rw baird workwear industry perspective july 2011

June BLS employment failed to re-accelerate despite an encouraging ADP report earlierthis week but YOY growth in uniform employment continues to accelerate. Easycomparisons coupled with excess capacity at uniform rental facilities (driving strongincremental margins) are the key reasons why we remain constructive on the sector,with UNF's earnings report last week suggesting potential for positive earnings surprisesfrom peers. We believe cyclical momentum should continue through 2Q11 earningsseason (and possibly longer), providing opportunity for additional outperformance.

■ June employment fails to re-accelerate; disappoints. Total nonfarm payrollsincreased by 18,000, well below recently upwardly revised expectations with Mayfigures revised lower.

- The unemployment rate rose to 9.2% despite a decline in the labor force (anegative), with the number of underemployed workers increasing at the fastest pacesince September 2010.

■ Baird's Add/Stop Employment Index for uniform wearer posted modest growth(+22,000), similar to May but below recent trends.

- Importantly, YOY job growth related to uniform wearers continues to increase(indeed, accelerating) at more than twice the rate of the headline number and isnow at its highest level since 2006, underpinning our positive view on the stocks.

■ Macroeconomy still constructive for uniform rental stocks; cyclical tailwind shouldcontinue through summer. Our checks suggest moderating price competition inuniform rental (some markets are even increasing), and recent commentary suggestsuniform companies are seeing high-margin positive add/stops in their business. Webelieve easier comparisons should continue through 2Q11 earnings season (possiblylonger). In addition, continued declines in commodity costs (especially cotton) shouldprovide additional support beyond fixed cost leverage.

■ G&K (Outperform): We believe Street estimates, broadly, underappreciate GKSR'sunderlying earnings growth potential from even modest top-line growth. Combinedwith solid progress on the turn-around strategy, solid cash flow, and a likely increasein return of capital to shareholders, we still see upside to the stock.

■ Cintas (Outperform): Top-line momentum has accelerated, driving margin andearnings leverage as previous investments in sales staff are paying off. In addition, webelieve May's $500M bond offering could provide meaningful accretion if deployedand we are encouraged by recent efforts to expand the company’s higher-growthhygiene/chemicals business through strategic partnerships with established industrysuppliers (e.g., Diversey).

■ UniFirst (Neutral): UniFirst continues to execute above peer levels, suggesting sharegains. However, rising merchandise costs are slightly holding back cyclical earningsgrowth. Shares appear fully valued but may provide longer-term opportunities beyondcyclical dynamics.

INDUSTRY UPDATE

Prices as of 7/7/11

Ticker PriceMkt Cap

(mil)Rating Risk

CTAS $34.12 $4958 O A

GKSR $36.23 $ 667 O A

UNF $60.49 $1183 N ABaird covered companies

July 8, 2011 Baird Equity ResearchBusiness Services

Facility ServicesPositive Cyclical Uniform Thesis Intact Despite Continued BLS Headlines

Andrew J. Wittmann, CFA

[email protected]

414.298.1898

Justin P. Hauke

[email protected]

312.609.5485

[Please refer to Appendix- Important Disclosuresand Analyst Certification]

2

Details

Cyclical Uniform Thesis Continues Despite Continued Headline EmploymentWeakness

BLS employment failed to re-accelerate in June despite an encouraging ADP report earlier this weekbut YOY growth in uniform employment continues to accelerate. We believe favorable comparisonscoupled with excess capacity at many uniform rental facilities (driving strong incremental margins) arethe key reasons why we remain constructive on the sector, with UNF's earnings report last weeksuggesting potential for continued positive earnings surprises. We believe cyclical momentum shouldcontinue through 2Q11 earnings season (and possibly longer) providing opportunity for additionalsector outperformance.

Indeed, job growth in uniform-related wearers continues to increase (indeed, acceleratingsequentially) at more than twice the rate of the economy as a whole and remains at its highest levelsince 2006, a crucial point underpinning our positive view on uniform stocks. The figure belowdemonstrates this dynamic, a point that we continue to stress is not reflected in a cursory view of thedata. This point was also highlighted by UNF's much better-than-expected earnings results last week,with organic uniform rental growth increasing at its fastest pace in 5 years.

