EBITDA
 
Property EBITDA was $8.9 million and $9.9 million for the twelve months ended December 31, 2010 and 2009, respectively.  The $1.0 million property EBITDA decline was due to the $2.4 million decline in net revenues with insufficient offsetting costs and expenses.
 
Property EBITDA margins were 22.2% for the twelve months ended December 31, 2010 in comparison to 23.5% for the comparable period in the prior year.  Property EBITDA margins decreased due to the decrease in net revenues without correlating decreases in applicable costs and expenses.
 
 
49

 
 
Consolidated Operations
 
Other Cost and Expenses
 
Other costs and expenses were $26.5 million and $44.4 million for the twelve months ended December 31, 2010 and 2009, respectively.  The $17.9 million improvement was due primarily to a $9.7 million decrease in interest expense, a $5.3 million reduction in the amount recorded for loss in value of derivative instrument, a $1.3 decline in depreciation expense and a $1.0 million decline in restructuring fees.
 
Interest expense declined due to fewer days accrued and lower interest rates.  Interest expense was accrued for 193 days during the twelve months ended December 31, 2010 in comparison to 365 days during the same period in the prior year.  In accordance with ASC Topic 852, interest expense is recognized only to the extent it will be paid during the bankruptcy proceedings or that it will be an allowed claim.  As a result, we accrued interest on the Credit Facility and interest rate swap through the Petition Date of July 12, 2010 (see “Bankruptcy Proceedings” under Item 1 above).  Interest rates were lower due to the termination of our swap fixed interest rate on July 27, 2009.  Interest rates for the Term Loan and Revolving Credit Facility balances are no longer locked and are now subject to changes in underlying interest rates which were lower than our swap fixed interest rate during the twelve months ended December 31, 2010.
 
No amounts were recorded during 2010 for change in fair value of derivative instrument due to the early termination of the instrument (see Note 9 of our audited consolidated financial statements in this report).
 
Depreciation expense declined due to the full depreciation of many assets without offsetting additions of depreciable assets.
 
Restructuring fees are comprised primarily of restructuring related legal and financial advisory fees incurred prior to the Petition Date.  Reorganization items are comprised of reorganization related expenses incurred after the Petition Date.  Reorganization items include legal, advisory and trustee fees incurred after the Petition Date in connection with the Chapter 11 cases (see “Bankruptcy Proceedings” under Item 1 above).
 
Restructuring fees declined due to less restructuring activities and related professional costs during the twelve months ended December 31, 2010 in comparison to the prior year.  Reorganization items increased due to the filing of the Chapter 11 Cases on the Petition Date as described in Item 1 above.
 
Net Loss
 
Net losses for the twelve months ended December 31, 2010 and 2009 were $20.8 million and $24.9 million, respectively.  The $4.0 million improvement was due to the $17.9 reduction in other costs and expenses partially offset by the $8.2 million and $1.0 million declines in EBITDA in Riviera Las Vegas and Riviera Black Hawk, respectively.
 
 
50

 
 
Results of Operations
 
2009 Compared to 2008
 
The following table sets forth, for the periods indicated, certain operating data for Riviera Las Vegas and Riviera Black Hawk. Net revenues displayed in this table and discussed in this section are net of cash rebates and promotional allowances. EBITDA from properties is presented on the following schedule:
 
(Dollars in thousands)
 
2009
   
2008
   
Variance $
   
Variance %
 
Net Revenues:
                       
Riviera Las Vegas
  $ 91,880     $ 128,031     $ (36,151 )     -28.2 %
Riviera Black Hawk
    42,169       41,729       440       1.1 %
    Total Net Revenues
  $ 134,049     $ 169,760     $ (35,711 )     -21.0 %
                                 
Property EBITDA
                               
Riviera Las Vegas
  $ 9,635     $ 18,748     $ (9,113 )     -48.6 %
Riviera Black Hawk
    9,892       12,209       (2,317 )     -19.0 %
Property EBITDA (1)
  $ 19,527     $ 30,957     $ (11,430 )     -36.9 %
                                 
Other costs and expenses:
                               
Corporate expenses
                               
Share-based compensation
    579       795       (216 )     -27.2 %
Other corporate expense
    3,496       3,857       (361 )     -9.4 %
Depreciation
    14,870       14,883       (13 )     -0.0 %
Mergers, acquisitions and development costs, net
    -       191       (191 )  
NM
 
Restructuring fees
    2,233       -       2,233    
NM
 
Gain on retirement of bonds
    (161 )     -       (161 )  
NM
 
Change in fair value of derivative instruments
    5,320       3,556       1,764       49.6 %
Interest expense, net
    18,049       17,091       958       5.6 %
      44,386       40,373       4,013       9.9 %
                                 
Net loss before income tax provision
    (24,859 )     (9,416 )     (15,443 )     -164.0 %
Income tax provision
    -       (2,446 )     2,446    
NM
 
Net loss
  $ (24,859 )   $ (11,862 )   $ (12,997 )     -109.6 %
                                 
Property EBITDA Margins (2)
                               
Riviera Las Vegas
    10.5 %     14.6 %     -4.1 %        
Riviera Black Hawk
    23.5 %     29.3 %     -5.8 %        

(1)
Property EBITDA consists of earnings before interest, income taxes, depreciation and amortization. EBITDA is presented solely as a supplemental disclosure because we believe that it is a widely used measure of operating performance in the gaming industry and a principal basis for valuation of gaming companies by certain investors.  We use property-level EBITDA (EBITDA before corporate expenses) as the primary measure of operating performance of our properties, including the evaluation of operating personnel.  EBITDA should not be construed as an alternative to operating income, as an indicator of operating performance, as an alternative to cash flow from operating activities, as a measure of liquidity, or as any other measure determined in accordance with accounting principles generally accepted in the United States of America.  We have significant uses of cash flows, including capital expenditures, interest payments and debt principal repayments that are not reflected in EBITDA.  Also, other gaming companies that report EBITDA information may calculate EBITDA in a different manner than we do (see Note 19 to our audited consolidated financial statements in this report for the reconciliation of EBITDA to net loss).
 
 
51

 
 
(2)           Property EBITDA margins represent property EBITDA as a percentage of net revenues by property.
 
Riviera Las Vegas
 
Revenues
 
Net revenues for the twelve months ended December 31, 2009 were $91.9 million, a decrease of $36.1 million, or 28.2%, from $128.0 million for the comparable period in the prior year.
 
Casino revenues for the twelve months ended December 31, 2009 were $41.2 million, a decrease of $9.4 million, or 18.6%, from $50.6 million for the comparable period in the prior year.  Casino revenues are comprised primarily of slot machine and table game revenues.  In comparison to the same period in the prior year, slot machine revenue was $32.9 million, a decrease of $6.1 million, or 15.6%, from $39.0 million and table game revenue was $7.3 million, a decrease of $3.1 million, or 30.0%, from $10.4 million.  Slot machine and table game revenues decreased primarily due to less wagering as a result of the slower economy, reduced hotel occupancy and less walk-in business.  Slot machine win per unit per day for the twelve months ended December 31, 2009 was $94.84, a decrease of $20.16, or 17.5%, from $115.00 for the comparable period in the prior year.
 
Room revenues for the twelve months ended December 31, 2009 were $35.5 million, a decrease of $16.9 million, or 32.4%, from $52.4 million for the comparable period in the prior year.  The decrease in room rental revenues was primarily due to a decrease in average daily room rates. The average daily room rate, or ADR, was $60.60, a decrease of $22.21, or 26.8%, from $82.81 for the comparable period in the prior year.  The $22.21 ADR decrease resulted in a $13.2 million decrease in room revenues.  The decrease in ADR was due mostly to lower leisure segment rates in 2009 and a shift in the occupied room mix from higher rated convention segment occupancy to lower rated leisure segment occupancy.  Leisure segment average daily room rates were $41.42 for the twelve months ended December 31, 2009, a decrease of $21.53, or 34.2%, from $62.95 for the same period in the prior year.  Convention segment average daily room rates were $96.41 for the twelve months ended December 31, 2009, a decrease of $11.77, or 10.9%, from $108.18 for the same period in the prior year.  Leisure segment and convention segment occupied rooms comprised 62.6% and 20.8% of total occupied rooms, respectively, for the twelve months ended December 31, 2009 in comparison to 46.9% and 34.2%, respectively, for the same period in the prior year.  Convention segment demand decreased substantially due to the effects of the ongoing recession and increased competition.
 
