RW Baird is the leading financial analyst of the workwear sector. Download their August outlook here.
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August BLS data well below expectations. We have been growing increasingly cautious of uniform rental stocks in recent months following continued weakness in employment data and evidence of a slowing cyclical tailwind. While we still highlight some defensive attributes for the sector and recognize strength from ancillary product offerings and a more stable pricing environment, we look toward the results of our Baird quarterly industry survey later this month to provide greater insight into current trends and expectations for 2012. ■ August BLS report suggests flat job growth, disappoints. Total nonfarm payrolls were unchanged in August, suggesting flat net job growth, well below expectations (+65,000). While the temporary strike of 45,000 Verizon workers impacted the headline number, overall trends were generally negative, with June/July figures revised lower. The unemployment rate held constant at 9.1% ■ Uniform employment posts smallest gain since August 2010. Baird's Add/Stop Employment Index for uniform wearers decelerated, with just +10,000 jobs added, the lowest level since our Index first turned consistently positive in July 2010. Indeed, the rate of growth also slowed, with YOY employment growth declining sequentially for the first time in two years. ■ Data supports slowing cyclical momentum; defensive characteristics may be appreciated. As we have cautioned, we believe cyclical momentum may slow in 2H11, offset by what appears to still be strong new account growth, industry receptiveness to increased ancillary product offerings and a more stable pricing environment. We also believe the recurring ("defensive") revenue element of the sector supports near-term earnings/cash flow visibility which may be appreciated in the current environment. ■ G&K (Outperform): We continue to see opportunity through progress on management's turn around strategy, largely independent of the economy, with GKSR's solid cash flow and recent dividend boost providing additional support. ■ Cintas (Outperform): Cyclical momentum, combined with accretion from share buybacks, have benefited recent results, with organic growth at a five-year high. While we still see opportunities across CTAS's business (particularly beyond garment rental), with strong YTD performance and cyclical momentum likely nearing a peak, we believe risk/reward is becoming more balanced. ■ UniFirst (Neutral): UniFirst continues to execute above peers, suggesting share gains but rising merchandise costs have held back cyclical earnings growth. That said, we believe the stock may provide longer-term opportunities beyond cyclical dynamics with valuation becoming more attractive. ■ Next Data point: Baird Quarterly Uniform Survey. We look toward the results of our Baird quarterly industry survey later this month to provide greater insight into current trends and expectations for 2012. INDUSTRY UPDATE Prices as of 9/1/11 Ticker Price Mkt Cap (mil) Rating Risk CTAS $31.55 $4,524 O A GKSR $27.38 $509 O A UNF $50.54 $988 N A Baird covered companies September 2, 2011 Baird Equity Research Business Services Facility Services August BLS Report Disappoints; Cyclical Uniform Momentum Could Slow Andrew J. Wittmann, CFA [email protected]414.298.1898 Justin P. Hauke [email protected]312.609.5485 [ Please refer to Appendix - Important Disclosures and Analyst Certification ]
Transcript
August BLS data well below expectations. We have been growing increasingly cautiousof uniform rental stocks in recent months following continued weakness in employmentdata and evidence of a slowing cyclical tailwind. While we still highlight some defensiveattributes for the sector and recognize strength from ancillary product offerings and amore stable pricing environment, we look toward the results of our Baird quarterlyindustry survey later this month to provide greater insight into current trends andexpectations for 2012.
■ August BLS report suggests flat job growth, disappoints. Total nonfarm payrolls wereunchanged in August, suggesting flat net job growth, well below expectations(+65,000). While the temporary strike of 45,000 Verizon workers impacted theheadline number, overall trends were generally negative, with June/July figuresrevised lower. The unemployment rate held constant at 9.1%
■ Uniform employment posts smallest gain since August 2010. Baird's Add/StopEmployment Index for uniform wearers decelerated, with just +10,000 jobs added, thelowest level since our Index first turned consistently positive in July 2010. Indeed, therate of growth also slowed, with YOY employment growth declining sequentially forthe first time in two years.
