General

We own and operate the Riviera Hotel and Casino on the Strip in Las Vegas, Nevada ("Riviera Las Vegas"), and the Riviera Black Hawk Casino in Black Hawk, Colorado ("Riviera Black Hawk").

Riviera Las Vegas' is comprised of a hotel with 2,075 guest rooms, a convention, meeting and banquet space totaling 160,000 square feet, a casino with approximately 950 slot machines and 33 gaming tables, a poker room, a race and sports book and various bars and restaurants. Our capital expenditures for Riviera Las Vegas are primarily geared toward maintaining competitive slot machines in comparison to the market and maintaining the hotel rooms and amenities in sufficient condition to compete for customers in the convention and mature adult markets. Room rental rates and slot revenues are the primary factors driving our operating margins.

Riviera Black Hawk is comprised of a casino with approximately 750 slot machines and 9 gaming tables, a buffet, a delicatessen, a casino bar and a ballroom. Riviera Black Hawk caters primarily to the "locals" slot customer. Until recently, 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 craps and roulette gaming 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 roulette gaming. Our capital expenditures in Black Hawk are primarily geared toward maintaining competitive slot machines in comparison to the market. We also made limited capital expenditures in Black Hawk associated with the implementation of increased betting limits, extended hours and new games in accordance with the approval of Amendment 50 as referenced above.

Results of Operations

Three Months Ended September 30, 2009 Compared to Three Months Ended September
30, 2008

The following table sets forth, for the periods indicated, certain operating
data for Riviera Las Vegas and Riviera Black Hawk. Income from operations does
not include intercompany management fees.

                                                Third Quarter             Incr            Incr
             (In Thousands)                  2009           2008         $(Decr)        % (Decr)
Net Revenues:
Riviera Las Vegas                          $  22,629      $  30,231     $  (7,602 )         (25.1 %)
Riviera Black Hawk                            12,003          9,977         2,026            20.3 %
Total Net Revenues                         $  34,632      $  40,208     $  (5,576 )         (13.9 %)

Property Income from Operations:
Riviera Las Vegas                               (696 )          229          (925 )        (403.9 %)
Riviera Black Hawk                             1,344          1,241           103             8.3 %
Total Property Income from Operations            648          1,470          (822 )         (55.9 %)

Other Corporate Expenses:
Equity Compensation                             (153 )         (188 )          35            18.6 %
Other Corporate Expense                         (933 )       (1,028 )          95             9.2 %
M&A and Development Costs                          -            (59 )          59           100.0 %
Restructuring Fees                              (569 )            -          (569 )        (100.0 %)
Total Corporate Expenses                      (1,655 )       (1,275 )        (380 )         (29.8 %)

     Total (Loss) Income from Operations   $  (1,007 )    $     195     $  (1,202 )        (616.4 %)

Operating Margins (1)
Riviera Las Vegas                               (3.1 %)         0.8 %                        (3.9 %)
Riviera Black Hawk                              11.2 %         12.4 %                        (1.2 %)

(1) Operating margins represent income from operations by property as a percentage of net revenues by property.

Riviera Las Vegas

Revenues

Net revenues for the three months ended September 30, 2009 were $22.6 million, a decrease of $7.6 million, or 25.1%, from $30.2 million for the comparable period in the prior year.

Casino revenues for the three months ended September 30, 2009 were $9.8 million, a decrease of $2.0 million, or 16.9%, from $11.8 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 $7.8 million, a decrease of $1.3 million, or 13.7%, from $9.1 million and table game revenue was $1.8 million, a decrease of $0.6 million, or 27.3% from $2.4 million. Slot machine and table game revenues decreased primarily due to less wagering as a result of the slower economy. Slot machine win per unit per day for the three months ended September 30, 2009 was $85.49, a decrease of $22.19, or 20.6%, from $107.68 for the comparable period in the prior year. There were 994 slot machines on the floor, on average, during the quarter ended September 30, 2009 compared with 914 slot machines on the floor, on average, during the same period in the prior year.

