[Please refer to Appendix. CMS Energy (CMS) EPS Up 43% Y/Y, Highlighting Successful Growth Strategy ESTIMATE CHANGE

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1 October 30, 2015 Baird Equity Research Utilities CMS Energy (CMS) EPS Up 43% Y/Y, Highlighting Successful Growth Strategy Substantially improved EPS performance underscores unique business strategy; we continue to anticipate predictable, above-average EPS CAGR. Accelerated investment opportunities should fuel attractive total returns, driven by infrastructure upgrade/replacement needed to maintain system reliability as well as additional investment to meet Michigan s energy policy goals. Constructive regulation is expected to keep earned ROEs close to authorized levels. Growth prospects position CMS well for 5-7% EPS CAGR longer term. CMS reported 3Q15 EPS of $0.53 beating our/consensus estimate of $0.45/$0.49. The 43% Y/Y EPS improvement from $0.37 in 3Q14 is mainly attributable to rate increases in both the electric and gas segments as well as favorable weather and effective O&M cost controls EPS guidance narrowed to $1.87-$1.89, in the upper end of management s long-term EPS CAGR target of 5-7% EPS guidance introduced at $1.97-$2.01, which compares with our unchanged forecast of $2.00 and consensus of $2.01. Organic infrastructure investment opportunities drive highly visible EPS growth prospects. CMS estimates $15.5 billion of investment is needed in the next 10 years to improve system reliability, reduce emissions, expand power generating capacity, and upgrade/expand/replace aging energy infrastructure. FY15 expenditures are expected to be $1.6 billion following a record $1.7 billion in Upside to our forecast may stem from additional investment in renewables, gas-fired generation capacity, and grid modernization. - Capex was $427 million in 3Q15, yielding YTD capex of $1.1 billion, which is approximately 69% of 2015 budget. MI legislation may provide further investment opportunities. Discussions include ROA and renewable portfolio standards. Electric and gas rate cases pending. CMS has requested a $198.6 million rate increase (+5.0%) and $85.7 million increase (+5.1%) for gas utility customers. The requests are predicated on an Electric/Gas rate base of $9.3/$4.2 billion, respectively, a 41.5% equity layer, and a 10.7% allowed ROE (10.3% currently). Valuation. Our $38 price target is ~16x our 2017 EPS (adjusted for $1-$2/share in NOLs). We believe CMS should at least trade in line with peers (15.5x-16.5x) when fully valued, reflecting above-average total return prospects fueled by an extensive pipeline of infrastructure investments supported by a constructive regulatory environment. ESTIMATE CHANGE 1-Year Price Chart N-14 D-14 J-15 Stock Data 38 F-15 M-15 A-15 Rating: Outperform Suitability: Lower Risk Price Target: $38 Price (10/28/15): $36.25 Market Cap (mil): $10,038 Shares Out (mil): Average Daily Vol (mil): 2.46 Dividend Yield: 3.2% Estimates FY Dec 2014A 2015E 2016E Q A 0.73 A Q A 0.25 A Q A 0.53 A Q A 0.38 E Fiscal EPS 1.77 A 1.89 E 2.00 E Fiscal P/E 20.5x 19.2x 18.1x M-15 J J-15 A-15 S-15 Chart/Table Sources: Factset and Baird Data O-15 CMS Energy is a holding company with regulated and non-regulated subsidiaries, serving 1.8 million electric customers and 1.7 million gas customers in Michigan. [Please refer to Appendix - Important Disclosures and Analyst Certification] David E. Parker dparker@rwbaird.com Jacqueline M. Parlin jparlin@rwbaird.com Mike Bates mbates@rwbaird.com