Total Non-Farm Employment vs. Baird Add/Stop Employment Indicator (YOY Change)

Source: Bureau of Labor Statistics and Baird Research

-8.00%

-7.00%

-6.00%

-5.00%

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

BLS Total Non-Farm Employment

Baird Add/Stop Employment Indicator

Growth in Baird Add/Stop

Index employment is

outpacing total NFP

employment - first time

since early 2007

Thus we continue to see upside in uniform rental stocks as incremental wearers at existing rentalaccounts boost utilization rates, generating highly profitable incremental margins, with recentcommodity price declines providing additional support for earnings.

Indeed, cotton prices have declined 42% since their March peak (25% in the past month alone), astatistic which we believe is unlikely reflected in most Street estimates. We also continue to believesignificant excess capacity remains at the public uniform companies (despite recent revenue growthstabilization) which should provide opportunity to improve fixed asset utilization rates as employmentfurther improves (even modestly).

July 8, 2011 | Facility Services

Robert W. Baird & Co.

3

U.S. Cotton Prices, spot ($/lb)

Source: FactSet Research Systems

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

2006 2007 2008 2009 2010 2011

U.S. Cotton (spot), $/lb

U.S. Cotton (Spot), YOY (right)

Historically, the uniform sector has been an effective way to invest in early cycle stocks (the stockshistorically bottom 12 months before an employment inflection) or to play an expanding economy(stocks also tend to outperform mid to late cycle when the rate of job growth is higher). Indeed, untilearlier this year, stock performance at the uniform rental companies had lagged the broader marketsignificantly as the economy moved into more advanced stages of the recovery.

However, since February the market has generally been positively surprised with the monthly jobsnumbers (with the exception of May and June's disappointing release) and the earnings reports at thepublicly-traded uniform companies in particular (including last week's report at UNF). Thisphenomenon has historically allowed for uniform stock outperformance for a period of roughly 13-24months, well-demonstrated by the current cycle as well (see figure below).

Uniform Stock Performance

Source: FactSet Research Systems

One-Month Percentage Price Change YTD Percentage Price Change

Three-Month Percentage Price Change Trailing 12 Months Percentage Price Change

0% 5% 10% 15% 20% 25%

Cintas

G&K Services

U niform Index

U niFirst

S&P 500

0% 10% 20% 30% 40% 50% 60% 70% 80%

G&K Services

Uniform Index

C intas

UniFirst

S&P 500

0% 5% 10% 15% 20% 25%

UniFirst

G &K Services

Uniform Index

Cintas

S&P 500

0% 2% 4% 6% 8% 10% 12% 14% 16%

UniFirst

Uniform Index

C intas

G&K Services

S&P 500



4

Despite the strong gains, however, we believe the sector can continue to generate alpha over the nextseveral months (through 2Q11 earnings season at least) as we believe Street estimates have room tocontinue to migrate higher, supporting valuation.

That said, we may consider taking profits on further outsized gains, particularly as operating leveragelikely begins to slow as we move into 2012 and absolute employment gains (demonstrated by the Mayand June BLS reports) suggest slowing overall momentum. We will continue to source Baird'sAdd/Stop uniform employment index as well as our quarterly survey of private uniform companies askey determinants of our outlook for the stocks.

We note that valuation multiples for the group appear reasonable, but not overly inexpensive,particularly as employment is now posting modest expansion. We also believe uniform rental stocks(group avg. EV/EBITDA = 7.6x; P/E = 17.4x) are comparably attractive versus other facility servicesstocks (group avg. EV/EBITDA = 11.2x; P/E = 21.4x) which face comparable macroeconomic drivers(e.g., employment) and exhibit similar recurring revenue-based business models, strong cash flow,and (in the case of SWSH, ROL, and ECL) a degree of route-based product and service distribution.