Room revenues for the three months ended September 30, 2009 were $8.7 million, a decrease of $3.4 million, or 28.6%, from $12.1 million for the comparable period in the prior year. The decrease in room revenues was primarily due to a $15.66, or 20.8%, reduction in average daily room rates, or ADR, to $59.51 for the three months ended September 30, 2009 from $75.17 for the comparable period in the prior year. The decrease in ADR was largely the result of a $13.26, or 25.0%, decrease in leisure segment room rates and a $7.23, or 7.3%, decrease in convention segment room rates. Moreover, average daily room rates decreased as a result of a shift in the occupied room mix from higher rated convention segment occupancy to lower rated leisure segment occupancy. During the three months ended September 30, 2009, leisure segment and convention segment occupied rooms were 62.4% and 25.4% of total occupied rooms, respectively and during the three months ended September 30, 2008, leisure segment and convention segment occupied rooms were 49.5% and 35.0% of total occupied rooms, respectively. Convention segment demand decreased due to the effects of the ongoing recession and increased competition.

Hotel room occupancy percentage (per available room) for the three months ended September 30, 2009, was 76.7% compared to 87.1% for the same period in the prior year. During the third quarter of 2008, on average, approximately 7% of the hotel rooms were unavailable due to construction related to our room renovation project. Hotel room occupancy, including rooms unavailable due to construction, was 79.8% for the three months ended September 30, 2008. Revenue per available room, or RevPar, was $45.61 for the three months ended September 30, 2009, a decrease of $19.83, or 30.3%, from $65.44 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 decreases in occupied rooms and average daily room rates as described above. Room revenues include $1.4 million in revenues related to hotel room nights offered to high-value guests on a complimentary basis.

Food and beverage revenues for the three months ended September 30, 2009 was $4.2 million, a decrease of $1.4 million, or 24.9%, from $5.6 million for the comparable period in the prior year. The decrease was due to $0.8 million decrease in food revenues and $0.6 million decrease in beverage revenues. The decrease in food revenues was due to a 22.1% reduction in food covers and a 2.1% reduction in the average check compared to the same period in the prior year. Food covers decreased primarily as a result of strategic closures of food and beverage outlets in conjunction with periods of low hotel occupancy. Beverage revenues decreased as a result of a 28.4% reduction in drinks served, which was primarily due to fewer complimentary drinks served from our casino bars correlating with reduced casino patronage. Food and beverage revenues include $0.9 million in revenues related to food and beverages offered to high-value guests on a complimentary basis.

Entertainment revenues for the three months ended September 30, 2009 were $2.6 million, a decrease of $0.9 million, or 28.0%, from $3.5 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 include $1.4 million in revenues related to show tickets offered to high-value guests on a complimentary basis.

Other revenues for the three months ended September 30, 2009 were $1.2 million, a decrease of $0.3 million, or 19.5%, from $1.5 million for the same period in the prior year. The decrease in other revenues was due primarily to lower tenant rental income as a result of vacancies and rent concessions.

Promotional allowances were $3.8 million and $4.4 million for the three months ended September 30, 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 due to less complimentary offering redemptions.

Costs and Expenses

Casino costs and expenses for the three months ended September 30, 2009 were $5.2 million, a decrease of $1.5 million, or 22.0%, from $6.7 million for the comparable period in the prior year. The decrease in casino expenses was primarily due to a $0.7 million reduction in gaming marketing and promotional expenses, a $0.6 million reduction in slot and table game payroll and related costs and a $0.1 million reduction in gaming taxes.

Room rental costs and expenses for the three months ended September 30, 2009 were $4.8 million, a decrease of $1.6 million, or 24.7%, from $6.4 million for the comparable period in the prior year. The decrease in room rental expenses partially offsets the $3.4 million decrease in room rental revenues and correlates with the 7.6% reduction in occupied rooms. The decrease is primarily due to a $1.3 million reduction in room division payroll and related costs and a $0.2 million reduction in convention rebates and credit card processing fees.