■ Data supports slowing cyclical momentum; defensive characteristics may beappreciated. As we have cautioned, we believe cyclical momentum may slow in 2H11,offset by what appears to still be strong new account growth, industry receptivenessto increased ancillary product offerings and a more stable pricing environment. Wealso believe the recurring ("defensive") revenue element of the sector supportsnear-term earnings/cash flow visibility which may be appreciated in the currentenvironment.
■ G&K (Outperform): We continue to see opportunity through progress onmanagement's turn around strategy, largely independent of the economy, with GKSR'ssolid cash flow and recent dividend boost providing additional support.
■ Cintas (Outperform): Cyclical momentum, combined with accretion from sharebuybacks, have benefited recent results, with organic growth at a five-year high.While we still see opportunities across CTAS's business (particularly beyond garmentrental), with strong YTD performance and cyclical momentum likely nearing a peak,we believe risk/reward is becoming more balanced.
■ UniFirst (Neutral): UniFirst continues to execute above peers, suggesting share gainsbut rising merchandise costs have held back cyclical earnings growth. That said, webelieve the stock may provide longer-term opportunities beyond cyclical dynamicswith valuation becoming more attractive.
■ Next Data point: Baird Quarterly Uniform Survey. We look toward the results of ourBaird quarterly industry survey later this month to provide greater insight into currenttrends and expectations for 2012.
INDUSTRY UPDATE
Prices as of 9/1/11
Ticker PriceMkt Cap
(mil)Rating Risk
CTAS $31.55 $4,524 O A
GKSR $27.38 $509 O A
UNF $50.54 $988 N ABaird covered companies
September 2, 2011 Baird Equity ResearchBusiness Services
Facility ServicesAugust BLS Report Disappoints; Cyclical Uniform Momentum Could Slow
[Please refer to Appendix- Important Disclosuresand Analyst Certification]
2
Details
August BLS Report Disappoints; Cyclical Momentum Could Slow
The August BLS employment data was well below expectations, implying flat net job growth (theweakest report since August 2010), with employers indicating caution in adding new employees.Employment gains in uniform-exposed industries were similarly disappointing, with our Add/StopEmployment Index, which measures uniform-wearing additions/subtractions at existing accounts,posting its smallest gain since July 2010 and the first sequential decline in YOY growth rates in twoyears (but still positive). Finally, the June/July figures were revised lower (indicating fewer jobs createdthan originally reported), and both the average work week and hourly earnings declined versus July.The unemployment rate held flat at a (still high) 9.1%.
Our previous bullish stance on the uniform sector has been driven primarily by cyclical employmentdynamics, not fully appreciated, which have translated into meaningful operating leverage over thelast several quarters as growth rates have improved. Recent data suggests this dynamic likely slows in2H11, though modest opportunity may remain given that employment levels are still working off of avery low base, providing easier comparisons, and capacity utilization levels remain below prior peaks.We also point to what appears to be continued strength in new account growth, industryreceptiveness to increased ancillary product offerings and a more stable pricing environment, all ofwhich have been a more meaningful contributor to overall growth rates than add/stops (employmentadditions/subtractions at existing rental accounts) thus far this cycle.
That said, we are also now pointing to some of the more defensive characteristics for uniform rentalcompanies (including a recurring revenue base, strong cash flow dynamics, and market maturation),which we believe may support alpha generation over the near term given renewed macro concernsand the specter of a double-dip recession. We also note that incremental wearers at existing rentalaccounts boost plant utilization rates, generating highly profitable incremental margins, with recentcommodity price declines potentially providing additional support for earnings versus guidance.
As we have noted in the past, the sector has been an effective way to invest in early-cycle stocks (thestocks historically bottom 12 months before an employment inflection) or to play an expandingemployment market (stocks also tend to outperform mid to late cycle when the rate of job growth ishigher). Depending on one's view of the economy, we believe an argument can be made for bothdynamics today. If the U.S. economy does indeed slip back into recession, the recurring revenueelement of the sector should support earnings over the near term (particularly given that employmentcuts of the past several years' magnitude are unlikely to continue). In contrast, should the economycontinue to modestly improve, uniform earnings should further accelerate. That said, we believe thecyclical trade may be nearing its end, suggesting a potentially less aggressive portfolio allocation goingforward.