2 Details 3Q15 Earnings CMS Energy reported 3Q15 EPS of $0.53 solidly above our/consensus estimates of $0.45/$0.49. The 43% Y/Y ramp in EPS from $0.37 in 3Q14 was primarily driven by increased electric sales due to weather and increased rates in both the electric and gas segments. Lower O&M spending in both the electric and gas segments also contributed meaningfully to earnings. Partially offsetting these positives were increased depreciation and property taxes and higher benefits costs EPS guidance narrowed to $1.87-$1.89 from $1.86-$1.89, consistent with a 6-7% CAGR, on the upper end of management s long-term EPS target range. We forecast FY of $1.89 with consensus at $ EPS guidance introduced at $1.97-$2.01, within the 5-7% EPS growth target off of 2015 estimated EPS midpoint. We forecast $2.00 with consensus at $2.01 as CMS has maintained EPS growth in the 7% range over the last five years. Figure 1: 3Q15 Earnings CMS Energy- Results Variance ($ mil) Quarterly Results Chg Y/Y Variance Baird 3Q15 3Q14 Baird % EPS $ % Gross Margin % % Electric Margin % % Gas Margin % % Expenses: OG&A % 0.04 (21) -6% Other Taxes % (0.00) 1 1% DD&A % (0.05) 7 4% Total Expenses 1,169 1,194 1,147-2% (0.06) 22 2% EBITDA % % EBIT % % Interest Expense % 0.00 (2) -2% Other Income % (0.02) 4 133% Pretax Income % % Income Taxes % 9 13% Tax Rate 34% 31% 35% (0.02) Net Income $148 $103 $123 44% $0.16 $25 20% Diluted Shares % ($0.00) (0) 0% Diluted EPS $0.53 $0.37 $ % $0.16 $ % Electric $0.60 $0.47 Natural Gas ($0.02) ($0.03) Enterprises $0.01 $0.00 Corp/Other ($0.06) ($0.07) Source: Company reports & RW Baird & Co. estimates Variance Drivers Higher system deliveries due to w eather, increased rates 2015 rate increase; partially offset by low er deliveries due to w eather Low er electric and gas O&M spending Higher electric depreciation expense Higher EnerBank, Enterprise earnings 2

3 Figure 2: Variance Drivers Source: Company reports & RW Baird & Co. estimates Figure 3: Electric and Gas Stats CMS Energy CMS Energy Electric Stats Gas Stats 3Q15 3Q14 Y/Y Chg 3Q15 3Q14 Y/Y Chg Electricity Sales (millions of kwh) Gas Sales (thousand Bcf) Residential 3,490 3, % Residential 9,105 10,717 (15.0%) Commercial 3,226 2, % Commercial 3,272 3,457 (5.4%) Industrial 2,195 2,370 (7.4%) Industrial (6.5%) Wholesale % Other % Other (2.0%) Transportation 13,636 13, % Retail Open Access 1,031 1,069 (3.6%) Total Bcf 26,705 28,355 (5.8%) Total kwh sales 10,083 9, % Weather Impact -1, Weather Impact Weather Adjusted Sales 28,065 28,247 (0.6%) Weather Adjusted Sales 10,012 10,055 (0.4%) Source: Company reports & RW Baird & Co. estimates Figure 4: Capital Expenditures Trend CMS Energy CapEx ($ millions) Quarterly Results YTD Results YTD % of Annual 3Q15 3Q14 % Chg E 2014 CapEx ($ millions) $427 $462 (7.6%) $1,102 $1, % 69.8% Capex Trend E 2016E 2017E 5-YR CAGR Annual CapEx 922 1,261 1,403 1,612 1,600 1,600 1, % Estimated Rate Base 10,519 11,060 11,445 12,336 13,355 14,311 14, % Source: Company reports & RW Baird & Co. estimates 3

4 Regulatory Outlook Electric rate case. CMS requested a revised $198.6 million rate increase, based on a 10.7% ROE, 41.5% equity component, and $9.248 billion rate base. The company proposes a $201.9 million initial increase, with an additional $35.2 million increase with the close of Jackson natural gas plant (expected to close post 12/1/15), and finally a $38.5 million decrease with the close of several coal plants in 4/2016. Also in this filing, the company proposes an additional $163.7 million rate increase on 6/1/16 and $78.2 million on 6/1/17 through an Investment Recovery Mechanism. The ALJ judge recommended a ~$106 million increase on 9/16/15. A final order is expected by the end of Recent Events/Outlook Gas rate case. CMS filed a gas rate case on 7/17/15 requesting an $85.7 million revenue increase, premised on a 10.7% ROE and 41.42% equity component; rate base of $4.0 billion. CMS also requests an Investment Recovery Mechanism to increase rate by $146.7 million due to estimated investments during New Commissioner Appointed. Governor Snyder appointed Norm Saari to the MPSC on July 22. Saari began his term on the Commission following Senate approval, on August 2 to replace Greg White. Saari represents the Republican Party and has held other legislative jobs as well as worked for Consumers for over 30 years. Significant regulated investment opportunities expected to drive above-average EPS CAGR. CMS Energy s regulated utility, Consumers Energy (Consumers), plans to invest $7.6 billion from to improve system reliability, reduce power plant emissions, expand power generating capacity and upgrade, expand or replace aging energy infrastructure. Investment is earmarked for: cleaner/efficient power generation, expanding electric and natural gas infrastructure capacity, enhance system reliability and optionality and system expansion. CMS project pipeline includes bite sized projects, which we believe lowers execution risks. FIGURE 5: 5-YEAR CAPEX PLAN Source: Company reports CMS delves deeper into the realm of renewable energy as Michigan s Energy Goals create need for significant energy infrastructure investment. Underinvestment, changing customer needs, and tightening emission and environmental standards have boosted needed infrastructure investment. Michigan s governor recently reiterated the state s energy policy: reduce the reliance on coal, grow use of renewable energy and natural gas, and improve energy affordability and reliability while protecting the environment. 4