Uniform Industry Valuation

Price Rating

Company Ticker FTM AVG FTM AVG

Cintas CTAS $33.72 O 8.3x 9.0x 18.5x 18.7x

G&K Services GKSR $36.01 O 8.1x 8.2x 18.5x 17.1x

UniFirst UNF $59.86 N 6.4x 5.8x 15.1x 13.7x

Average: 7.6x 7.7x 17.4x 16.5x

Other Facility Services Companies

Price Rating

Company Ticker FTM AVG FTM AVG

Swisher Hygiene SWSH $5.42 O NM NM NM NM

Rollins Inc. ROL $21.31 NR 16.2x 11.7x 30.9x 23.8x

Ecolab ECL $56.22 O 11.5x 10.5x 21.4x 22.3x

Iron Mountain IRM $35.10 N 10.2x 10.6x 26.4x 33.6x

ABM Industries ABM $23.49 N 9.2x 9.5x 14.3x 19.0x

Standard Parking STAN $16.57 NR 8.8x 9.6x 13.8x 17.5x

Average: 11.2x 10.4x 21.4x 23.2x

As of 07/08/2011

Source: FactSet Research Systems and Baird estimates

EV/EBITDA, ftm P/E

EV/EBITDA, ftm P/E



5

June Employment Report Fails to Recover; Contrasts with ADP PrivatePayrolls DataTotal nonfarm payrolls increased by just 18,000 in June, disappointing expectations that were revisedhigher earlier this week following a string of better-than-expected economic releases. Furthermore,May job gains were cut in half, from +54,000 to just +25,000, suggesting the employment marketcontinues to remain sluggish following a brief acceleration earlier this year . Private sector payrolls alsoretreated, posting a +57,000 gain, below the +73,000 gain in May and well below gains in excess of200,000 seen earlier this year. For perspective, monthly job gains of at least 150,000 are necessary tokeep unemployment levels constant.

Forward-looking employment indicators were also disappointing with total average weekly hoursworked declining by 0.1 hours to 34.3 hours in June (but has been essentially constant since February).The private employment diffusion index also declined to 53.5 (from a revised 54.1 in May). Note,however, that a reading above 50 indicates sequential improvement in the data. Thus, while the lowersequential reading indicates that employment acceleration has slowed, overall growth rates remainpositive, which is consistent with the slower employment gains of the past two months.

Baird Add/Stop Index Growth Continues to Outpace Broader Market with Rate of Growth StillAccelerating

Absolute employment gains within Baird's Add/Stop Employment Index specific to uniformrental-related employment also slowed, but the rate of YOY improvement continues to increase(indeed, accelerating), consistent with the results of our recent uniform industry survey and UNF'smuch better-than-expected earnings report last week. Total Add/Stop employment increased by+22,000, generally consistent with last month's revised figure (+24,000, little changed), but below the+50,000-80,000 gains posted earlier this year. However, the YOY growth in Add/Stop employmentincreased to +1.73% (versus +1.58% YOY last month), its highest growth rate since December 2006(note the solid black line in the figure below).

Baird Add/Stop Index


(400)

(300)

(200)

(100)

0

100

200

-8%

-6%

-4%

-2%

0%

2%

4%

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

Baird Add/Stop Indicator Monthly Job Gains/Losses (000), right

Baird Add/Stop Indicator YOY Growth Rate, left

Average = 65k Average = 54k

Cycle Average = 36k

2011 Average = 55k

In addition, we note that the YOY growth rate in Add/Stop employment categories continues tooutpace the broader economy for the first time since late 2006/early 2007 (and is now more thandouble the rate of the economy-wide growth rate). As we have highlighted, this remains a criticalelement of the data as uniform employment has lagged broader employment categories throughout



6

the recovery until February. The accelerating improvement in YOY Add/Stop employment growth isconsistent with our survey data as well as UNF's earnings report last week in which organic rentalgrowth increased at its fasted pace since 2006.

Favorable YOY comparisons coupled with excess capacity at uniform rental facilities (driving strongincremental margins) are the key reasons why we remain constructive on the uniform stocks. Webelieve these trends should continue through 2Q11 earnings season (and possibly longer) beforecomparisons become more difficult.

