Isle of Capri Casinos Inc. Rating: Buy

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1 GAMING Adam Steinberg, CFA Initiating Coverage January 9, 2006 Key Metrics ISLE - NASDAQ $24.88 Pricing Date 01/06/2006 Price Target $ Week Range $31.39-$19.09 Shares Outstanding (mm) 30.1 Market Capitalization ($mm) $ Mo Average Daily Volume 323,948 Institutional Ownership 63% Debt/Total Capital 82.9% ROE 7.2% Book Value/Share $8.33 Price/Book 3.0x Dividend Yield NA LTM EBITDA Margin 19.20% EPS($) FY: April Prior Curr. Prior Curr. 2004A 2005A 2005A 2006E 2006E 1Q-Jul A 2Q-Oct (0.03)A 3Q-Jan E 4Q-Apr E FY E P/E 17.3x 29.6x NM All EPS (FD) based on the company's April fiscal year. Revenue($mm) Prior Curr. Prior Curr. 2004A 2005A 2005A 2006E 2006E 1Q-Jul A 2Q-Oct A 3Q-Jan E 4Q-Apr E FY 1, , ,095.0E Isle's fiscal year ends April 30. All EPS (FD) are based on the company's fiscal year. 1 Year Price History for ISLE Q1 Q1 Q2 Q Isle of Capri Casinos Inc. Rating: Buy Battle-Tested Management Investing in Competitive Markets Investment Highlights: We are initiating coverage of Isle of Capri Casinos Inc. with a Buy rating and a $29 price target. Our price target includes $22 in value from current operations, implying a multiple of 7.1x and 6.6x our calendar 2006E and 2007E EBITDA, and also assigns an additional $7 in value for the Waterloo, IA and Pompano, FL opportunities. Isle of Capri has a strong pipeline of growth opportunities, including its Waterloo, IA riverboat and additions to its properties in Bettendorf, IA, Boonville, MO and Black Hawk, CO. The company is also redeveloping its casino in Biloxi, MS, an applicant for a Category 2 license in Pennsylvania, has applied for a regional casino license in the UK, and is also a part of a group competing to develop an integrated casino resort on Sentosa Island in Singapore. In December, Isle of Capri announced that it signed a joint development agreement with the Lemieux Group that includes a provision for Isle to fund a new multi-purpose arena and pursue a gaming license in Pittsburgh. We project revenue to grow 11% and 7% in FY07 and FY08 to $1.2bn and $1.3bn, while EBITDA is assumed to grow 19.5% and 10.8%, respectively. The primary driver of the Y/Y growth is easy comps following operations impacted by the fall 2005 hurricanes and by the opening of its Iowa riverboat. Isle owns one of the four facilities authorized to operate slot machines in Broward County, FL. We estimate the FL slots facility will contribute $6 in value to each share of ISLE. A talented and stable management team provides us with confidence in the strategic direction of Isle of Capri, as each member of the company's senior management team has extensive gaming or related industry experience and has been with the company for several years. For additional detail, please see our industry initiation report, "Know Your Odds: Gaming Industry Investment Primer," published on January 9, Created by BlueMatrix Company Description: Isle of Capri ( ) currently owns and operates 15 land-based and riverboat casinos in 11 distinct geographic markets located in 6 states, the Bahamas and the United Kingdom. In addition to its casino operations, the company also owns and operates a pari-mutuel harness racing facility in Pompano Beach, Florida in Broward County and is developing a riverboat casino in Waterloo, Iowa. The Disclosure section may be found on pages 6-7 of this report. The Valuation section may be found on page 6 of this report.