We note that valuation multiples for the group also still appear reasonable with uniform rental stocks(group avg. EV/EBITDA = 6.5x; P/E = 14.2x) trading at a discount to both historical levels and otherfacility services stocks (group avg. EV/EBITDA = 8.5x; P/E = 16.6x) which face comparablemacroeconomic drivers (e.g., employment) and exhibit similar recurring revenue-based businessmodels, strong cash flow, and (in the case of SWSH, ROL, and ECL) a degree of route-based productand service distribution. Still, the higher capital intensity of industrial laundry facilities likely warrantsa modest discount for the group, in our opinion.
Uniform Industry Valuation
Price Price Target Rating
Company Ticker FTM AVG FTM AVG
Cintas CTAS $31.55 $36 O 7.8x 8.9x 15.5x 18.6x
G&K Services GKSR $27.38 $37 O 6.2x 8.2x 14.5x 17.0x
UniFirst UNF $50.54 $61 N 5.5x 5.8x 12.8x 13.7x
Average: 6.5x 7.6x 14.2x 16.4x
As of 09/01/2011
Source: FactSet Research Systems and Baird estimates
EV/EBITDA, ftm P/E
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Robert W. Baird & Co.
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THE AUGUST BLS EMPLOYMENT REPORT
Total nonfarm payrolls were unchanged in August, suggesting flat net job growth, well belowexpectations (+65,000). While the temporary strike of 45,000 Verizon workers impacted the headlinenumber, overall trends were generally negative, with June/July figures revised lower. Theunemployment rate held constant at 9.1%, as expected
Forward-looking employment indicators were also disappointing. Total average weekly hours declinedfrom July levels (34.2 hours versus 34.3 in July) as did wages (-0.1% to $23.09). The privateemployment diffusion index also declined to 52.2 (from a revised 57.7 reading in July), still positive butindicating only modest support for future hirings. Note, that a reading above 50 indicates sequentialimprovement in the data. The outlook for manufacturing employment (higher uniform content)turned negative at 42.0, however.
BAIRD ADD/STOP EMPLOYMENT INDEX GROWTH SLOWS, PARALLELING BROADER MARKET
Baird's Add/Stop Employment Index specific to uniform rental-related employment decelerated, withjust +10,000 jobs added, the lowest level since our index first turned consistently positive in July 2010.Indeed, the rate of growth also slowed, with YOY employment growth declining sequentially for thefirst time in two years.
The sequential decline in the rate of YOY growth in employment is consistent with our expectationsthat organic growth rates in the space likely slow in 2H11 from recent 5-year peaks shouldemployment gains not accelerate, given more difficult comparisons as we move into the latter monthsof the year. We also note that absolute employment gains over the last three months are at nearlyone-fourth the level of late 2010/early 2011, which suggests the degree to which hiring has slowed.
Baird Add/Stop Employment Index
Source: Bureau of Labor Statistics and Baird Research
Baird Add/Stop Employment Index YOY Growth Rate, left
Average = 65k Average = 54k
Cycle Average = 40k
2011 Average = 46k
We do, however, continue to note that the YOY growth rate in Add/Stop Index employmentcategories continues to modestly outpace the broader economy for the first time since late 2006/early2007. As we have highlighted, this remains a critical element of the data as uniform employment hadlagged broader employment categories throughout the recovery until February (consistent with ourmore bullish stance on the group at that time).
September 2, 2011 | Facility Services
Robert W. Baird & Co.
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Total Non-Farm Employment vs. Baird Add/Stop Employment Index (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%
Ja
n-0
7
Ma
r-0
7
Ma
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Ju
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7
Se
p-0
7
No
v-0
7
Ja
n-0
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Ma
r-0
8
Ma
y-0
8
Ju
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8
Se
p-0
8
No
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Ja
n-0
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Ma
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1
BLS Total Non-Farm Employment
Baird Add/Stop Employment Index
Growth in Baird Add/Stop
Index employment still
outpacing total NFP
employment - first time
since early 2007
Our previous positive view for uniform rental stocks had been driven primarily by cyclical employmentdynamics, not fully appreciated, which has translated into meaningful operating leverage over the lastseveral quarters as growth rates have improved. Recent data has suggested this dynamic likely slowsin 2H11, though modest opportunity may remain given that employment levels are still working off ofa very low base. Indeed, the figure below demonstrates the shift from our more bullish stance andupgrade of the sector in 1H11 versus the slowing employment environment we are currently seeing.