We also highlight that employment gains within several key verticals posted solid improvement inJune. Total factory payrolls increased 6,000 following last month's first setback in seven months. Foodservices industries also posted strong gains, a consistent theme over the last several months. We alsobelieve that gains in Food Services and Drinking Places should benefit many of the uniform rentalcompanies' ancillary offerings, such as chemicals, hygiene products, shop towels and linens. Forperspective, ancillary offerings at the uniform rental companies encompass roughly 50% of total rentalrevenue and are meaningful parts of the overall business, though garment rental is still the largestindividual category.

The figure below shows the absolute job gains/losses within several of the primary uniform-wearingindustries comprising our Index over the last month.

Baird Add/Stop Index Component Industries: 1-Month Employment Change (000s)


9

8

6

4

4

3

2

1

0

(1)

(1)

(5)

(8)

Food Services and Drinking Places

Food Manufacturing

Food and Beverage Stores

Chemicals

Motor Vehicle and Parts Dealers

Repair and Maintenance

Truck Transportation

Gasoline Stations

Wholesale Trade - Durable Goods

Fabricated Metal Products

Wholesale Trade - Nondurable Goods

Machinery

Specialty Trade Contractors

1-month Employment Change (000s)

Recent Derivative Employment Data Still Mixed but ADP Report May Provide Better Gauge ofReaccelerationDerivate employment data over the past few weeks has been mixed, with still-elevated new joblessclaims balanced by what appears to be a strong recovery in June private payrolls.

In particular, this week’s ADP employment report indicated net job growth of 157,000 in June, morethan double the 70,000 consensus and a recovery from just 36,000 net job gains in May and moreconsistent with monthly job growth figures since late 2010. Indeed, ADP noted in their release thatthe June figures "suggest that the economic recovery, which slipped in the spring, might have foundnew traction in early summer." Recall that the ADP report tracks employment gains/losses in the U.S.private sector only. Furthermore, we note that the ADP report is based on actual payroll receipts, asopposed to the survey/model-driven BLS report, which may suggest that ADP provides a better gaugeof actual employment conditions.



7

Total Nonfarm Private Payrolls, by Firm Size

Source: ADP Employment Report

105,000

107,000

109,000

111,000

113,000

115,000

117,000

(1,000)

(800)

(600)

(400)

(200)

-

200

400

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Large (499+)

Medium (50-499)

Small (1-49)

Total Employment, millions (right)

Goods-producing sectors and manufacturing specifically (greater uniform customer exposure) alsorecovered, with gross-producing employment increasing by 27,000 in June versus a 10,000 decline inMay. We believe a weaker dollar has contributed in part to recent manufacturing strength asUS-produced goods have become comparatively more attractive. Job gains in June also continue to beconcentrated among small (1-49 employees) and medium (50-499 employees) firms with large firmslargely flat.

In contrast, however, jobless claims remain elevated, with the 4-week moving average in initialjobless claims still above the key 400,000 level this month (jobless claims below 400,000 are typicallyassociated an improving unemployment rate). Furthermore, claims have generally overshotexpectations, which is concerning given recent negative revisions to forecasts. Still, initial joblessclaims are 36% below their prior cycle peak of 658,750 in March 2009 (see figure below).

Initial Jobless Claims

Note: The solid red line indicates the level of jobless claims historically associated with net employment growth

Source: U.S. Department of Labor, Bureau of Labor Statistics

250,000

300,000

350,000

400,000

450,000

500,000

550,000

600,000

650,000

700,000

Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11

Initial Jobless Claims (4-wk MA)

Continuing jobless claims declined modestly in June with the 4-week moving average increasingfalling from 3.724 million at the end of May to 3.705 million currently. This week’s continuing claimsdecreased by 43,000, suggesting only moderate declines continue with current claims still above peaklevels of the previous two recessions.