2 Investment Thesis Isle of Capri has an attractive pipeline of new opportunities that could enhance valuation. In particular, we remind investors that the company recently broke ground on a $134mm riverboat casino in Waterloo, IA and owns one of the four facilities authorized to operate slot machines in Broward County, FL. Isle of Capri is also planning to increase the size of its Biloxi, MS casino that was damaged by Hurricane Katrina. Likewise, Isle of Capri is also a part of the group, including Starwood Hotels and Resorts (HOT - $64.05 NYSE) and Eighth Wonder competing to develop an integrated casino resort on Sentosa Island in Singapore. Eighth Wonder is a private company run by casino designer Mark Advent. Mr. Advent is the creator of New York New York Hotel and Casino in Las Vegas. The company has also opened a temporary casino in Biloxi. Isle of Capri has strong brand recognition in its core midwest and mid-south markets. The "Isle Style" is a Caribbean theme and lush tropical decor that is directed at a customer who is looking for a getaway experience at a moderate price point. The company tries to provide a similar experience and level of service at all its properties. At each of its casinos it has the same or nearly the same food offerings, which include a high-end Farraddays' Steak House, the Calypso's buffet, Kitt's Kitchen restaurant, and the Tradewinds Grill. We believe investors are not giving ISLE value for its opportunities. Shares of ISLE are trading at 7.4x and 6.9x our calendar 2006E and 2007E EBITDA. As Isle of Capri begins to deliver better results and we receive more clarification on some of the outstanding opportunities, such as its proposed regional casino in the UK, the bidding process in Singapore, and plans for Pompano Park, we believe the multiple assigned to the company's shares should trade at a premium to that of its peer group. A talented and stable management team provides us with confidence in the strategic direction of Isle of Capri. Management of Isle of Capri are experienced gaming operators. Each member of the company's senior management team has extensive gaming or related industry experience and has been with the company for several years. Valuation At a recent price of $24.88, shares of Isle of Capri are trading at 7.4x and 6.9x our calendar 2006E and 2007E EBITDA. We value ISLE shares at $29. Our $29 price target includes $22 in value from current operations, implying a multiple of 7.1x and 6.6x our calendar 2006E and 2007E EBITDA, and also assigns an additional $7 in value for the Waterloo, IA and Pompano, FL opportunities. 2 MORGAN JOSEPH & CO. INC.

3 Table 1: Isle of Capri Gaming Valuation Analysis Enterprise Value Fair Multiple EBITDA Low High Low High Existing Properties Low High CY05E CY06E CY07E 2006E 2006E 2007E 2007E Biloxi 6.5x 7.0x Natchez 6.0x 6.5x Vicksburg 6.0x 6.5x Lula 6.0x 6.5x Bossier City 6.5x 7.0x Lake Charles 6.5x 7.0x Black Hawk 7.5x 8.0x Colorado Central Station 7.0x 7.5x Bettendorf 6.5x 7.0x Davenport 6.3x 6.8x Marquette 6.5x 7.0x Waterloo 0.0x 0.0x Kansas City 6.5x 7.0x Boonville 6.5x 7.0x Blue Chip (UK) 5.5x 6.0x (1.5) (1.4) (1.3) (7.6) (8.3) (7.4) (8.1) Our Lucaya (Bahamas) 6.0x 6.5x Corporate and Other 5.5x 6.0x (51.2) (45.7) (46.1) (251.1) (273.9) (253.6) (276.6) Total , , , ,837.8 Long-term debt, gross 1, , ,270.7 Less: Cash Less: Construction in Process Net Debt , , ,065.8 Equity Value Shares Out Current Price $24.88 Existing Operations $22 $20 $24 $21 $25 Florida Waterloo Price Target $29 $20 $24 $21 $25 % Potential 16.6% -20.9% -5.4% -16.7% -0.4% Current EV/ EBITDA multiple 8.4x 7.4x 6.9x Current P/ E 56.0x 42.0x 23.4x Target EV/ EBITDA multiple 9.1x 8.0x 7.4x Target P/ E 65.2x 49.0x 27.2x Source: Company reports and Morgan Joseph & Co. Inc. estimates 3 MORGAN JOSEPH & CO. INC.