Baird Add/Stop Employment Index (000s), recent performance
Source: Bureau of Labor Statistics and Baird Research
Employment gains within several key verticals (particularly manufacturing verticals) were belowexpectations in August. Manufacturing payrolls (which have been strong) declined by 3,000, their firstsequential decline since October 2010 and versus expectations for a 9,000 gain. Positively, FoodServices and Drinking Places recovered which we believe is a better proxy for the uniform rentalcompanies' ancillary offerings, such as cleaning products, hygiene services, mops and towels. 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. Negatively, however, construction and several manufacturing verticals posted flator negative employment growth in August.
September 2, 2011 | Facility Services
Robert W. Baird & Co.
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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 Employment Index Component Industries: 1-Month Employment Change (000s)
Source: Bureau of Labor Statistics and Baird Research
9
4
4
3
2
1
1
-
(1)
(1)
(2)
(5)
(5)
Food Services and Drinking Places
Motor Vehicle and Parts Dealers
Food and Beverage Stores
Repair and Maintenance
Truck Transportation
Gasoline Stations
Fabricated Metal Products
Wholesale Trade - Durable Goods
Chemicals
Wholesale Trade - Nondurable Goods
Machinery
Specialty Trade Contractors
Food Manufacturing
1-month Employment Change (000s)
DERIVATIVE EMPLOYMENT DATA REMAINS WEAK
Derivate employment data over the past few weeks has also been weak though somewhat mixed,with the 4-week moving average of new jobless claims falling over the past month, offset by highercontinuing claims and still weak private sector hiring.
In particular, this week’s ADP employment report indicated net job growth of 91,000 in August, belowthe 100,000 consensus and at a pace below that which would be consistent with a stableunemployment rate, according to ADP's press release. Employment growth continues to be ledpredominantly by small businesses with hiring at larger firms roughly flat in August. Recall, that theADP report tracks private payroll only and is based on actual payroll receipts received by ADP, asopposed to the survey/model-driven BLS report, which may suggest that ADP provides a better gaugeof actual employment conditions.
Total Nonfarm Private Payrols, by Firm Size (000s)
Goods-producing sectors and manufacturing specifically (greater uniform customer exposure) remainweaker, however, with gross-producing employment increasing by 11,000 in August (but animprovement from the 2,000 job losses in July) and manufacturing employment falling by 4,000(versus a 2,000 decline in July). Service employment is also weakening, with just 80,000 jobs created inAugust versus 119,000 and 111,000 in June and July, respectively.
Initial jobless claims remain challenged, with the 4-week moving average still above the 400,000 level(jobless claims below 400,000 are typically associated with an improving unemployment rate),generally unchanged from last month. Furthermore, claims continue to come in above expectations,suggesting continued sluggishness in the labor market (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
Continuing jobless claims also held roughly flat in August with the 4-week moving average increasingmodestly from 3.721 million at the end of July to 3.726 million currently. This week’s continuing claimsfell by 18,000, but was still above expectations.
Continuing Jobless Claims
Source: U.S. Department of Labor, Bureau of Labor Statistics
The unemployment rate (which is based on a separate survey) held flat sequentially in August at9.1%, as expected. Positively, the unemployment rate was maintained despite an increase in the size
September 2, 2011 | Facility Services
Robert W. Baird & Co.
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of the labor force (the first gain in three months). Nonetheless, the U-6 unemployment rate (whichprovides a better metric of labor market underutilization as it includes involuntary part-timeemployment and discouraged workers – i.e., unemployed workers who have ceased looking foremployment) increased by 10 bps in August to 16.2%.