8

Continuing Jobless Claims


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

Jan-67 Jan-72 Jan-77 Jan-82 Jan-87 Jan-92 Jan-97 Jan-02 Jan-07

The unemployment rate (which is based on a separate survey) increased 10 bps sequentially to 9.2%in June (expectations were for no change). Negatively, the labor market declined for the first timesince January (-272,000), potentially signaling fewer job prospects as people exit the labor force (stoplooking for work). The unemployment rate would have thus been nominally higher, had the labormarket held constant. The U-6 unemployment rate (which includes involuntary part-time employmentand discouraged workers – i.e., unemployed workers who have ceased looking for employment) alsoincreased by 40 bps in June to 16.2%, its highest level since December 2010 and the largest monthlyincrease since September 2010.

The unemployment rate remains well above the previous cyclical peaks of 6.3% in June 2003 and 7.8%in June 1992.

Civilian Unemployment Rate (persons 16 years of age and older)

Note: The solid grey bars indicate recessions, as determined by the National Bureau of Economic Research


0

2

4

6

8

10

12

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010

Uniform Stock Investment Perspectives

■ We rate G&K Services (GKSR-$35.48; $40 price target) at Outperform. We believe Streetestimates, broadly, GKSR's underlying earnings growth potential from even modest top-line



9

growth. Furthermore, G&K reported better-than-expected F3Q11 earnings in May, driven by strongtop-line results (above our estimate) and much better-than-expected margin expansion. Investorsare gaining confidence in management's targeted “10/10” plan to achieve 10% operating marginsand ROIC by F2014, which should unlock material value creation over the next several years.Combined with solid cash flow, and a likely increase in return of capital to shareholders (likelythrough a dividend increase later this summer), we see relative upside to the stock.

- Against this backdrop, we continue to believe investors are best served by taking a multi-yearlook at GKSR’s ability to create value by bridging the profitability gap versus peers over time. Inaddition, we believe outsized earnings growth potential at GKSR relative to peers continues tojustify a growth multiple for the stock. Our $40 price target is supported by our DCF analysiswhich incorporates management’s long-term profitability targets and by the application of an8.0x forward EV/EBITDA (in line with the stock’s historical average multiple of 8.2x and a slightpremium to peers and consistent with what we see as above-average earnings growth potential).Our price target also implies a 17.9x NTM P/E. Risks to our price target include a highlycompetitive industry, employment trends, energy price fluctuations and acquisition integration.

■ We rate Cintas (CTAS-$33.64; $35 price target) at Outperform. Top-line momentum hasaccelerated, driving margin and earnings leverage as previous investments in sales staff have begunto pay off. Although rising commodity costs remain a source of caution (though have recentlydeclined), with broad-based top-line improvement, increasing capital allocation towards M&A, andmoderating pricing pressure, we see opportunity for further upside. In addition, we believe a$500M bond offering in May could also provide meaningful accretion (we estimate up to $0.12 inF2012, not in current estimates) from share repurchases or other capital deployments and we areencouraged by recent efforts to expand the company’s higher-growth hygiene/chemicals businessthrough strategic partnerships with established industry suppliers (e.g., Diversey).

- Our $35 price target assumes a 7.7x FTM EBITDA, below the company’s historical average of 9.2xand at a discount to current levels, suggesting upside to the extent CTAS can maintain its currentmultiple. Furthermore, we believe downside is supported by the company’s $500M sharerepurchase authorization. We also see upside to our price target to the extent CTAS can deploy itsbalance sheet toward additional accretive opportunities. Risks to our price target include a highlycompetitive market, employment trends, energy and scrap paper price fluctuations.

■ We rate UniFirst (UNF-$59.36; $61 price target) at Neutral. UniFirst continues to execute abovepeers, suggesting share gains. However, with rising merchandise costs holding back cyclicalearnings growth, shares appear fully valued. That said, as the cycle matures and inventorypressures anniversary, we believe UNF may offer opportunity versus peers given industry-leadingexecution, strong FCF generation, and an attractive valuation relative to peers. We'd be betterbuyers in the low $50s.