4 Isle of Capri Income Statement FY05-FY08E ($ in millions, except per share data) Jul-04 Oct-04 Jan-05 Apr-05 FY05 Jul-05 Oct-05 Jan-06E Apr-06E FY06 FY07 FY08 Revenue Mssissippi operations Louisiana operations Colorado operations Iowa operations Missouri operations International operations Corporate and Other Total Revenue , , , ,306.9 Y/Y % Change -1.7% 0.0% 0.6% 2.4% 0.4% 0.2% -8.1% -0.1% -0.2% -2.0% 11.0% 7.5% EBITDA Mssissippi operations Louisiana operations Colorado operations Iowa operations Missouri operations International operations (1.2) (2.4) (1.8) 3.4 (2.1) 1.1 (0.9) (0.1) Corporate and Other (7.3) (9.7) (7.6) (12.0) (36.6) (12.3) (15.4) (11.5) (11.6) (50.8) (45.6) (46.3) EBITDA Y/Y % Change -10.2% -15.4% -11.2% -5.8% -10.5% -11.6% -15.1% -6.3% -4.2% -9.1% 19.5% 10.8% Preopening expenses/other (0.1) (0.2) (1.6) (0.2) (2.1) (0.0) (1.4) (1.4) Depreciation & Amortization (23.6) (25.8) (23.6) (24.7) (97.7) (25.3) (25.4) (25.5) (25.6) (101.8) (106.6) (108.8) EBIT Y/Y % Change -19.5% -36.5% -22.0% -10.0% -21.4% -23.4% -35.3% -13.0% -8.9% -18.9% 35.9% 17.5% Interest expense, net (17.4) (19.0) (18.5) (18.7) (73.5) (19.1) (20.3) (21.0) (22.3) (82.8) (88.6) (91.5) Minority interest (2.1) (1.5) (1.4) (0.4) (5.5) (2.1) (1.9) (2.2) (2.6) (8.8) (9.7) (10.1) Equity in unconsol. partnership's loss Other (5.3) (5.3) Interest & Other, net (19.5) (20.5) (19.9) (24.3) (84.2) (21.2) (22.2) (23.2) (24.9) (91.5) (98.3) (101.6) Pre-tax income (loss) (7.4) Income taxes (6.7) (2.0) (4.4) (6.2) (19.3) (3.0) 3.1 (0.5) (4.4) (4.7) (17.8) (22.7) Tax rate 38.8% 81.6% 55.6% 46.8% 47.2% 42.6% 42.6% 47.5% 47.5% 47.6% 45.0% 37.5% Extraordinary item/discont. Ops (3.6) (3.6) (0.1) (0.1) GAAP net income (loss) (4.2) GAAP EPS $0.34 $0.01 $0.11 $0.11 $0.58 $0.13 ($0.14) $0.02 $0.16 $0.17 $0.71 $1.21 RECONCILIATION TO OPERATING EPS: Extraordinary items Pre-opening/other Adjusted Net income (loss) (0.9) Operating EPS $0.34 $0.02 $0.15 $0.33 $0.84 $0.13 ($0.03) $0.02 $0.16 $0.20 $0.71 $1.21 Shares Outstanding Source: Company reports and Morgan Joseph & Co. estimates 4 MORGAN JOSEPH & CO. INC.

5 Isle of Capri Balance Sheet and Cash Flow Metrics FY05-FY08E ($ in millions) Jul-04 Oct-04 Jan-05 Apr-05 FY05 Jul-05 Oct-05 Jan-06E Apr-06E FY06 FY07 FY08 Balance Sheet and Cash Flow Items Cash Other Current Assets Current Assets Property, Plant & equip, net , , , , , , , , ,101.8 Total Assets 1, , , , , , , , , , , ,858.0 Current Maturities Other Current Liabilities Current Liabilities Long-Term Debt, net 1, , , , , , , , , , , ,240.5 Shareholders' equity Cash Flow from Operations Cash Used by Investing (27.5) (53.9) (68.1) (64.1) (213.7) (74.9) (49.8) (41.3) (39.0) (204.9) (193.0) (64.8) Debt Financing 1.0 (3.0) (54.9) Equity Financing (7.5) (0.5) (0.3) (3.1) (11.4) (0.7) (6.9) (7.6) Cash Flow from Financing (6.6) (3.6) (54.9) Net change in cash 16.4 (22.1) (6.3) (29.7) (5.0) Ratios Current Ratio Fixed Asset Turnover Total Asset Turnover Debt Ratio Equity Multiplier 6.3x 6.3x 6.3x 6.4x 6.4x 6.6x 7.1x 6.8x 6.8x 6.8x 6.7x 5.9x Interest coverage 3.1x 3.1x 3.0x 3.1x 3.1x 2.9x 2.8x 2.6x 2.5x 2.5x 2.8x 3.0x Total Debt/EBITDA 4.5x 4.6x 4.8x 5.1x 5.1x 5.3x 5.8x 5.9x 6.0x 6.0x 5.3x 4.6x BV/Share $8.01 $8.12 $8.19 $8.33 $8.45 $8.34 $8.33 $8.30 $8.42 $8.39 $9.03 $10.06 ROIC 19% 18% 17% 16% 17% 16% 15% 15% 14% 15% 16% 17% ROE 18% 13% 11% 10% 11% 8% 7% 6% 3% 2% 8% 13% Source: Company reports and Morgan Joseph & Co. estimates 5 MORGAN JOSEPH & CO. INC.