Hotel room occupancy per available room for the twelve months ended December 31, 2009 was 77.4% compared to 83.8% for the same period in the prior year.  The 6.4% decrease in hotel room occupancy resulted in a $3.7 million decrease in room revenues.  Revenue per available room, or RevPar, was $46.93 a decrease of $22.47, or 32.4%, from $69.40 for the comparable period in the prior year.  RevPar is total revenue from hotel room rentals divided by total hotel rooms available for sale.  The decrease in RevPar was the result of a 6% decrease in total occupied rooms and a decrease in average daily room rates as described above.  Room revenues included $6.8 million and $7.8 million in revenues related to hotel room nights offered to high-value guests on a complimentary basis for the twelve months ended December 31, 2009 and 2008, respectively.
 
 
52

 
 
Food and beverage revenues for the twelve months ended December 31, 2009 was $17.2 million, a decrease of $6.2 million, or 26.5%, from $23.4 million for the comparable period in the prior year.  The decrease was due to a $4.4 million decrease in food revenues and a $1.8 million decrease in beverage revenues.  Food covers decreased 19.7% and the average check decreased 8.4% from the comparable period in the prior year as a result of the weak economy, reduced hotel occupancy and the strategic closure of select food and beverage outlets during low hotel occupancy periods.  Beverage revenues decreased primarily as a result of less complimentary drinks served from our casino bars due to reduced casino patronage.   Food and beverage revenues included $4.1 million and $5.6 million in revenues related to food and beverages offered to high-value guests on a complimentary basis for the twelve months ended December 31, 2009 and 2008, respectively.
 
Entertainment revenues for the twelve months ended December 31, 2009 were $8.0 million, a decrease of $5.4 million, or 40.5%, from $13.4 million for the comparable period in the prior year.  The decrease in entertainment revenues is primarily due to weak economic conditions resulting in closure of select entertainment acts and an overall reduction in ticket sales at all entertainment venues.  Entertainment revenues included $3.4 million and $3.6 million in revenues related to show tickets offered to high-value guests on a complimentary basis for the twelve months ended December 31, 2009 and 2008, respectively.
 
Other revenues for the twelve months ended December 31, 2009 were $5.0 million, a decrease of $1.4 million, or 21.4%, from $6.4 million for the same period in the prior year.  The decrease in other revenues was due primarily to a $0.8 million reduction in tenant rental income as a result of vacancies and rent concessions and a $0.2 million reduction in telephone revenues as a result of less occupancy and call volume.  Additionally, the twelve months ended December 31, 2008 included $0.4 million in miscellaneous income primarily from the reclassification of unclaimed slot token liabilities and the sale of fully depreciated equipment.
 
Promotional allowances were $14.9 million and $18.1 million for the twelve months ended December 31, 2009 and 2008, respectively.  Promotional allowances are comprised of food, beverage, hotel room nights and other items provided on a complimentary basis primarily to our high-value casino players and convention guests.  Promotional allowances decreased due to a concerted effort to reduce promotional costs and as a result of less complimentary offering redemptions.
 
Costs and Expenses
 
Casino costs and expenses for the twelve months ended December 31, 2009 were $22.2 million, a decrease of $6.4 million, or 22.1%, from $28.6 million for the comparable period in the prior year.  The decrease in casino expenses was due primarily to a $3.1 million reduction in slot and table game payroll and related costs, a $2.7 million decrease in marketing and promotional costs and a $0.6 million reduction in gaming related taxes.  Payroll and related costs decreased in conjunction with lower casino revenues and effective cost savings initiatives and marketing and promotional costs decreased due to a concerted effort to reduce these costs and due to less complimentary offering redemptions and related costs.
 
Room rental costs and expenses for the twelve months ended December 31, 2009 were $18.8 million, a decrease of $6.6 million, or 25.9%, from $25.4 million for the comparable period in the prior year.  The decrease in room rental costs and expenses is primarily due to a decrease of $4.6 million in room division payroll and related costs, a reduction of $1.0 million in convention commissions and rebates, a decrease of $0.3 million in the provision for doubtful accounts, a decline of $0.3 million in credit card processing fees and a reduction of $0.4 million in outside laundry, pest control, and department supplies expenses.
 
 
53

 
 
Food and beverage costs and expenses for the twelve months ended December 31, 2009 were $14.2 million, a decrease of $5.0 million, or 25.9%, from $19.2 million for the comparable period in the prior year.  The decrease was due primarily to a $4.1 million decrease in payroll and related costs and a $2.2 million reduction in cost of sales partially offset by a $1.3 million reduction in the amount credited for complimentary food and beverage sales.  The cost of food and beverage complimentary sales is reclassified to casino costs and expenses.  Food and beverage costs and expenses decreased in conjunction with the decrease in food and beverage revenues as described above.
 
Entertainment costs and expenses for the twelve months ended December 31, 2009 were $3.3 million, a decrease of $4.7 million, or 58.8%, from $8.0 million for the comparable period in the prior year.  The decrease in entertainment department costs and expenses is primarily due to a $3.8 million reduction in contractual payments to the entertainment producers and reductions in payroll and related costs as a result of less ticket sales due to the weak economy and the closure of select entertainment acts.
 
General and administrative expenses for the twelve months ended December 31, 2009 were $22.5 million, a decrease of $4.3 million, or 16.2%, from $26.8 million for the comparable period in the prior year.  The decrease in other general and administrative expenses was due primarily to a $2.7 million reduction in general and administrative and property maintenance payroll and related costs primarily due to workforce reductions and the elimination of the 401k matching contribution, a $0.5 million reduction in utilities expenses primarily due to lower natural gas costs and a $1.0 million reduction in various general and administrative and property maintenance operating expenses.
 
Depreciation and amortization expenses for the twelve months ended December 31, 2009 were $10.8 million, an increase of $0.2 million, or 1.5%, from $10.6 million for the comparable period in the prior year.  The increase in depreciation and amortization expenses was due primarily to asset additions during 2008 related to our hotel room renovation.
 
(Loss) Income from Operations
 
Loss from operations for the twelve months ended December 31, 2009 was $0.3 million, a decline of $9.6 million, or 102.8%, from income from operations of $9.3 million for the comparable period in the prior year.  The decrease is principally due to the $36.1 million decrease in net revenues with insufficient offsetting reductions in costs and expenses.
 
EBITDA margins were 10.5% for the twelve months ended December 31, 2009 in comparison to 14.6% for the comparable period in the prior year.  Operating margins decreased primarily due to the $22.21 decrease in ADR and the $6.1 million decrease in revenue in the high margin slot machine profit center.  EBITDA was $9.6 million for the twelve months ended December 31, 2009 less depreciation and amortization expense of $10.8 million plus management fees of $0.9 million from Riviera Black Hawk equals loss from operations of $0.3 million.
 
Riviera Black Hawk
 
Revenues
 
Net revenues for the twelve months ended December 31, 2009 were $42.2 million, an increase of $0.5 million, or 1.1%, from $41.7 million for the comparable period in the prior year.  The increase was primarily due to stronger casino revenues in the second half of 2009 as a result of the implementation of changes permitted with the passage of Colorado Amendment 50 as described above.  In comparison to the prior year, casino revenues were $2.8 million higher during the second six months of 2009 but $2.5 million lower during the first six months of 2009.  For the twelve months ending December 31, 2009, casino revenues were $41.0, an increase of $0.3 million, or 0.8%, from $40.7 million for the comparable period in the prior year.  Casino revenues are comprised of revenues from slot machines and revenues from table games.
 
 
54

 
 
Slot machine revenues for the twelve months ended December 31, 2009 were $39.4 million, a decrease of $0.2 million, or 0.6%, from $39.6 million for the comparable period in the prior year.  Slot machine revenues decreased primarily as a result of higher deductions for cash incentives to our high-value slot machine players and higher deductions for slot machine participation distributions.  Slot machine revenues before the aforementioned deductions were $51.3 million, an increase of $1.6 million, or 3.2%, from $49.7 million for the same period in the prior year.  Cash incentives given to slot machine players increased $1.7 million, or 19.3%, to $10.5 million for the twelve months ended December 31, 2009.  Cash incentives increased as a result of a concerted effort to retain and build slot machine revenue market share.  Consequently, our market share of total Black Hawk slot machine revenues, as reported by the Colorado Department of Gaming, grew to 10.55% from 10.28% for the prior year.  Deductions for slot machine participation distributions increased $0.3 million, or 24.9%, to $1.3 million from $1.0 million for the prior year.  We increased the number of slot machines with participation agreements in order to offer new, popular game themes to our players and increase slot machine win per unit per day.  The participation agreements require us to distribute a predetermined percentage of the slot machine winnings to the slot machine manufacturer in return for allowing us to use the slot machine.  There were a total of 75 slot machines with participation agreements on the casino floor as of December 31, 2009.  This represents a 25% increase in total slot machines with participation agreements from the prior year.
 