- Our $61 price target assumes an essentially constant multiple of 5.9x FTM EBITDA (14.4x FTMearnings), consistent with the stock's historical levels but at a discount to peers (which collectivelytrade at ~7.5x EBITDA), given UNF's largely company-specific inventory cycle, which dampens thecompany's near-term earnings growth potential versus peers. In addition, we note that UNF'sdual-class share structure has historically driven a ~1-2 point discount versus GKSR, which hashistorically traded around 8x EBITDA on average. Risks to our price target include a highlycompetitive market, employment trends, energy price fluctuations and a 10:1 super-votingdual-class insider share structure.



10

Appendix - Important Disclosures and Analyst Certification

Covered Companies Mentioned

All stock prices below are the July 7, 2011 closing price.

Cintas Corporation (CTAS - $34.12 - Outperform)G&K Services, Inc. (GKSR - $36.23 - Outperform)UniFirst Corporation (UNF - $60.49 - Neutral)(See recent research reports for more information)

Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q310

15

20

25

30

35

2009 2010 2011

07/16/08O:$36

09/19/08O:$37

12/18/08O:$35

12/22/08O:$31

06/01/09N:$27

09/23/09U:$28

12/23/09U:$26

02/17/10U:$22

07/21/10N:$28

09/22/10N:$30

12/22/10N:$32

03/14/11O:$34

03/23/11O:$35

Rating and Price Target History for: Cintas Corporation (CTAS) as of 07-07-2011

Created by BlueMatrix

Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q38

16

24

32

40

2009 2010 2011

08/13/08N:$36

10/07/08N:$32

10/29/08N:$23

12/18/08N:$21

04/29/09N:$26

06/01/09N:$22

08/07/09N:$21

09/23/09U:$21

10/28/09N:$23

01/27/10N:$26

04/28/10N:$28

06/15/10N:$23

08/18/10N:$24

11/02/10N:$30

01/19/11O:$37

02/02/11O:$38

05/03/11O:$40

Rating and Price Target History for: G&K Services, Inc. (GKSR) as of 07-07-2011




11

Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q30

15

30

45

60

75

2009 2010 2011

10/30/08O:$38

06/01/09N:$37

06/02/09N:$36

07/02/09N:$39

09/23/09U:$42

10/29/09U:$43

01/07/10O:$59

04/01/10O:$60

07/01/10O:$51

10/20/10O:$54

01/05/11O:$57

01/19/11N:$58

03/30/11N:$60

06/30/11N:$61

Rating and Price Target History for: UniFirst Corporation (UNF) as of 07-07-2011


1 Robert W. Baird & Co. Incorporated makes a market in the securities of CTAS, GKSR and UNF.

Robert W. Baird & Co. Incorporated and/or its affiliates expect to receive or intend to seek investment banking related compensationfrom the company or companies mentioned in this report within the next three months.Investment Ratings: Outperform (O) - Expected to outperform on a total return, risk-adjusted basis the broader U.S. equity marketover the next 12 months. Neutral (N) - Expected to perform in line with the broader U.S. equity market over the next 12 months.Underperform (U) - Expected to underperform on a total return, risk-adjusted basis the broader U.S. equity market over the next 12months.Risk Ratings: L - Lower Risk - Higher-quality companies for investors seeking capital appreciation or income with an emphasis onsafety. Company characteristics may include: stable earnings, conservative balance sheets, and an established history of revenue andearnings. A - Average Risk - Growth situations for investors seeking capital appreciation with an emphasis on safety. Companycharacteristics may include: moderate volatility, modest balance-sheet leverage, and stable patterns of revenue and earnings. H -Higher Risk - Higher-growth situations appropriate for investors seeking capital appreciation with the acceptance of risk. Companycharacteristics may include: higher balance-sheet leverage, dynamic business environments, and higher levels of earnings and pricevolatility. S - Speculative Risk - High-growth situations appropriate only for investors willing to accept a high degree of volatility andrisk. Company characteristics may include: unpredictable earnings, small capitalization, aggressive growth strategies, rapidly changingmarket dynamics, high leverage, extreme price volatility and unknown competitive challenges.Valuation, Ratings and Risks. The recommendation and price target contained within this report are based on a time horizon of 12months but there is no guarantee the objective will be achieved within the specified time horizon. Price targets are determined by asubjective review of fundamental and/or quantitative factors of the issuer, its industry, and the security type. A variety of methodsmay be used to determine the value of a security including, but