Food and Beverage costs and expenses for the three months ended September 30, 2009 were $3.7 million, a decrease of $0.9 million, or 20.1%, from $4.6 million for the comparable period in the prior year. The decrease was primarily due to a $0.8 million food and beverage payroll and related costs reduction.

Entertainment department costs and expenses for the three months ended September 30, 2009 were $0.8 million, a decrease of $1.2 million, or 59.8%, from $2.0 million for the comparable period in the prior year. The decrease in entertainment department costs and expenses is primarily due to a $1.0 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.

Other general and administrative expenses for the three months ended September 30, 2009 were $6.2 million, a decrease of $1.0 million, or 14.6%, from $7.2 million for the comparable period in the prior year. The decrease in other general and administrative expenses was due primarily to a $0.7 million reduction in general and administrative and property maintenance payroll and related costs due primarily to workforce reductions and the elimination of the 401k matching contribution and a $0.3 million reduction in insurance, legal and professional costs.

Depreciation and amortization expenses for the three months ended September 30, 2009 were $2.6 million, a decrease of $0.2 million, or 9.7%, from $2.8 million for the comparable period in the prior year. The decrease in depreciation and amortization expenses was due primarily to the full depreciation of select assets since the third quarter of 2008.

Income (Loss) from Operations

Loss from operations for the three months ended September 30, 2009 was $0.7 million compared to income from operations of $0.2 million for the comparable period in the prior year. The decrease of $0.9 million is principally due to decreased net revenues that were not offset with equivalent reductions in costs and expenses.

Operating margin for the three months ended September 30, 2009 was a negative 3.1% due to the loss from operations. Operating margin for the three months ended September 30, 2008 was 0.8%. Operating margins decreased primarily due to the $15.66, or 20.8%, reduction in average daily room rates and the $1.3 million decrease in slot machine revenues.

Riviera Black Hawk

Revenues

Net revenues for the three months ended September 30, 2009 were $12.0 million, an increase of $2.0 million, or 20.3%, from $10.0 million for the comparable period in the prior year. The increase was primarily due to a $1.9 million increase in casino revenues to $11.6 million for the three months ended September 30, 2009 from $9.7 million for the same period in the prior year. Casino revenues are comprised of revenues from slot machines and table games.

Slot machine revenues increased $1.4 million, or 14.8%, to $10.9 million from $9.5 million for the comparable period in the prior year. Slot machine revenues increased primarily due to additional wagering as a result of the passage of Colorado Amendment 50 permitting increased betting limits and extended hours. Increased betting and extended hours were implemented July 2, 2009. Amounts wagered on slot machines increased $33.7 million to $214.7 million from $181.0 million for the comparable period in the prior year. Additionally, slot machine win per unit per day increased $32.18, or 25.7%, to $157.42 from $125.24 for the same period in the prior year. The increase in slot win per unit per day was due primarily to additional amounts wagered and approximately 70 less slot machines during the third quarter of 2009 in comparison to the same period in the prior year. There were 750 slot machines on the casino floor as of September 30, 2009. Cash incentives given to slot machine players, which are deducted from slot machine winnings to arrive at slot machine revenues, increased $1.1 million, or 56.0%, to $3.2 million for the three months ended September 30, 2009 compared to $2.1 million for the same period in the prior year. Cash incentives increased as a result of a concerted effort to retain and build our market share.

Table games revenue increased $0.5 million from $0.2 million to $0.7 million for the three months ended September 30, 2009 primarily as a result of increased wagering due to the July 2, 2009 implementation of increased betting limits, extended hours and roulette gaming as permitted with the passage of Colorado Amendment 50.

Food and beverage revenues were $2.0 million and $1.4 million for the three months ended September 30, 2009 and 2008, respectively. Food and beverage revenues for the three months ended September 30, 2009 include $1.6 million in revenues related to food and beverages offered to high-value guests on a complimentary basis. Food and beverage revenues improved primarily as a result of additional complimentary offerings to high-value guests in an effort to increase visitations and casino revenues.