Amounts wagered on slot machines during the twelve months ended December 31, 2009 were $757.0 million, an increase of $9.5 million, or 1.3%, from $747.5 million for the comparable period in the prior year.  The increase was primarily due to additional slot machine play as a result of extended casino hours permitted with the passage of Colorado Amendment 50 as described above.  Additionally, slot machine win per unit per day increased $14.56, or 11.4%, to $142.29 from $127.73 for the same period in the prior year.  The increase in slot machine win per unit per day was the result of approximately 100 fewer slot machines on the casino floor during the twelve months ended December 31, 2009 in comparison to the same period in the prior year. There were 759 slot machines on the casino floor as of December 31, 2009.
 
Table games revenue increased $0.5 million to $1.6 million for the twelve months ended December 31, 2009 from $1.1 million for the comparable period in the prior year.  The increase was primarily due to increased table games revenues in the second half of 2009 as a result of the implementation of changes permitted with the passage of Colorado Amendment 50 as described above.  In comparison to the prior year, table games revenues were $0.8 million higher during the second six months of 2009 but $0.3 million lower during the first six months of 2009.
 
Food and beverage revenues were $6.3 million for the twelve months ended December 31, 2009 in comparison to $5.1 million for the comparable period in the prior year.  Food and beverage revenues increased due to additional items offered to high-value casino customers on a complimentary basis.  Food and beverage revenues related to items offered on a complimentary basis were $5.5 million and $4.4 million for the twelve months ended December 31, 2009 and 2008, respectively.  The increase was the result of efforts to increase customer visitations and casino revenues.
 
Promotional allowances were $5.5 million for the twelve months ended December 31, 2009 and $4.4 million for the comparable period in the prior year.  Promotional allowances are comprised of food and beverage provided on a complimentary basis primarily to our high-value casino players.  Promotional allowances increased due to additional food and beverage items provided to high-value casino customers on a complimentary basis as referenced above.
 
 
55

 
 
Costs and Expenses
 
Casino costs and expenses increased primarily as a result of a $0.9 million increase in direct marketing and promotional costs, a $0.9 million increase in advertising expenses and a $0.4 million increase in gaming taxes.  Direct marketing and promotional costs increased as a result of efforts to increase property visitations and build and retain our slot machine player customer base.  Advertising expenses increased primarily as a result of additional costs associated with a marketing campaign to announce extended hours and higher betting limits as permitted with the passage of Colorado Amendment 50 as described above.
 
General and administrative expenses increased primarily due to increased salaries and wages expenses mostly due to additional cage department costs in conjunction with increased table gaming revenues and as a result of increased benefit costs due mostly to higher management incentive costs.
 
Depreciation and amortization expenses decreased due to lower depreciation expense due to a reduction in depreciable assets during 2009.
 
Income from Operations
 
Income from operations for the twelve months ended December 31, 2009 were $4.9 million, a decrease of $1.8 million, or 27.1%, from $6.7 million for the comparable period in the prior year.  The decrease is related mostly to higher casino costs as described above.
 
EBITDA margins were 23.5% for the twelve months ended December 31, 2009 in comparison to 29.3% for the comparable period in the prior year.  Operating margins decreased mostly due to increased casino and general and administrative costs and expenses primarily as a result of our efforts to retain and build our slot customer base and implement extended operating hours and higher betting limits as permitted with the passage of Colorado Amendment 50 as described above.  EBITDA was $9.9 million for the twelve months ended December 31, 2009 less depreciation and amortization expense of $4.1 million less management fees of $0.9 million to Riviera Las Vegas equals income from operations of $4.9 million.
 
Consolidated Operations
 
(Loss) Income from Operations
 
Loss from operations for the twelve months ended December 31, 2009 was $1.7 million, a decline of $12.9 million, or 114.7%, from income from operations of $11.2 million for the same period in the prior year.
 
The decrease in income from operations was due to a $35.7 million decrease in consolidated net revenues partially offset by a $22.8 million decrease in consolidated costs and expenses.  Consolidated net revenues decreased as a result of a $36.2 million net revenue decrease in Riviera Las Vegas and a $0.5 million net revenues increase in Riviera Black Hawk.  The decrease in consolidated costs and expenses was due primarily to a costs and expenses reduction of $26.6 million in Riviera Las Vegas partially offset by costs and expenses increases of $2.3 million and $1.5 million in Riviera Black Hawk and Corporate, respectively.  Corporate costs and expenses increased primarily due to restructuring fees of $2.2 million incurred during the twelve months ended December 31, 2009 partially offset by a reduction in general and administrative costs and expenses primarily due to lower outside audit fees.
 
 
56

 
 
Total Interest Expense, net
 
Total interest expense, net, includes gain (loss) on early retirement of debt, changes in fair value of derivative instruments, and interest expense, net of interest income.  Total interest expense, net, increased $2.6 million to $23.2 million for the twelve months ended December 31, 2009 in comparison to $20.6 million for the prior year.  The primary reason for the $2.6 million increase in interest expense, net was additional expense for the change in the fair value of derivatives of $1.7 million and an increase in interest expense, net of interest income, of $0.9 million.  During the twelve month period ended December 31, 2009, the change in the fair value of derivatives resulted in a $5.3 million expenses compared to a $3.6 million expenses for the comparable period in the prior year.  The increase in interest expense, net of interest income, was due primarily to the assessment of default interest expense as a result of the Credit Defaults more fully described below in Note 9 to the accompanying audited consolidated financial statements.
 
Net Loss
 
Net loss for the twelve months ended December 31, 2009 and 2008 was $24.9 million and $11.9 million, respectively.  The $13.0 million decline was due primarily to the $12.9 million decrease in consolidated income from operations, the $2.6 increase in total interest expense, net, partially offset by the $2.4 million reduction in income tax provision.  A $2.4 million income tax provision was recorded in the prior year while no income tax provision was recorded for the twelve months ended December 31, 2009.
 
Liquidity and Capital Resources
 
Bankruptcy Proceedings
 
On July 12, 2010 (the “Petition Date”), RHC, RBH and ROC (collectively the Debtors) filed voluntary petitions in the United States Bankruptcy Court for the District of Nevada (the Bankruptcy Court) for reorganization of its business and to have the Chapter 11 cases (the Chapter 11 Cases) jointly administered, as disclosed in a Form 8-K filed with the SEC on July 14, 2010 (the July 14th 8-K).
 
A webpage has been established which provides access to all pleadings filed in the Chapter 11 Cases.  The web address is http://www.gardencitygroup.com/cases/riviera.
 
On the Petition Date and prior to the commencement of the Chapter 11 Cases, the Company entered into a restructuring and lock-up letter agreement (the Lock-Up Agreement) with holders (the Consenting Lenders), in the aggregate, of in excess of 66 2/3% in the amount of all of the outstanding claims under the Company’s credit and fixed rate swap agreements which are described in detail in Note 9 to the audited Consolidated Financial Statements included in this Annual Report on Form 10-K.  Pursuant to the Lock-Up Agreement, the Consenting Lenders are contractually obligated to support the restructuring of the Company in accordance with the Debtor’s Joint Plan of Reorganization (as amended, the Plan of Reorganization) together with the proposed disclosure statement (as amended, the Disclosure Statement), which supports the Plan of Reorganization.  Moreover, the Lock-Up Agreement contractually obligated the parties to move forward with the Plan of Reorganization for each of the Debtors.  The original Joint Plan of Reorganization, together with the Disclosure Statement, was filed with the Bankruptcy Court on the Petition Date.  The First Amended Joint Plan of Reorganization and Disclosure Statement to Accompany Debtors’ First Amended Joint Plan of Reorganization were filed with the Bankruptcy Court on September 7, 2010 and the Second Amended Joint Plan of Reorganization and Disclosure Statement to Accompany Debtors’ Second Amended Joint Plan of Reorganization were filed with the Bankruptcy Court on September 17, 2010.
 