not limited to, discounted cash flow, earnings multiples, peer groupcomparisons, and sum of the parts. Overall market risk, interest rate risk, and general economic risks impact all securities. Specificinformation regarding the price target and recommendation is provided in the text of our most recent research report.Distribution of Investment Ratings. As of June 30, 2011, Baird U.S. Equity Research covered 660 companies, with 54% ratedOutperform/Buy, 45% rated Neutral/Hold and 1% rated Underperform/Sell. Within these rating categories, 15% ofOutperform/Buy-rated, and 5% of Neutral/Hold-rated companies have compensated Baird for investment banking services in the past12 months and/or Baird managed or co-managed a public offering of securities for these companies in the past 12 months.Analyst Compensation. Analyst compensation is based on: 1) The correlation between the analyst's recommendations and stockprice performance; 2) Ratings and direct feedback from our investing clients, our sales force and from independent rating services;and 3) The analyst's productivity, including the quality of the analyst's research and the analyst's contribution to the growth anddevelopment of our overall research effort. This compensation criteria and actual compensation is reviewed and approved on anannual basis by Baird's Research Oversight Committee. Analyst compensation is derived from all revenue sources of the firm,including revenues from investment banking. Baird does not compensate research analysts based on specific investment bankingtransactions.A complete listing of all companies covered by Baird U.S. Equity Research and applicable research disclosures can beaccessed athttp://www.rwbaird.com/research-insights/research/coverage/research-disclosure.aspx .You can also call 1-800-792-2473 or write: Robert W. Baird & Co., Equity Research, 24th Floor, 777 E. Wisconsin Avenue, Milwaukee,



http://www.rwbaird.com/research-insights/research/coverage/research-disclosure.aspx

12

WI 53202.Analyst Certification. The senior research analyst(s) certifies that the views expressed in this research report and/or financial modelaccurately reflect such senior analyst's personal views about the subject securities or issuers and that no part of his or hercompensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in the researchreport.DisclaimersBaird prohibits analysts from owning stock in companies they cover.This is not a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflectour judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, butwe cannot guarantee the accuracy.ADDITIONAL INFORMATION ON COMPANIES MENTIONED HEREIN IS AVAILABLE UPON REQUESTThe Dow Jones Industrial Average, S&P 500, S&P 400 and Russell 2000 are unmanaged common stock indices used to measure andreport performance of various sectors of the stock market; direct investment in indices is not available.Baird is exempt from the requirement to hold an Australian financial services license. Baird is regulated by the United StatesSecurities and Exchange Commission, FINRA, and various other self-regulatory organizations and those laws and regulations maydiffer from Australian laws. This report has been prepared in accordance with the laws and regulations governing United Statesbroker-dealers and not Australian laws.Copyright 2011 Robert W. Baird & Co. IncorporatedOther DisclosuresUK disclosure requirements for the purpose of distributing this research into the UK and other countries for which Robert W. BairdLimited holds an ISD passport.This report is for distribution into the United Kingdom only to persons who fall within Article 19 or Article 49(2) of the FinancialServices and Markets Act 2000 (financial promotion) order 2001 being persons who are investment professionals and may not bedistributed to private clients. Issued in the United Kingdom by Robert W. Baird Limited, which has offices at Mint House 77 MansellStreet, London, E1 8AF, and is a company authorized and regulated by the Financial Services Authority. For the purposes of theFinancial Services Authority requirements, this investment research report is classified as objective.Robert W. Baird Limited ("RWBL") is exempt from the requirement to hold an Australian financial services license. RWBL is regulatedby the Financial Services Authority ("FSA") under UK laws and those laws may differ from Australian laws. This document has beenprepared in accordance with FSA requirements and not Australian laws.

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