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
Source: U.S. Department of Labor, Bureau of Labor Statistics
■ We rate G&K Services (GKSR; $37 price target) at Outperform. F4Q11 results were consistent withexpectations, with better-than-expected organic growth offsetting less-than-expected marginexpansion. In aggregate, the quarter represented further validation of our multi-year earningsthesis, driven by management turnaround actions designed to bridge GKSR's profitability gapversus peers. On that front, most data points remain supportive with management firmlycommitted to the company's “10/10” plan to achieve 10% operating margins and ROIC by the endof F2014, which should unlock material value creation over the next several years. Combined withsolid cash flow (~10% FTM FCF yield), and a recent boost to the quarterly dividend ($0.13/share,representing a ~2% dividend yield, we see relative upside to the stock.
- We continue to believe investors are best served by taking a multi-year look at GKSR’s ability tocreate value by bridging the profitability gap versus peers over time. In addition, we believeoutsized earnings growth potential at GKSR relative to peers continues to justify a growthmultiple for the stock. Our $37 price target assumes modest multiple expansion to 7.0x EBITDAand 15.8x earnings, which we believe reflect a multi-year earnings growth story that shouldcontinue to play out beyond near-term cyclical dynamics. Risks to our price target include a highlycompetitive industry, employment trends, energy price fluctuations and acquisition integration.
■ We rate Cintas (CTAS; $36 price target) at Outperform. Top-line momentum continued toaccelerate in F4Q11 (organic growth at a five-year high), driving SG&A leverage, as expected.Strength continues across CTAS's businesses, beyond uniform rental. Positively, industry pricingpressure has also moderated, offsetting commodity price risk, and recent balance sheetdeployment (buybacks) has driven meaningful earnings accretion. Nonetheless, with cyclicalmomentum likely nearing a peak, we believe risk/reward is becoming more balanced, thoughcontinue to view the stock as a defensive play, amid ongoing macro concerns.
September 2, 2011 | Facility Services
Robert W. Baird & Co.
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- Our $36 price target assumes an essentially flat multiple of 7.8x FTM EBITDA (16.2x F2012earnings), consistent with the continued strong top-line trends and potential for additional capitaldeployment, but representing a discount to historical average of 8.9x to more fully reflect theindustry's current fundamentals and mature industry dynamics. Risks to our price target include ahighly competitive market, employment trends, energy and scrap paper price fluctuations.
■ We rate UniFirst (UNF; $61 price target) at Neutral. UniFirst continues to execute above peers,suggesting share gains but rising merchandise costs have held back cyclical earnings growth. Thatsaid, as the cycle matures and inventory pressures anniversary, we believe UNF may offeropportunity versus peers given industry-leading execution, strong FCF generation, and the stock'ssomewhat attractive valuation relative to peers. Indeed, we see modest upside from current levelsnear $50.
- Our $61 price target assumes modest multiple expansion to 5.9x FTM EBITDA (14.4x FTMearnings), consistent with the stock's historical levels but at a discount to peers (which collectivelytrade at ~7.0x EBITDA). We note that UNF's dual-class share structure has historically driven a~1-2 point discount versus peers. Risks to our price target include a highly competitive market,employment trends, energy price fluctuations and a 10:1 super-voting dual-class insider sharestructure.
September 2, 2011 | Facility Services
Robert W. Baird & Co.
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Appendix - Important Disclosures and Analyst Certification
Covered Companies Mentioned
All stock prices below are the September 1, 2011 closing price.
Cintas Corporation (CTAS - $31.55 - Outperform)G&K Services, Inc. (GKSR - $27.38 - Outperform)UniFirst Corporation (UNF - $50.54 - 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
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
07/20/11O:$36
Rating and Price Target History for: Cintas Corporation (CTAS) as of 09-01-2011
Created by BlueMatrix
Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q38
16
24
32
40
2009 2010 2011
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
08/17/11O:$37
Rating and Price Target History for: G&K Services, Inc. (GKSR) as of 09-01-2011
Created by BlueMatrix
September 2, 2011 | Facility Services
Robert W. Baird & Co.
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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 09-01-2011
Created by BlueMatrix
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 August 31, 2011, Baird U.S. Equity Research covered 674 companies, with 57% ratedOutperform/Buy, and 43% rated Neutral/Hold. Within these rating categories, 14% of Outperform/Buy-rated, and 7% ofNeutral/Hold-rated companies have compensated Baird for investment banking services in the past 12 months and/or Baird managedor 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,
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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