 
57

 
 
On the Petition Date, the Debtors filed several emergency motions with the Bankruptcy Court, including a motion to have the Chapter 11 Cases jointly administered and a motion (the Cash Collateral Motion) to approve a stipulation authorizing the use of cash collateral and granting adequate protection (the Cash Collateral Stipulation).  Under the Cash Collateral Stipulation, the Debtors, the administrative agent and the signatories to the Lock-up Agreement agreed that all disputes between the administrative agent, Consenting Lenders and the Debtors regarding Debtors’ cash on hand and operating cash flows and the use thereof as provided for by Section 363 of the Bankruptcy Court are reserved.  Furthermore, Debtors may use their operating cash flows and cash on hand to fund their operations and capital expenditure needs during the period commencing on the approval of the Cash Collateral Stipulation by the Bankruptcy Court and ending on the date the Plan of Reorganization is substantially consummated (the Substantial Consummation Date) in accordance with the 13 week budget which accompanies the Cash Collateral Stipulation and is updated for each 13 week period until the Substantial Consummation Date.  The Cash Collateral Motion was approved by the Bankruptcy Court on an emergency basis on July 15, 2010, however, all of the other first-day motions were granted final approval on July 15, 2010.  The Cash Collateral Motion was approved on a final basis on August 5, 2010 but with the proviso that payments made to professionals retained by either the holders of or the administrative agent of the Debtors credit and fixed rate swap agreement as adequate protection subject to being re-characterized as principal reductions against the credit and fixed rate swap obligations.
 
Pursuant to the approved Cash Collateral Stipulation, the Company is funding existing operations and capital needs during the reorganization period from operating cash flows and cash on hand.  There can be no assurances that the Company will have the ability to maintain sufficient funds to meet future obligations or abide the requirements outlined in the Cash Collateral Stipulation.  As a result, the Company may be required to obtain debtor in possession, or DIP, financing, which may be unavailable or only available on terms that are prohibitive.  The challenges of obtaining DIP financing are exacerbated by adverse conditions in the general economy and the credit markets.
 
During the Chapter 11 Cases, the Debtors, under the direction of the Company’s existing management team, continue to manage their properties and operate their business under the jurisdiction of the Bankruptcy Court and in accordance with Title 11 of the United States Bankruptcy Code.  The Debtors anticipate that they will continue to pay employees and vendors, and honor customer deposits and commitments without interruption or delay through the Substantial Consummation Date of the Plan of Reorganization.
 
On the Petition Date, in connection with the Lock-Up Agreement, the Debtors and Backstop Lenders executed a Backstop Commitment Agreement (as amended, the Backstop Agreement) to provide assurance that the Designated New Money Investment will be funded in the aggregate amount of $20 million and the Working Capital Facility will be committed in the aggregate principal amount of $10 million. The Backstop Agreement provides that the Backstop Lenders have committed to fund their pro rata share of the Designated New Money Investment and pro rata share of the Working Capital Facility, and, further, to backstop an additional percentage of the Designated New Money Investment and Working Capital Facility as specified therein to the extent that any Senior Secured Lender (other than a Backstop Lender) elects not to participate according to its full pro rata share in funding the Designated New Money Investment and Working Capital Facility.  The original Backstop Agreement was filed with the Bankruptcy Court on the Petition Date.  The First Amended Backstop Agreement was filed with the Bankruptcy Court on September 14, 2010 and the Second Amended Backstop Agreement was filed with the Bankruptcy Court on October 28, 2010.
 
 
58

 
 
Additionally, the Backstop Agreement provides for the payment of commitment fees by Debtors, as more fully described in the Backstop Agreement.  If (i) the Budget Contingency is satisfied, (ii) the Total New Money Investment Alternative is effectuated under the Plan of Reorganization, (iii) the Substantial Consummation Date occurs and (iv) the Series B Term Loan is fully funded and the entire Working Capital Facility is made available as provided for in the Plan of Reorganization, 5.0% of the Class B Shares (subject to dilution only under those certain conditions specified in the Plan of Reorganization) will be fully earned, payable and non-refundable to the Backstop Lenders. If the Budget Contingency is satisfied, but either the Backstop Agreement is terminated pursuant to its terms or the Substantial Consummation Date does not occur, $1,000,000 in cash will be fully earned, payable and non-refundable upon such date to the Backstop Lenders; provided, however, that to the extent (i) the Backstop Agreement is materially breached by any Backstop Lender (ii) the Backstop Agreement is terminated in connection with the Lockup Agreement having been terminated solely as a result of a breach thereof by any Backstop Lender in its capacity as a Designated Consenting Lender, or (iii) the Substantial Consummation Date does not occur other than as a result of the actions and/or inactions of the Debtors that are in breach of the Lockup Agreement, the Debtors will not be required to pay the Backstop Lenders the $1,000,000 cash fee. If (i) either the Budget Contingency is not satisfied or the Budget Contingency is satisfied but the Designated New Money Election is not made, (ii) the Partial New Money Investment Alternative is effectuated under the Plan of Reorganization, (iii) the Substantial Consummation Date occurs and (iv) the entire Working Capital Facility is made available as provided for in the Plan of Reorganization, $300,000 in cash will be fully earned, non-refundable and payable to the Backstop Lenders.  The Budget Contingency was satisfied on October 21, 2010.
 
On September 21, 2010, the Bankruptcy Court found that the Disclosure Statement as modified to reflect changes, if any, made or ordered on the record contained “adequate information” within the meaning of Section 1125 of the Bankruptcy Code.  The Bankruptcy Court held a hearing to consider confirmation of the Plan of Reorganization on November 8, 2010 (the Confirmation Hearing).  Beforehand, ballots along with the Disclosure Statement and Plan of Reorganization were distributed to classes of creditors entitled to vote on the Plan of Reorganization.  At the Confirmation Hearing, the Bankruptcy Court concluded that the Plan of Reorganization, as amended and as modified at the Confirmation Hearing, met the requirements for confirmation, including that the requisite classes of creditors voted in favor of the Plan of Reorganization and confirmed the Plan of Reorganization.  The Plan of Reorganization became effective on December 1, 2010.  Before the Plan of Reorganization can be substantially consummated, various regulatory and third party approvals must be obtained.  There is no assurance that all regulatory and third party approvals will be obtained.  If the Plan of Reorganization is not substantially consummated: (a) the Plan of Reorganization will be deemed null and void and the Company will then seek to reorganize pursuant to a different plan which will need to meet the confirmation standards of the Bankruptcy Code; (b) the Lockup Agreement will no longer be in effect; and (c) the Company may be required to obtain interim financing, if available, and liquidate its assets which may have a material adverse effect on the financial position, results of operations, or cash flows of the Company.
 
See Bankruptcy Proceedings in Item 1 above for a list of the material terms of the confirmed Plan of Reorganization.
 
Doubt as to Our Ability to Continue as a Going Concern
 
Our independent registered public accounting firm included an explanatory paragraph that expresses substantial doubt as to our ability to continue as a going concern in their audit reports contained in this Annual Report on Form 10-K for the year ended December 31, 2010 and in our Annual Reports on Form 10-K for the years ended December 31, 2009 and 2008.  We cannot provide any assurance that we will in fact operate our business profitably, maintain existing financings, or obtain sufficient financing in the future to sustain our business in the event we are not successful in our efforts to generate sufficient revenue and operating cash flow.  The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
 
 
59

 
 
The Credit Facility
 
Credit Defaults
 
The Company has not complied with all covenants under the Credit Facility (described below), including its obligation to make payments under the Credit Facility (see Note 9 to the accompanying audited consolidated financial statements for a detailed description of the Credit Facility and the Credit Defaults under the Credit Facility).  Furthermore, the filing of the Debtors’ voluntary petitions in the Bankruptcy Court constituted an event of default that trigger certain repayment obligations arising under the Credit Facility.  Upon the occurrence of such event, the obligations arising under the Credit Agreement were automatically accelerated and all other amounts due thereunder became immediately due and payable.  The acceleration of the obligations under the Credit Agreement was stayed as a result of the filings in the Bankruptcy Court.
 
See Bankruptcy Proceedings in Item 1 above for a list of the material terms of the confirmed Plan of Reorganization and how it will affect the Credit Facility if consummated.
 
The Credit Facility
 
On June 8, 2007, RHC and its restricted subsidiaries, namely ROC, Riviera Gaming Management of Colorado, Inc. and RBH (collectively, the “Subsidiaries”) entered into a $245 million Credit Agreement (the “Credit Agreement” together with related security agreements and other credit-related agreements, the “Credit Facility”) with Wachovia Bank, National Association (“Wachovia”), as administrative agent.  On February 22, 2010, the Company received a notice from Wachovia informing the Company that Wachovia was resigning as administrative agent.  The Company executed a Successor Agent Agreement with Cantor Fitzgerald Securities (“Cantor”), the Company’s new administrative agent, effective April 12, 2010.
 