Promotional allowances were $1.7 million and $1.2 million for the three months ended September 30, 2009 and 2008, respectively. Promotional allowances are comprised of food and beverage and other items 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 guests on a complimentary basis as described above.

Costs and Expenses

Costs and expenses for the three months ended September 30, 2009 were $10.7 million, an increase of $2.0 million, or 22%, from $8.7 million for the comparable period in the prior year.

Costs and expenses increased primarily due to a $1.7 million increase in casino costs and expenses and a $0.2 million increase in food and beverage costs and expenses.

Casino costs and expenses increased primarily due to a $1.0 million increase in marketing, advertising and promotional expenses and a $0.5 million increase in gaming taxes as a result of higher casino revenues. The increase in marketing, advertisement and promotional expenses was due to additional costs associated with implementing increased betting limits, extended hours and roulette gaming on July 2, 2009 as permitted with the passage of Colorado Amendment 50 and additional costs associated with efforts to retain and grow our slot machine player customer base.

Food and beverage costs and expenses increased primarily as a result of higher food costs and payroll and related expenses correlating with the $0.6 million increase in food and beverage revenues.

Income from Operations

Income from operations for the three months ended September 30, 2009 were $1.3 million, an increase of $0.1 million, or 8.3%, from $1.2 million for the comparable period in the prior year. The increase is related primarily to increased casino revenues as described above.

Operating margins were 11.2% for the three months ended September 30, 2009 in comparison to 12.4% for the comparable period in the prior year. Operating margins decreased primarily due to increased costs associated with the implementation of increased betting limits, extended hours and roulette gaming as permitted with the passage of Colorado Amendment 50 as described above.

Consolidated Operations

(Loss) Income from Operations

Loss from operations for the three months ended September 30, 2009 was $1.0 million, a decline of $1.2 million, or 616.4%, from income from operations of $0.2 million for the same period in the prior year. The decline was due to a $5.6 million decrease in consolidated net revenues partially offset by a $4.4 million decrease in consolidated costs and expenses. Consolidated net revenues decreased as a result of a $7.6 million net revenue decrease in Riviera Las Vegas partially offset by a $2.0 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 $6.7 million in Riviera Las Vegas partially offset by costs and expenses increases of $2.0 million and $0.4 million in Riviera Black Hawk and Corporate, respectively. Corporate costs and expenses increased primarily due to restructuring fees of $0.6 million incurred during the three months ended September 30, 2009 (see Notes 3 and 5 to the Condensed Consolidated Financial Statements).

Other Expense

Other expense was of $3.7 million for the three months ended September 30, 2009 and the three months ended September 30, 2008. Interest expense decreased $0.6 million during the three months ended September 30, 2009 but was fully offset by a $0.6 million gain in the fair value of derivative instruments during the three months ended September 30, 2008. The decrease in interest expense was the result of lower interest rates primarily due to the termination of our swap fixed interest rate on July 27, 2009. Interest rates for the Term Loan and Revolver 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 which were lower than our swap fixed interest rate during the three months ended September 30, 2009.

Net Loss

Net losses for the three months ended September 30, 2009 and 2008 were $4.7 million and $3.5 million, respectively. The $1.2 million additional loss in comparison to the same period in the prior year was due to the $1.2 decline in
(loss) income from operations.

Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008

The following table sets forth, for the periods indicated, certain operating data for Riviera Las Vegas and Riviera Black Hawk. Income from operations does not include intercompany management fees.