5 Community Solar Project. CMS will develop 4 MW of solar energy in a community solar program called Solar Gardens. CMS has been increasing their renewable fuel mix and last year, CMS reached its goal of 10% of its electricity use from renewable sources. Apple Blossom Wind Farm. Producing 100 MW, this project is under construction and should be commercially operational in CMS will utilize a PPA agreement with the option to purchase. CMS currently utilizes two wind farms and has contracts to purchase wind, landfill gas, anaerobic digestion, hydro, and solar energy. Modifications to Michigan s energy policy could provide upside for investment opportunities. Michigan lawmakers are diligently working on a new bill to address retail open access adjustments and renewable portfolio standards. ROA may be capped at 10% with a one-way door for customers to return to the utility. Discussions include debate on whether customers should come back into the system over three to five years and how that process would work. ROA load in CMS service territory is about 800 MW, and if that load returned, CMS has indicated the need for longer-term new generation solutions. ROA changes are not in management forecasts and would provide upside to the current projections. Renewables standards are also a topic being discussed as the Clean Power Plan puts demands on states to meet certain emission reduction goals. In the past, CMS has added wind generation to its rate base at attractive cost to customers. Committee hearings were completed in October; the bill will go on to a Committee and full vote before potentially being signed by the governor into law likely by year-end. CMS displays capacity diversity as it has already worked to move its generation to a cleaner and more cost competitive mix. Management plans to further decrease coal mix to 25% by next year and boasted their reduction efforts of coal source to ~33% from over 40%. These reductions are a result of CMS decision to retire seven coal-fueled units. With the planned retirement of these units and the potential tightening of the MISO capacity market, Consumers could experience a shortfall in generation capacity of up to 1,500 MW in In 2013, 46% of the energy Consumers delivered was generated at its four operating coal-fueled generating sites. FIGURE 6: CAPACITY PORTFOLIO MIX EVOLUTION Source: Company presentation Substantial generation investment opportunities reflecting short power capacity position likely provides EPS growth upside. In order to meet Michigan s renewable portfolio standards, reduce emissions and meet a larger percentage of its customers' energy needs via owned resources, CMS plans $1.7 billion in new generation over the next ten years. A recent MISO study shows Zone 7 to have a capacity shortfall of ~$1.3 GW. Expiring PPAs, retiring coal-fueled generation capacity, coal-heavy fuel mix provides upside potential to CapEx forecasts. Consumers relies heavily on power generation from third parties, with 49% of the electricity delivered to regulated customers through long-term PPAs, seasonal purchases, and the MISO energy market in Consumers must supplement its generation capability with purchases from the MISO energy market to meet its customers needs during peak demand 5

6 periods. With 3,000 to 4,000 MWs of supply/demand changes in the next ten years, upside to infrastructure investment forecast likely exists and $1 billion in annual PPA costs enhances Consumers buy/build/own generation optionality. FIGURE 6: 10-YEAR OWNED CAPACITY GROWTH POTENTIAL FROM EXPIRING PPAS Source: Company reports 6