The Credit Facility includes a $225 million seven-year term loan (“Term Loan”) which has no amortization for the first three years, a one percent amortization for years four through six, and a full payoff in year seven, in addition to an annual mandatory pay down during the term of 50% of excess cash flows, as defined therein.  The Credit Facility also included a $20 million five-year revolving credit facility (“Revolving Credit Facility”) under which RHC could obtain extensions of credit in the form of cash loans or standby letters of credit (“Standby L/Cs”).  Pursuant to Section 2.6 of the Credit Agreement, on June 5, 2009, the Company voluntarily reduced the Revolving Credit Facility commitment from $20 million to $3 million.  Pursuant to a floating rate to fixed rate swap agreement (the “Swap Agreement”) that became effective June 29, 2007 that the Company entered into under the Credit Facility, substantially the entire Term Loan portion of the Credit facility, with quarterly step-downs, bore interest (prior to the Credit Defaults) at an effective fixed rate of 7.485% per annum (2.0% above the LIBOR Rate in effect on the lock-in date of the swap agreement).  The Credit Facility is guaranteed by the Subsidiaries and is secured by a first priority lien on substantially all of the Company’s assets.   The Credit Facility contains affirmative and negative covenants customary for financings of this nature including, but not limited to, restrictions on incurrence of other indebtedness.
 
Prior to the Credit Defaults, the interest rate on loans under the Revolving Credit Facility depended on whether they were in the form of revolving loans or swingline loans (“Swingline Loans”).  Prior to the Credit Defaults, the interest rate for each revolving loan depended on whether RHC elected to treat the loan as an “Alternate Base Rate” loan (“ABR Loan”) or a LIBOR Rate loan; and Swingline Loans bore interest at a per annum rate equal to the Alternative Base Rate plus the Applicable Percentage for revolving loans that were ABR Loans.  As a result of the defaults, the Company no longer has the option to request the LIBOR Rate loans.
 
 
60

 
 
As of December 31, 2010, the Company had $2.5 million outstanding against the Revolving Credit Facility.  The ABR Loan was elected as the amount drawn was below the $5.0 million minimum threshold required for selecting a LIBOR Rate Loan.
 
The Credit Facility contains events of default customary for financings of this nature including, but not limited to, nonpayment of principal, interest, fees or other amounts when due; violation of covenants; failure of any representation or warranty to be true in all material respects; cross-default and cross-acceleration under our other indebtedness or certain other material obligations; certain events under federal law governing employee benefit plans; a “change of control” of RHC; dissolution; insolvency; bankruptcy events; material judgments; uninsured losses; actual or asserted invalidity of the guarantees or the security documents; and loss of any gaming licenses.  Some of these events of default provide for grace periods and materiality thresholds.  For purposes of these default provisions, a “change in control” includes:  a person’s acquisition of beneficial ownership of 35% or more of RHC’s stock coupled with a gaming license and/or approval to direct any of our gaming operations, a change in a majority of the members of our Board other than as a result of changes supported by its current Board members or by successors who did not stand for election in opposition to our current Board, or our failure to maintain 100% ownership of the Subsidiaries.
 
At various times in 2009, the Company received notices of default in connection with alleged events of default and continuing events of default under the terms of the Credit Agreement.  Receipt of these notices of default were previously disclosed on Current Reports on Form 8-K filed with the SEC and our period reports.  On April 1, 2009, we received Notice of Event of Default and Reservation of Rights (the “Swap Default Notice”) in connection with an alleged event of default under our Swap Agreement.  Receipt of the Swap Default Notice was previously disclosed on a Form 8-K filed with the SEC on April 6, 2009.  On July 23, 2009, the Company received a Notice of Early Termination for Event of Default (the “Early Termination Notice”) from Wachovia in connection with an alleged event of default that occurred under the Swap Agreement.  Receipt of the Early Termination Notice was previously disclosed on a Form 8-K filed with the SEC on July 29, 2009.
 
On July 28, 2009, in connection with the Early Termination Notice, the Company received a Notice of Amount Due Following Early Termination from Wachovia that claimed the amount due and payable to Wachovia under the Swap Agreement is $26.6 million, which included $4.4 million in accrued interest.  As a result of the Early Termination Notice, the interest rates for the Term Loan and Revolving Credit Facility balances are no longer locked and are now subject to changes in underlying LIBOR rates and vary based on fluctuations in the Alternative Base Rate and Applicable Margins.  As of December 31, 2010, our Term Loan and Revolving Credit Facility bear interest at approximately 6.25%.  As of December 31, 2010, the interest rate swap liability was $22.1 million which equals the mark to market amount reflected as due and payable on the Notice of Amount Due Following Early Termination described above.  Additionally, accrued interest as of December 31, 2010 included $5.7 million in accrued interest related to the interest rate swap comprised of $4.4 million in accrued interest as reflected on the Notice of Amount Due Following Early Termination plus $1.3 million in default interest pursuant to the Swap Agreement termination.
 
See Bankruptcy Proceedings in Item 1 above for a list of the material terms of the confirmed Plan of Reorganization and how it will affect the Credit Facility if consummated.
 
 
61

 
 
Liquidity
 
We had cash and cash equivalents of $21.3 million and $19.1 million as of December 31, 2010 and December 31, 2009, respectively.  Our cash and cash equivalents increased $2.2 million during the twelve months ended December 31, 2010 primarily due to $3.6 million in net cash provided by operating activities less $1.2 million in net cash used in by investing activities.
 
The $3.6 million in net cash provided by operating activities was due primarily to $20.8 million in net loss plus $13.5 million in non-cash depreciation and amortization expense, $8.2 million in interest expense recorded but not paid, $0.9 million in reorganization items recorded but not paid (represents write off of deferred loan fee balance as of Petition Date), $0.2 million in amortization of deferred loan fees and $1.4 million in increases in operating assets and liabilities (excluding changes in accrued interest liability).  Increases in operating assets and liabilities were due primarily to a $1.8 million increase in our accounts payable and accrued expense liabilities due to timing of payments.
 
The $1.2 million in net cash used in investing activities was due to cash outlays of $3.1 million for maintenance and safety related capital expenditures at Riviera Las Vegas and $0.7 million for maintenance related capital expenditures at Riviera Black Hawk partially offset by a cash increase of $2.5 million due to the release of formerly restricted cash effective May 11, 2010.  On May 11, 2010, the State of Nevada Workers Compensation Division issued a letter informing us that the division had released all interest in our $2.5 million certificate of deposit previously reflected in restricted cash on our balance sheet.
 
Our cash and cash equivalents increased $5.6 million during the twelve months ended December 31, 2009 primarily as a result of $9.2 million in net cash provided by operating activities partially offset by $3.6 million in net cash used in investing activities due to maintenance related capital expenditures at both Riviera Las Vegas and Black Hawk.  The $9.2 million in net cash provided by operating activities was due primarily to $24.9 million in net loss plus $14.9 million in non-cash depreciation and amortization expense, $5.3 million in non-cash changes in the fair value of derivatives, $17.7 million in interest expense recorded but not paid, $0.6 million in non-cash stock based compensation and $0.3 million in amortization of deferred loan fees partially offset by $4.6 million in changes in operating assets and liabilities (excluding changes in accrued interest liability).  Decreases in operating assets and liabilities was due primarily to a decrease in our accounts payable and accrued expense liabilities due to timing of payments.
 
Current Economic Environment
 
We believe that a number of factors are affecting consumer sentiment and behavior including the continued economic slowdown, high unemployment and decreasing home values.  We believe that consumers have and will continue to save more and spend less on discretionary items such as vacations and gaming.  Thus, we believe that the outlook for the gaming and hospitality industries remains highly uncertain.  Based on these adverse circumstances, we believe that the Company will continue to experience lower than expected hotel occupancy, room rates and casino volumes.
 
Off-Balance Sheet Arrangements
 
It is not our usual business practice to enter into off-balance sheet arrangements such as guarantees on loans and financial commitments, indemnification arrangements and retained interests in assets transferred to an unconsolidated entity for securitization purposes. Consequently, we have no off-balance sheet arrangements.
 
 
62

 
 
Critical Accounting Policies and Estimates
 
The preparation of our consolidated financial statements requires us to adopt accounting policies and to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and provision for income taxes.  We periodically evaluate our policies, and our estimates and assumptions related to these policies.  We operate in a highly regulated industry.  For Riviera Las Vegas and Riviera Black Hawk, we are subject to regulations governing operating and internal control procedures.  The majority of our casino revenue is in the form of cash, personal checks or gaming chips, which by their nature do not require complex estimations.  We estimate certain liabilities with payment periods that extend for longer than several months. Such estimates include the liability associated with customer loyalty programs, the cost of workers compensation and property and casualty insurance settlements and the cost of litigation.  We believe that these estimates are reasonable based upon our past experience with the business and based upon our assumptions related to possible outcomes in the future. Future actual results might differ materially from these estimates.
 
