FRESH-START REPORTING

Fresh-Start Balance Sheet

In accordance with accounting guidance related to financial reporting by entities in reorganization under the United States Bankruptcy Code, the Company adopted fresh-start reporting upon the Substantial Consummation Date. The Company was required to apply the provisions of fresh-start reporting to its financial statements because (i) the reorganization value of the assets of the emerging entity immediately before the Substantial Consummation Date was less than the total of all post-petition liabilities and allowed claims and (ii) the holders of the existing voting shares of Predecessor common stock immediately before confirmation (i.e., the holders of shares of the common stock of Predecessor that were issued and outstanding prior to the commencement of the Chapter 11 Cases) received less than 50 percent of the voting shares of the emerging entity. Under the accounting guidance, fresh-start reporting was required on the date on which the Plan was confirmed by the Bankruptcy Court, but further provides that fresh-start reporting should not be applied until all material conditions to the Plan were satisfied. All material conditions to the Plan were satisfied as of April 1, 2011, the Substantial Consummation Date.

Fresh-start reporting generally requires resetting the historical net book value of assets and liabilities to fair value by allocating the entity’s enterprise value as set forth in the Plan to its assets and liabilities pursuant to accounting guidance related to business combinations as of the Substantial Consummation Date. As set forth in the disclosure statement, relating to the Plan, as confirmed by the Bankruptcy Court on November 17, 2010, the enterprise value of Predecessor was estimated to be in the range of $208 million to $231 million. Successor’s enterprise value was estimated using various valuation methods, including (i) a comparison of Predecessor and its projected performance to the market values of comparable companies, and (ii) a calculation of the present value of the future cash flows of Successor based on financial projections.

The enterprise value for each property was determined using various valuation methods, including the cost method and the discounted cash flow method, a form of the income approach. Under the cost method, assets were valued at the cost to acquire a similar or substitute asset. Under the discounted cash flow method, value was determined using projected future cash flows. For future cash flows, financial projections for the period 2011 through 2015 were used with a composite annual growth rate for the four years after 2011 of 3%. The average marginal tax rate was assumed to be 35% for RHC and 38% for RBH and included federal, state and local taxes. The discount rate applied for assets valued using the discounted cash flow method was 15%, which was calculated using a weighted average cost of capital analysis based on comparable statistics of the Company’s peer group. The present value of all cash flows after 2015 were calculated using terminal values which were calculated by applying 3% growth to the 2015 financial projections which were then discounted in the range of 16% to 17%.

Based upon a reevaluation of relevant factors used in determining the range of enterprise value and updated expected future cash flow projections, the Company concluded $226.7 million should be used for fresh-start reporting purposes, as it most closely approximated fair value. After deducting the fair value of debt and adding the excess cash received, this resulted in a post-emergence equity value of $157.9 million.

In accordance with fresh-start reporting, the Company’s enterprise value was allocated to existing assets using the measurement guidance related to business combinations. In addition, liabilities were recorded at the present value of amounts estimated to be paid. Finally, Predecessor’s accumulated deficit was eliminated, and the Company’s new debt and equity were recorded in accordance with the Plan.

Estimates of fair value represent the Company’s best estimates, which are based on industry data and trends, and by reference to relevant market rates and transactions and discounted cash flow valuation methods, among other factors. The determination of the fair value of assets and liabilities is subject to significant estimation and assumptions, there can be no assurance that the estimates, assumptions and values reflected in the valuations will be realized, and actual results could vary materially.

The April 1, 2011 balance sheet presented below summarizes the impact of the adoption of the Plan and fresh-start accounting as of the Substantial Consummation Date (amounts in thousands):

	March 31,			Reorganization						April 1,
	2011			items (a)			Fresh-start			2011
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	22,793		$	20,000	(b)	$	-		$	42,793
Restricted cash		272			-			-			272
Accounts receivable-net of allowances		2,292			-			-			2,292
Inventories		611			-			-			611
Prepaid expenses and other assets		3,105			-			-			3,105