                                              Nine Months             Incr          Incr
           (In Thousands)                 2009          2008        $ (Decr)      % (Decr)
Net Revenues:
Riviera Las Vegas                       $  71,995     $ 101,206     $ (29,211 )       (28.9 %)
Riviera Black Hawk                         31,936        32,579          (643 )        (2.0 %)
Total Net Revenues                      $ 103,931     $ 133,785     $ (29,854 )       (25.9 %)

Property Income from Operations:
Riviera Las Vegas                             891         9,983        (9,092 )       (91.1 %)
Riviera Black Hawk                          4,178         5,580        (1,402 )       (25.1 %)
Total Property Income from Operations       5,069        15,563       (10,494 )       (67.4 %)

Other Corporate Expenses:
Equity Compensation                          (425 )        (620 )         195          31.5 %
M&A and Development Costs                       -          (104 )         104           100 %
Other Corporate Expense                    (2,762 )      (2,900 )         138           4.8 %
Restructuring Fees                         (2,106 )           -        (2,106 )        (100 %)
Total Corporate Expenses                   (5,293 )      (3,624 )      (1,669 )       (46.1 %)

Total Income from Operations            $    (224 )   $  11,939     $ (12,163 )      (101.9 %)

Operating Margins (1)
Riviera Las Vegas                             1.2 %         9.9 %                      (8.7 %)
Riviera Black Hawk                           13.1 %        17.1 %                      (4.0 %)

(1) Operating margins represent income from operations by property as a percentage of net revenues by property.

Riviera Las Vegas

Revenues

Net revenues for the nine months ended September 30, 2009 were $72.0 million, a decrease of $29.2 million, or 28.9%, from $101.2 million for the comparable period in the prior year.

Casino revenues for the nine months ended September 30, 2009 were $32.4 million, a decrease of $6.9 million, or 17.6%, from $39.3 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 $25.7 million, a decrease of $3.8 million, or 13.0%, from $29.5 million and table game revenue was $5.9 million, a decrease of $2.3 million, or 28.4%, from $8.2 million. Slot machine and table game revenues decreased primarily due to less wagering as a result of the slower economy and less walk-in business. Slot machine win per unit per day for the nine months ended September 30, 2009 was $99.56, a decrease of $18.30, or 15.5%, from $117.86 for the comparable period in the prior year.

Room revenues for the nine months ended September 30, 2009 were $27.7 million, a decrease of $13.9 million, or 33.4%, from $41.6 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 $62.27, a decrease of $26.02, or 29.5%, from $88.29 for the comparable period in the prior year. The decrease in ADR was due mostly to lower leisure segment rates in the first nine months of 2009 in comparison to the same period in the prior year 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 $42.01 for the nine months ended September 30, 2009, a decrease of $28.45, or 40.4%, from $70.46 for the same period in the prior year. Additionally, leisure segment and convention segment occupied rooms comprised 61.1% and 21.5% of total occupied rooms, respectively, for the nine months ended September 30, 2009 in comparison to 41.3% and 40.2%, 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 nine months ended September 30, 2009 was 76.7% compared to 84.4% for the same period in the prior year. During the nine months ended September 30, 2008, on average, approximately 7% of the hotel rooms were unavailable due to construction related to our room renovation project. Hotel room occupancy, including rooms unavailable due to construction, was 77.9% for the nine months ended September 30, 2008. Revenue per available room, or RevPar, was $47.73 a decrease of $26.78, or 35.9%, from $74.51 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 decreases in occupied rooms and average daily room rates as described above. Room revenues include $5.3 million in revenues related to hotel room nights offered to high-value guests on a complimentary basis.

Food and beverage revenues for the nine months ended September 30, 2009 was $13.3 million, a decrease of $5.3 million, or 28.3%, from $18.6 million for the comparable period in the prior year. The decrease was due to a $3.7 million decrease in food revenues and a $1.6 million decrease in beverage revenues. Food covers decreased 14.8% and the average check decreased 15.6% 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 include $3.3 million in revenues related to food and beverages offered to high-value guests on a complimentary basis.

Entertainment revenues for the nine months ended September 30, 2009 were $6.5 million, a decrease of $3.7 million, or 36.1%, from $10.2 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 include $2.8 million in revenues related to show tickets offered to high-value guests on a complimentary basis.

Other revenues for the nine months ended September 30, 2009 were $4.0 million, a decrease of $0.8 million, or 16.4%, from $4.8 million for the same period in the prior year. The decrease in other revenues was due primarily to a $0.4 million reduction in tenant rental income as a result of vacancies and rent concessions . . .