We have determined that the following accounting policies and related estimates are critical to the preparation of our consolidated financial statements because such estimates are highly uncertain or susceptible to change so as to present a significant risk of a material impact on our financial condition or operating performance, and such policies and estimates were selected from among available alternatives, or require the exercise of significant management judgment to apply.
 
Long-lived Assets
 
We have a significant investment in long-lived property and equipment.  We evaluate our property and equipment and other long-lived assets for impairment. For assets to be disposed of, we recognize the asset to be sold at the lower of carrying value or fair market value less costs of disposal. Fair market value for assets to be disposed of is generally estimated based on comparable asset sales, solicited offers or a discounted cash flow model. For assets to be held and used, we review fixed assets for impairment whenever indicators of impairment exist. If an indicator of impairment exists, we compare the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated.  If the undiscounted cash flows do not exceed the carrying value, then impairment is calculated based on fair value compared to carrying value, with fair value typically based on a discounted cash flow model.
 
Income Taxes
 
We are subject to income taxes in the United States. Authoritative guidance for accounting for income taxes requires that we account for income taxes by recognizing deferred tax assets, net of applicable reserves, and liabilities for the estimated future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on the income tax provision and deferred tax assets and liabilities is recognized in the results of operations in the period that includes the enactment date.
 
Authoritative guidance for accounting for income taxes also requires that we perform an assessment of positive and negative evidence regarding the realization of the deferred tax assets. This assessment included the evaluation of the reversal of temporary differences.  As a result, we have concluded that it is more likely than not that the net deferred tax assets will not be realized and thus have provided an allowance against our entire net deferred tax asset balance.
 
 
63

 
 
Our income tax returns are subject to examination by the Internal Revenue Service (“IRS”) and other tax authorities in the locations where we operate.  Authoritative guidance for accounting for uncertainty in income taxes prescribes a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements and requires that we utilize a two-step approach for evaluating tax positions.  Recognition (Step I) occurs when we conclude that a tax position, based on its technical merits, is more likely than not to be sustained upon examination. Measurement (Step II) is only addressed if the position is deemed to be more likely than not to be sustained. Under Step II, the tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon settlement.  Note that authoritative guidance for accounting for uncertainty in income taxes uses the term “more likely than not” when the likelihood of occurrence is greater than 50%.
 
The tax positions failing to qualify for initial recognition is to be recognized in the first subsequent interim period that they meet the “more likely than not” standard. If it is subsequently determined that a previously recognized tax position no longer meets the “more likely than not” standard, it is required that the tax position is derecognized.  Authoritative guidance for uncertainty in accounting for income taxes specifically prohibits the use of a valuation allowance as a substitute for derecognition of tax positions. As applicable, we will recognize accrued penalties and interest related to unrecognized tax benefits in the provision for income taxes. During the years ended December 31, 2010, 2009 and 2008, we recognized no amounts for interest or penalties.
 
Allowance for Credit Losses
 
We maintain an allowance for estimated credit losses based on historical experience and specific customer collection issues. Any unforeseen change in customers’ liquidity or financial condition could adversely affect our ability to collect account balances and our operating results.
 
Fair Value of Interest Rate Swap Liability
 
Current liabilities include the approximate cost to settle our interest rate swap instrument at the respective valuation dates less a discount based on our current credit default rate.  The fair value of the interest rate swap instrument is estimated based upon current and predictions of future interest rate levels along a yield curve, the remaining duration of the instrument and other market conditions and therefore, is subject to significant estimation and a high degree of variability of fluctuation between periods.  As described in Note 8 and 9 to the accompanying audited consolidated financial statements, our interest rate swap instrument was terminated in 2009 and the fair value of the interest rate swap and respective accrued interest are classified as liabilities subject to compromise.
 
Self-insurance Provisions
 
We are self-insured for various levels of general liability and workers’ compensation.  To resolve ongoing claims related to our previous self-insurance program, we maintained reinsurance coverage to cover us until all applicable claims were resolved.  Insurance claims and provisions include accruals of estimated settlements for known claims as well as accrued estimates of incurred but not reported claims.  In estimating these costs, we consider our historical claims experience and make judgments about the expected levels of costs per claim.  Changes in health care costs, accident frequency and severity and other factors can materially affect the estimate for these liabilities.
 
 
64

 
 
Loyalty Club Program
 
We offer to our players club members the opportunity to earn points based on their level of gaming activities.  Points can be redeemed for cash, complimentary hotel rooms and food and beverage.  We accrue the cash value of points earned based upon expected redemption rates.
 
Reorganization Items
 
Reorganization items represent amounts incurred as a direct result of the Chapter 11 Cases and are presented separately in the consolidated statements of operations.  Reorganization items include professional fees for financial, legal and other services directly associated with the reorganization process.
 
Recently Issued Accounting Standards
 
In December 2010, the FASB issued guidance to improve disclosures of supplementary pro forma information for business combinations. The guidance specifies that if an entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. This guidance also expands the supplemental pro forma disclosures required to include a description of the nature and amount of material nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The guidance is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010.  In the event that the Company acquires companies significant to its operations in the future, the Company expects that the adoption of the guidance will have an impact on its consolidated financial statements.
 
In April 2010, the FASB issued guidance on accruing for jackpot liabilities. The guidance clarifies that an entity should not accrue jackpot liabilities (or portions thereof) before a jackpot is won if the entity can legally avoid paying that jackpot (for example, by removing the gaming machine from the casino floor). Jackpots should be accrued and charged to revenue when an entity has the obligation to pay the jackpot. This guidance applies to both base jackpots and the incremental portion of progressive jackpots. However, the guidance is expected to only affect the accounting for base jackpots, as the guidance uses the same principle that is currently applied by the Company to the incremental portion of progressive jackpots. The guidance was effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. This guidance should be applied by recording a cumulative-effect adjustment to opening retained earnings in the period of adoption. The Company adopted the guidance as of January 1, 2011, which did not have a material impact on the Company’s consolidated financial statements.
 
A variety of proposed or otherwise potential accounting standards are currently under review and study by standard-setting organizations and certain regulatory agencies.  Because of the tentative and preliminary nature of such proposed standards, we have not yet determined the effect, if any, that the implementation of any such proposed or revised standards would have on our audited Consolidated Financial Statements.
 
 
65

 
 
Forward-Looking Statements
 
Throughout this report we make “forward-looking statements,” as that term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Forward-looking statements include the words “may,” “would,” “could,” “likely,” “estimate,” “intend,” “plan,” “continue,” “believe,” “expect,” “projections” or “anticipate” and similar words and include all discussions about our ongoing or future plans, objectives or expectations.  We do not guarantee that any of the transactions or events described in this report will happen as described or that any positive trends referred to in this report will continue.  These forward-looking statements generally relate to our plans, objectives and expectations for future operations and results and are based upon what we consider to be reasonable estimates.  Although we believe that our forward-looking statements are reasonable at the present time, we may not achieve or we may modify our plans, objectives and expectations.  You should read this report completely and with the understanding that actual future results may be materially different from what we expect.  We do not plan to update forward-looking statements even though our situation or plans may change in the future, unless applicable law requires us to do so.
 