Total current assets		29,073			20,000			-			49,073

PROPERTY AND EQUIPMENT-net		157,435			-			19,969	(f)		177,404
OTHER ASSETS-net		2,385			-			-			2,385

INTANGIBLE ASSETS		-			-			14,400	(g)		14,400

GOODWILL		-			-			26,256	(h)		26,256

TOTAL	$	188,893		$	20,000		$	60,625		$	269,518

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Current portion of long-term debt	$	44		$	-		$	-		$	44
Accounts payable		7,353			-			-			7,353
Accrued expenses		11,033			-			497	(h)		11,530

Total current liabilities		18,430			-			497			18,927

LONG-TERM DEBT-net current portion		-			70,000	(c)		-			70,000
CAPITAL LEASES-net current portion		60						-			60
LONG-TERM TAX LIABILITY		-			-			22,598	(j)		22,598

Total liabilities not subject to compromise		18,490			70,000			23,095			111,585

Liabilities subject to compromise		276,416			(276,416	)(d)		-			-

TOTAL LIABILITIES		294,906			(206,416	)		23,095			111,585

STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock		17			(8	)		-			9
Additional paid-in capital		20,526			121,080			-			141,606
Treasury stock		(9,635	)		9,635			-			-
Issued warrants		-			16,318			-			16,318
Accumulated deficit		(116,921	)		79,391	(e)		37,530	(i)		-
Total stockholders' equity (deficiency)		(106,013	)		226,416			37,530			157,933

TOTAL	$	188,893		$	20,000		$	60,625		$	269,518

Fresh-Start Accounting Explanatory Notes

Reorganization Items

(a)

Represents amounts recorded as of the Substantial Consummation Date for the consummation of the Plan, including the settlement of liabilities subject to compromise, elimination of affiliate activity amongst Predecessor, the issuance of new indebtedness, the cancellation of Predecessor’s equity, and the issuance of new common stock.

(b)

Reflects proceeds received from the Series B Term Loan (as defined in Note 11 under the caption “Successor – Series B Credit Agreement”).

(c)

Reflects the Series A Credit Agreement (as defined in Note 11 under the caption “Successor – Series A Credit Agreement”) and the Series B Credit Agreement (as defined in Note 11 under the caption “Successor – Series B Credit Agreement”) as provided in the Plan.

(d)

Reflects the discharge of Predecessor’s liabilities subject to compromise in accordance with the Plan.

(e)

Reflects the cumulative impact of the reorganization adjustments as follows (in thousands):

Discharge of liabilities subject to compromise	$	276,416
Elimination of Predecessor equity		10,909
Proceeds from long term debt		20,000
Issuance long term debt		(70,000	)
Issuance of Class B Warrants (1)		(16,318	)
Issuance of common stock at emergence value		(141,616	)
	$	79,391

(1)

Pursuant to the terms of the Plan, on the Substantial Consummation Date (a) the Company issued Class B Non-Voting Common Stock (as defined in Note 16) with attached warrants exercisable into shares of Class B Non-Voting Common Stock (the “Class B Warrants”) to its former creditors in partial or full and final satisfaction of their claims, (b) the Company issued Class A Voting Common Stock (as defined in Note 16) to Riviera Voteco, L.L.C., and (c) Riviera Voteco, L.L.C. issued warrants to acquire membership interests in Riviera Voteco, L.L.C. (the “Class A Warrants”) to each of the holders of the Class B Non-Voting Common Stock other than Desert Rock Enterprises, LLC and certain entities affiliated with Starwood Capital Group. The Company valued the shares of Class B Non-Voting Common Stock with attached Class B Warrants using the Chaffee option valuation model assuming a life of 1 and 1.5 years, volatility factors of 48.5% and 53.18%, risk free rates of 0.27% and 0.54% and implied discounts for lack of marketability of 20% and 25%, respectively. The resulting value of the Class B Warrants for future holders of, or current stockholders viewed as having an indirect interest in, Class A Voting Common Stock held by Riviera Voteco, L.L.C. for accounting purposes is $17.72 per share. The resulting value of the Class B Warrants for holders of the Class A Warrants is $16.61 per share.