6 Required Disclosures Rating and Price Target History for: Isle of Capri Casinos Inc. (ISLE) as of Q1 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q Price Target Our price target is $29. Created by BlueMatrix Valuation Methodology At a recent price of $24.88, shares of Isle of Capri are trading at 7.4x and 6.9x our calendar 2006E and 2007E EBITDA. We value ISLE shares at $29. Our $29 price target includes $22 in value from current operations, implying a multiple of 7.1x and 6.6x our calendar 2006E and 2007E EBITDA, and also assigns an additional $7 in value for the Waterloo, IA and Pompano, FL opportunities. Risk Factors Consumer discretion could negatively impact the company's financial performance. Casinos market their products and services to the consumer; thus, any macro or regional economic issue such as unemployment, consumer confidence and disposable income, among others, would negatively impact Isle's customer base. Severe weather could affect results. The company's results could also be impacted by severe weather. Hurricanes are the most recent concerns for investors, given the impact to operations in Louisiana and Mississippi from hurricanes Katrina and Rita in Severe snowstorms, flooding, or icing also present a hazard, potentially impacting the decision of the consumer to visit a casino. Potential construction projects involve development risks. Isle of Capri has an extensive pipeline of new projects, including rebuilding its Biloxi property and the development of its Waterloo, IA riverboat. However, construction projects involve several risks, including delays and cost overruns. Also, as a medium-sized company, we would be concerned about Isle's ability to manage multiple ongoing projects at the same time. Regulatory or tax issues could have an adverse effect on PNK's results. The gaming industry is highly regulated and Isle of Capri, like all operators in the gaming industry, is exposed to regulatory or legislative risks, including new restrictions on operations and advertising, as well as increased taxes. I, Adam Steinberg, CFA, the author of this research report, certify that the views expressed in this report accurately reflect my personal views about the subject securities and issuers, and no part of my compensation was, is, or will be directly or indirectly tied to the specific recommendations or views contained in this research report. Research analyst compensation is dependent, in part, upon investment banking revenues received by Morgan Joseph & Co. Inc. Morgan Joseph & Co. Inc. intends to seek or expects to receive compensation for investment banking services from the subject company within the next three months. 6 MORGAN JOSEPH & CO. INC.

7 Investment Banking Services/Past 12 Mos. Rating Percent Percent BUY [B] HOLD [H] SELL [S] Meaning of Ratings A) Buy means reasonable outperformance relative to the market over months. B) Hold means market-type risk adjusted performance; potential source of funds. C) Sell means expected to underperform the market. Other Disclosures The information contained herein is based upon sources believed to be reliable but is not guaranteed by us and is not considered to be all inclusive. It is not to be construed as an offer or the solicitation of an offer to sell or buy the securities mentioned herein. Morgan Joseph & Co. Inc., its affiliates, shareholders, officers, staff, and/or members of their families, may have a position in the securities mentioned herein, and, before or after your receipt of this report, may make or recommend purchases and/or sales for their own accounts or for the accounts of other customers of the Firm from time to time in the open market or otherwise. Opinions expressed are our present opinions only and are subject to change without notice. Morgan Joseph & Co. Inc. is under no obligation to provide updates to the opinions or information provided herein. Additional information is available upon request. Copyright 2006 by Morgan Joseph & Co. Inc. 7 MORGAN JOSEPH & CO. INC.