Specific factors that might cause our actual results to differ from our expectations, might cause us to modify our plans or objectives, or might affect our ability to meet our expectations include, but are not limited to:
 
 
·
the effect that if the Plan of Reorganization is Substantially Consummated (see “Bankruptcy Proceedings” under Item 1 above), all existing equity interests of the Company shall be cancelled and such equity holders shall receive nothing;
 
 
·
the effect that if the Plan of Reorganization is not Substantially Consummated (see “Bankruptcy Proceedings” under Item 1 above), (a) the Plan of Reorganization will be deemed null and void and the Company will then seek to reorganize pursuant to a different plan which will need to meet the confirmation standards of the Bankruptcy Code; (b) the Lockup Agreement will no longer be in effect; and (c) the Company may be required to obtain interim financing, if available, and liquidate its assets which may have a material adverse effect on the financial position, results of operations, or cash flows of the Company;
 
 
·
the effect of the Credit Defaults, as described in Note 9 to the accompanying audited consolidated financial statements in this Form 10-K;
 
 
·
the effect of our independent auditors expressing doubt about our ability to continue as a going concern;
 
 
·
the effect of the delisting from the NYSE AMEX;
 
 
·
the effect of the disruption in the quotation of the Company Stock on the Pink Sheets;
 
 
·
fluctuations in the value of our real estate, particularly in Las Vegas;
 
 
·
the effect of significant increases in Clark County facilities inspection fees and resulting remedial actions;
 
 
·
the availability and adequacy of our cash flow to meet our requirements, including payment of amounts due under our debt instruments;
 
 
·
our substantial indebtedness, debt service requirements and liquidity constraints;
 
 
·
the availability of additional capital to support capital improvements and development;
 
 
·
the smoking ban in Colorado on our Riviera Black Hawk property which became effective on January 1, 2008;
 
 
66

 
 
 
·
competition in the gaming industry, including the availability and success of alternative gaming venues, and other entertainment attractions, and the approval of an initiative that would allow slot machines in Colorado race tracks;
 
 
·
retirement or other loss of our senior officers;
 
 
·
economic, competitive, demographic, business and other conditions in our local and regional markets;
 
 
·
the effects of a continued or worsening global and national economic recession;
 
 
·
changes or developments in laws, regulations or taxes in the gaming industry, specifically in Nevada where initiatives have been proposed to raise the gaming tax;
 
 
·
actions taken or not taken by third parties, such as our customers, suppliers and competitors, as well as legislative, regulatory, judicial and other governmental authorities;
 
 
·
changes in personnel or compensation, including federal minimum wage requirements;
 
 
·
our failure to obtain, delays in obtaining, or the loss of, any licenses, permits or approvals, including gaming and liquor licenses, or the limitation, conditioning, suspension or revocation of any such licenses, permits or approvals, or our failure to obtain an unconditional renewal of any of our licenses, permits or approvals on a timely basis;
 
 
·
the loss of any of our casino facilities due to terrorist acts, casualty, weather, mechanical failure or any extended or extraordinary maintenance or inspection that may be required;
 
 
·
other adverse conditions, such as economic downturns, changes in general customer confidence or spending, increased transportation costs, travel concerns or weather-related factors, that may adversely affect the economy in general or the casino industry in particular;
 
 
·
changes in our business strategy, capital improvements or development plans;
 
 
·
the consequences of the war in Iraq and other military conflicts in the Middle East, concerns about homeland security and any future security alerts or terrorist attacks such as the attacks that occurred on September 11, 2001;
 
 
·
other risk factors discussed elsewhere in this report; and
 
 
·
a decline in the public acceptance of gaming.
 
All future written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. In light of these and other risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur.
 
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
 
Not Applicable.
 
 
67

 
 
Item 8.
Financial Statements and Supplementary Data
 
Our consolidated financial statements, including the notes to all such statements and other supplementary data are included in this report beginning on page F-1.
 
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
None
 
Item 9A.
Controls and Procedures
 
Conclusion Regarding The Effectiveness Of Disclosure Controls And Procedures
 
The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15(d)-15(e) of the Securities Exchange Act) designed to provide reasonable assurance that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. These include controls and procedures designed to ensure that this information is accumulated and communicated to the Company’s management, including its Co-Chief Executive Officers and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management, with the participation of the Co-Chief Executive Officers and the Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2010. Based on this evaluation, the Company’s Co-Chief Executive Officers and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2010.
 
Management’s Report On Internal Control Over Financial Reporting
 
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States.
 
Management, with the participation of the Co-Chief Executive Officers and the Chief Financial Officer, evaluated the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on this evaluation, management, with the participation of the Co-Chief Executive Officers and the Chief Financial Officer, concluded that, as of December 31, 2010, the Company’s internal control over financial reporting was effective.
 
Limitations of the Effectiveness of Internal Control
 
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.
 
 
68

 
 
Changes In Internal Controls Over Financial Reporting
 
There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended December 31, 2010, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
Item 9B.
Other Information
 
None
 
Item 10.
Directors, Executive Officers and Corporate Governance
 
Director Qualifications
 
The Board of Directors (the “Board”) consists of three members.  The Board believes that it is necessary for each of the Company’s directors to possess many qualities and skills. When searching for new candidates, the Nominating Committee considers the evolving needs of the Board and searches for candidates that fill any current or anticipated future gap. The Board of Directors also believes that all directors must possess a considerable amount of business management and educational experience. The Nominating Committee first considers a candidate’s management experience and then considers issues of judgment, background, stature, conflicts of interest, integrity, ethics and commitment when considering director candidates. The Nominating Committee also focuses on education, professional experience and differences in viewpoints and skills.  In considering candidates for our Board of Directors, the Nominating Committee considers the entirety of each candidate’s credentials in the context of these standards. With respect to the nomination of continuing directors for re-election, the individual’s contributions to the Board are also considered.  All our directors bring to our Board of Directors a wealth of executive leadership experience derived from their service in various leadership capacities in the private and public sectors.
 
Directors
 
The following table presents information as of March 18, 2011 regarding our directors and the directors of Riviera Operating Corporation (“ROC”), our wholly-owned subsidiary:
 
Name
 
Age
 
Position
         
Vincent L. DiVito
 
51
 
Chairman of the Board
         
Paul A. Harvey
 
73
 
Director
         
James N. Land, Jr.
  
81
  
Director

Vincent L. DiVito
 
Mr. DiVito was appointed as one of our Directors effective June 14, 2002.  Mr. DiVito was appointed as our Chairman of the Board effective April 19, 2010 (see “Board of Directors and Management Changes” under Item 1 above).  From September 2000 through March 2010, Mr. DiVito was President and Chief Financial Officer (“CFO”) of Lonza America, Inc., a global life sciences chemical business headquartered in Allendale, New Jersey.  Lonza America, Inc. is part of Lonza Group, whose stock is traded on the Swiss Stock Exchange.  Prior to September 2000, Mr. DiVito was the Vice President and CFO of Algroup Wheaton, a global pharmaceutical and cosmetics packaging company, after having served as the Director of Business Development.  From 1984 to 1990 Mr. DiVito was the Vice President of Miracle Adhesives Corp. (a division of Pratt & Lambert, an NYSE Amex listed manufacturer of paints, coatings and adhesives).  He also serves on the board of directors of Elixir Gaming Technology, Inc., which is headquartered in Hong Kong and is an NYSE Amex-listed company. Prior to 1984, Mr. DiVito spent two years on an audit team at Ernst & Whinney (now Ernst & Young). Mr. DiVito is a certified public accountant and certified management accountant.
 
 
69

 
 
Mr. DiVito has extensive knowledge of accounting and corporate governance issues from his experience serving on various corporate board of directors and has extensive operational knowledge as a result of his experience as an operational executive at a  major corporation and is invaluable to our Board’s discussions of financial and operational issues. As a result of these and other professional experiences, the Company has concluded that Mr. DiVito is qualified to serve as a director.
 
Major General Paul A. Harvey USAF (Ret)
 
General Harvey has been one of our Directors since May 18, 2001.  General Harvey is President and Chief Executive Officer of Pearl River Resort, which is the largest gaming and resort property in the State of Mississippi.  He also acts as a consultant to the gaming, hotel and resort industry.  General Harvey spent 32 years on active duty in the United States Air Force where he held numerous command positions throughout the United States, Europe, Africa and the Middle East.  He flew 160 combat missions in Vietnam and Southeast Asia before retiring in 1991 as a command pilot with over 5,000 flying hours.  Following retirement, he was an Executive in Residence and Assistant to the President of William Carey College and taught MBA studies in management and leadership.  General Harvey was the Executive Director of the Mississippi Gaming Commission from 1993 through 1998 before becoming President and CEO of Signature Works, Inc., the largest employer of blind and visually impaired people in the world.  In 2000 Signature Works, Inc. merged with LCI, Inc.  His present company, PDH Associates, Inc., provides consulting service to the gaming, hotel and resort industry.  From 1996 through 2002, General Harvey served on the board of directors of the National Center for Responsible Gaming.  He also served on the board of directors of Elixir Gaming Technologies, Inc., an NYSE AMEX listed company headquartered in Las Vegas, Nevada, until deciding not to be nominated for re-election in 2009 and served on the board of directors of Mikohn Gaming Corporation, d/b/a Progressive International Corporation, a public reporting company under the Exchange Act also headquartered in Las Vegas, Nevada, until the company liquidated under Chapter 7 of the U.S. Bankruptcy Code during 2009.  General Harvey was a Commissioner on the Mississippi Band of Choctaw Indians Athletic and Boxing Commission from 2002 through 2007.
 
