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Appendix 1

The following scenarios present four hypothetical sets of projections for a company that demonstrate the
effect that interest expense has on the utilization of an existing net operating loss (NOL) carryover. The
scenarios also demonstrate that the utilization of an NOL will not have an impact on the tax benefit of
interest expense. Each scenario contains the same assumptions regarding earnings before interest and
taxes (EBIT). The four scenarios each present a different set of assumptions regarding interest expense
and the NOL. The four scenarios are as follows:

Scenario A — Projections Excluding Interest Expense and NOLs

Scenario B — Projections Including Interest Expense and Excluding NOLs

Scenario C — Projections Including Interest Expense and NOLs

Scenario D — Projections Excluding Interest Expense and Including NOLs

Pro Forma Net Operating Loss Utilization
Effect on Tax Benefit of Interest

Scenario A — Projections Excluding Interest Expense and NOLs

Year
1 2 3 4 5
Earnings Before Interest & Taxes $200 $250 $300 $350 $400

Interest Expense $ — $ — $ — $ — $ —
Earnings Before Taxes $200 $250 $300 $350 $400
Tax Rate 40% 40% 40% 40% 40%
Beginning NOL $ — $ — $ — $ — $ —

NOL Used $ — $ — $ — $ — $ —
Taxes With NOL Utilization $80 $100 $120 $140 $160
Cumulative Taxes $80 $180 $300 $440 $600

Tax Benefit of Interest $ — $ — $ — $ — $ —
Cumulative Tax Benefit of Interest $ — $ — $ — $ — $ —

Tax Benefit of NOL $ — $ — $ — $ — $ —
Cumulative Tax Benefit of NOL $ — $ — $ — $ — $ —

Scenario A is the base case, without interest expense or NOLs.

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