Fresh-Start Adjustments

(f)

Reflects the fair value of property and equipment and intangible assets in connection with fresh-start reporting. The following table summarizes the components of property and equipment, net as a result of the application of fresh-start reporting (in thousands):

	Estimated	Successor		Predecessor
	Life	April 1,		March 31,
	(Years)	2011		2011
Land	∞	$	95,500	$	38,109
Land improvements	15 to 20		125		2,643
Building and improvements	7 to 40		56,559		145,374
Furniture, fixtures and equipment	3 to 7		25,220		177,439
Total cost			177,404		363,565
Less accumulated depreciation			—		(206,130	)
		$	177,404	$	157,435

Fair value estimates were based on various valuation methods. Personal property related to assets with active secondary markets, such as slot machines, were valued using market prices of similar assets. Other personal property such as furniture, fixtures and other equipment, were valued using a depreciated replacement cost method. Land was valued using market comparable data. Where applicable, the income approach was utilized to estimate the fair value of the income producing land, buildings, building improvements and land improvements either by direct capitalization or discounted cash flow analysis. For specific real property assets that were valued using the cost approach, the income and/or sales comparison approach was utilized to support the value conclusion of the cost approach.

(g)

Reflects the fair value of intangible assets in connection with fresh-start reporting. The following table summarizes the components of intangible assets as a result of the application of fresh-start reporting (in thousands):

			Successor		Predecessor
	Estimated Life		April 1,		March 31,
	(Years)		2011		2011
Customer lists		3	$	8,200	$	—
Trade name		15		3,700		—
Software		15		2,500		—
			$	14,400	$	—

Included in the table above are amounts for RBH which is classified as “held for sale” on the accompanying consolidated balance sheet. As of April 1, 2011, RBH had recorded $6.8 million, $1.3 million, and $0 for Customer lists, Trade name, and Software, respectively.

(h)

Reflects the establishment of $3.2 million of goodwill as a result of fresh-start reporting. In addition, $23.1 million is included in goodwill as a result of income tax consequences of asset sales related to the Plan. Of the $23.1 million deferred tax liability, $0.5 million is included in current liabilities. This amount includes $1.4 million for RBH at April 1, 2011, which is included in assets “held for sale” at December 31, 2011.

(i)

Reflects the adjustment of assets and liabilities to fair value, or other measurement as specified in accounting guidance related to business combinations as follows (in thousands):

Property and equipment adjustment	$	19,969
Successor goodwill		3,161
Intangibles adjustment		14,400
Fresh-start accounting adjustment	$	37,530

(j)

In connection with the adoption of fresh-start reporting, the Company recognized a deferred tax liability related to the step up of land which is considered an indefinite life asset. In the future, changes in this liability due to changes in the Colorado state tax rate or settlement of the liability may cause the Company to record an income tax provision.

For federal income tax purposes, the Company is subject to limitations upon the use of net operating loss ("NOL") carry-forwards under Section 382 (the "Section 382 Limitation") of the Internal Revenue Code of 1986, as amended (the "IRC") as a result of changes in ownership in the current quarter and prior years. For financial reporting purposes, NOLs have been reduced to the amount that is more likely than not to be utilized in future years due to the Section 382 Limitation. A valuation allowance has been recorded for these NOLs. The amount of NOLs we are able to utilize in future years could change should we engage in certain transactions such as the sale of assets and potentially impact the Company's tax provision in the period it occurs.

For federal and state income tax reporting purposes, the Company is not subject to income tax upon debt forgiveness income. Instead, we may reduce our tax attributes for the amount of debt forgiveness income that would otherwise be realized. The order in which tax attributes are reduced is prescribed by the IRC and can vary based upon elections allowed. The choice between these alternatives would cause a difference from the current presentation of deferred tax assets and liabilities on Successor balance sheet and the activity shown in the fresh-start Balance Sheet disclosure as well as the tax provision in future years. Notwithstanding the availability of such alternatives, the terms of the Stock Purchase Agreement for the sale of RBH requires the Company to take positions, for federal income tax purposes, that will be contrary to the foregoing, both on a consolidated and separate company basis. However, the Company does not expect that doing so would have any material effect on the foregoing matters on a consolidated basis.