General Harvey has extensive knowledge of the hospitality and gaming industry from his positions as the Chief Executive Officer of Pearl River Resort and as the Executive Director of the Mississippi Gaming Commission and is invaluable to our Board’s discussions of the Company’s operational and regulatory issues. As a result of these and other professional experiences, the Company has concluded that General Harvey is qualified to serve as a director.
 
James N. Land, Jr.
 
Mr. Land is a corporate consultant and was appointed as one of our Directors on April 12, 2004.  Mr. Land was first elected a Director of the Company and ROC on January 21, 1999 and served in that position until May 31, 2002.  From 1956 to 1976, Mr. Land was employed by The First Boston Corporation in various capacities, including Director, Senior Vice President, Co-Head of Corporate Finance, and head of International Operations.  From 1971 through 1999, he served as Director of various companies, including Kaiser Industries Corporation, Marathon Oil Company, Castle & Cooke, Inc., Manville Corporation, NWA, Inc., Northwest Airlines, and Raytheon Company.
 
 
70

 
 
Mr. Land has extensive knowledge of the capital markets from his senior leadership experience with First Boston Corporation and is invaluable to our Board’s discussions of the Company’s capital restructuring efforts and liquidity needs. As a result of these and other professional experiences, the Company has concluded that Mr. Land is qualified to serve as a director.
 
Executive Officers
 
The following table presents information as of March 18, 2011 regarding our and ROC’s executive officers:
 
Name
 
Age
 
Position
Phillip B. Simons
 
48
 
Co-CEO and Treasurer and CFO
Tullio J. Marchionne
 
56
 
Co-CEO and Secretary and General Counsel
Robert A. Vannucci
  
63
  
Co-CEO and President and Chief Operating Officer of ROC

Phillip B. Simons
 
Mr. Simons became Co-CEO on April 19, 2010 (see “Board of Directors and Management Changes” under Item 1 above) and CFO and Treasurer on May 12, 2008.  From April 2006 to May 2008, Mr. Simons, who is a certified public accountant, was the Vice President of Finance and Chief Financial Officer for Wheeling Island Gaming, Inc., a wholly owned subsidiary of Delaware North Companies.  Prior to his employment with Wheeling Island Gaming, Inc., Mr. Simons spent ten years leading the financial divisions at various large resorts and casinos with Wyndham International, Carlson Hospitality Worldwide, Destination Hotels and Resorts and the Villa Group.  Prior to his experience in the hospitality and gaming industry, Mr. Simons spent three-years employed in public accounting and consulting and several years in a senior financial role with a major real estate developer.
 
Tullio J. Marchionne
 
Mr. Marchionne became Co-CEO on April 19, 2010 (see “Board of Directors and Management Changes” under Item 1 above), General Counsel on January 10, 2000 and Secretary on February 17, 2000.  Mr. Marchionne was initially employed by Riviera, Inc., in June 1986 as a casino dealer and served in various capacities including Pit Manager, General Counsel and Director of Gaming Administration until September 1996, when he was transferred to the Four Queens Hotel and Casino as Director of Casino Operations pursuant to the management agreement our subsidiary had with the Four Queens.  He served in that position until May 1997.  Mr. Marchionne served as the General Manager of the Regency Casino Thessaloniki, located in Thessaloniki, Greece, from June 1997 until December 1997.  Mr. Marchionne served as a Casino Supervisor with Bally’s Las Vegas from February 1998 until June 1998, Director of Casino Operations at the Maxim Hotel and Casino in Las Vegas from June 1998 until November 1998 and Director of Table Games at the Resort at Summerlin from November 1998 until December 1999.
 
 
71

 
 
Robert A. Vannucci
 
Mr. Vannucci became Co-CEO on April 19, 2010 (see “Board of Directors and Management Changes” under Item 1 above), Vice President of Marketing and Entertainment of ROC on April 26, 1994, Executive Vice President of Marketing and Entertainment of ROC on July 1, 1998 and President of ROC on October 1, 2000.  Mr. Vannucci had been Director of Marketing of ROC since July 19, 1993.  Mr. Vannucci was Senior Vice President of Marketing and Operations at the Sands Casino Hotel in Las Vegas from April 1991 to February 1993. He was Vice President and General Manager of Fitzgerald’s Las Vegas (a casino/hotel) from 1988 to January 1991.
 
Our officers serve at the discretion of our Boards of Directors and are also subject to the licensing requirements of the Nevada and Colorado Gaming Commissions.
 
Audit Committee; Audit Committee Financial Expert
 
We have a separately-designated standing Audit Committee, established in accordance with section 3(a)(58)(A) of the Exchange Act.  The members of our Audit Committee are Vincent L. DiVito, Paul A. Harvey and James N. Land, Jr.
 
We have determined that the Chairman of our Audit Committee, Vincent L. DiVito, who meets the NYSE Amex audit committee independence requirements, is an “audit committee financial expert”, as defined in Item 407(d)(5)(ii) of SEC Regulation S-K.  Mr. DiVito is a certified public accountant and certified management accountant, spent two years on the audit team at Ernst & Whinney (now Ernst & Young) and has held CFO positions at various corporations. Mr. DiVito also has extensive knowledge of accounting issues from his experience serving on various corporate board of directors and has extensive operational knowledge as a result of his experience as an operational executive at a major corporation.

Section 16(a) Beneficial Ownership Reporting Compliance
 
Section 16(a) of the Exchange Act (Section 16(a)) requires our directors and executive officers and persons who own more than 10% of our common stock to file with the SEC certain reports regarding ownership of our common stock.  Such persons are required to furnish us with copies of all Section 16(a) reports they file. Based solely on our review of such reports that were furnished to us and written representations made to us by those reporting persons in connection with certain of those reporting requirements, we believe that all the reporting persons met their Section 16(a) reporting obligations on a timely basis during 2010.
 
Code of Ethics
 
We have adopted certain ethical policies that apply to all of our employees at the level of supervisor or higher, including our principal executive officer, principal financial officer and principal accounting officer.  Those policies, together with certain rules adopted by our Disclosure Committee, comprise what we consider to be our code of ethics.  Those policies and rules are available on our Internet web site at www.rivierahotel.com by clicking on the “Investor Relations” link.
 
Audit Committee
 
We have a separately-designated standing Audit committee, established in accordance with section 3(a)(58)(A) of the Exchange Act.  Our Audit Committee is composed of Messrs. DiVito, Harvey and Land.  Our Audit Committee recommends to our Board of Directors the selection of an auditor, reviews the plan and scope of our audits, reviews the auditors’ critique of management and internal controls and management’s response to such critique and reviews the results of our audit.  In 2010, our Audit Committee met 5 times.  We have determined that the three members of our Audit Committee to be independent based on the NYSE Amex standards that previously applied to us.  Our Board of Directors has determined that Mr. DiVito, Chairman of the Audit Committee, is an “audit committee financial expert” as defined by the rules and regulations of the SEC.  A written charter, adopted and approved by the Board of Directors, is available on our website at www.rivierahotel.com by clicking on the “Investor Relations” link.
 
 
72

 
 
Item 11.
Executive Compensation
 
EXECUTIVE COMPENSATION AND RELATED INFORMATION
 
Executive Compensation
 
The following table sets forth all compensation awarded to, paid to or earned by the following type of executive officers for the fiscal year ended December 31, 2010 and 2009: (i) individuals who served as, or acted in the capacity of, the Company’s principal executive officers for the fiscal year ended December 31, 2010; (ii) the Company’s three most highly compensated executive officers, other than the chief executive officer, who were serving as executive officers at the end of the fiscal year ended December 31, 2010; and (iii) up to two additional individuals, other than former principal executive officers, for whom disclosure would have been provided but for the fact that the individual was not serving as an executive officer of the Company at the end of the year ended December 31, 2010.  We refer to these individuals collectively as our “Named Executive Officers”.
 
SUMMARY COMPENSATION TABLE
 
Name and Principal Position
 
Year
 
Salary
   
Stock
Awards
   
Non-Equity
Incentive Plan
Compensation (1)
   
Change in Pension
Value and Non-
Qualified Deferred
Compensation
Earnings (2)
   
All Other
Compensation
(3,4,5)
   
Total
 
       
($)
   
($)
   
($)
   
($)
   
($)
   
($)
 
Phillip B. Simons
 
2010
  $ 235,205       -     $ 125,000       -     $ 14,035     $ 374,240  
   
2009
  $ 200,000       -     $ 49,046       -     $ 6,728     $ 255,774  
Co-CEO, Treasurer and CFO
                                                   
                                                     
Robert A. Vannucci
 
2010<