7 Investment Thesis Significant regulated investment opportunities expected to drive above-average EPS CAGR. Our Outperform rating reflects our expectation that accelerated infrastructure investment needs will drive attractive total returns. We forecast CMS Energy s EPS CAGR to be 5-7% for the foreseeable future, supported by infrastructure upgrade/replacement needed to maintain system reliability as well as additional investment to meet Michigan s energy policy goals. Potential modifications to Michigan's energy policy, likely in 2015, could fuel additional investment needs. Energy investment improves reliability, system efficiency. Under-investment, changing state energy policies and changing customer needs as well as tightening emission and environmental standards have boosted needed infrastructure investment. CMS estimates that over $15.5 billion of investment (current rate base $12.9 billion) is needed in the next 10 years. Despite substantial rate base growth, the impact to a customer s bill is expected to be less than inflation (~2%/year). With over $6 billion in infrastructure investment in its rear view mirror, CMS has demonstrated expertise at managing accelerated investment program. A 6% increase/year in rate base fueled a five-year EPS CAGR of 7%, making CMS a top total return investment in the past five years. Residential and commercial customer bills remain below regional averages. Expected changes in rate design should improve industrial rate comps. Substantial generation investment opportunities reflecting short power capacity position likely provides EPS growth upside. In order to meet Michigan s renewable portfolio standards, reduce emissions and meet a larger percentage of its customers' energy needs via owned resources, CMS plans $2.3 billion in new generation over the next 10 years, which may increase if ROA is modified/eliminated. Constructive regulation. Innovative regulatory practices and policies, like forward test years, self-implementing interim rates and enhanced regulatory recovery mechanisms have kept earned ROEs above peers despite accelerated investment. Attractive dividend yield and above-average dividend growth potential. At 3.2%, CMS has a dividend yield generally inline with peers in the regulated electric/gas utility group, which has an average yield of 3.5%. We expect CMS to grow its dividend ~6%/year and maintain a payout ratio to EPS of roughly 60%. Valuation. Our $38 price target is ~16x our 2017E EPS (adjusted for $1-$2/share in NOLs). We believe CMS should at least trade in line with peers (15.5x-16.5x) when fully valued reflecting above-average total prospects fueled by an extensive pipeline of infrastructure investments supported by a constructive regulatory environment. Despite accelerated investment needs, CMS has earned solid regulated ROEs reflecting a constructive Michigan regulatory environment and CMS successful cost containment efforts. These key metrics support a valuation multiple at least in line with peers, if not a premium valuation. Risks & Caveats Our suitability rating on CMS Energy is Lower Risk, reflecting the stable earnings provide by its regulated natural gas distribution and electric operations, long-term dividend history, and solid balance sheet. Risks include the following: Weather and declining consumption trends. As per capita usage decreases due to conservation, utility revenue tied to volume consumption can be negatively affected. As the company does not yet have decoupling, revenue is linked to weather patterns. Mild winter temperatures decrease demand while extreme winter weather increases operating expenses as crews work around the clock to restore power after outages. 7

8 Changes in regulatory climate. We believe the company has a constructive relationship with the Wisconsin commission. It is difficult to predict how changes in the Commission s makeup could change the company s regulatory treatment. Economic cycle risk. While residential usage tends to be largely immune to economic slowdown, use by commercial and industrial (C&I) customers may be impacted. C&I customers make up 62% of CMS Energy s total electric sales. Commodity price increases. The company has limited control of the wholesale prices of natural gas, oil or coal. A spike in the price of these fuels could adversely affect the company s financial results. CMS Energy has a recovery mechanism to allow it to pass fuel costs onto customers, but it must stay within a 2% symmetrical band of its estimate or defer the costs or benefits, and high rates may increase regulatory pressure. Purchased power increases. CMS Energy engages in open-market purchases for a portion of its electricity needs. Like natural gas prices, the price of wholesale electricity can and does fluctuate. Such fluctuations could adversely affect CMS Energy s operations. Additional external financing possible. All capital requirements that exceed available cash will have to be provided by external financing. The availability of funds depends on many factors, including conditions in the securities markets and general economic conditions generally, as well as the debt ratings and future income and cash flow of CMS and its subsidiaries. Financial risk. Increases in interest rates could result in increased cost of capital as CMS Energy refinances fixed rate debt at maturity and/or re-markets multi-annual tax-exempt bonds. Company Description CMS Energy is a public utility holding company headquartered in Jackson, Michigan. Its principal subsidiary, Consumers Energy (Consumers), began operations in Michigan in 1886 and provides regulated electric and gas services to roughly 6.5 million of Michigan s 10 million residents. CMS Enterprises, a substantially smaller unregulated subsidiary, is predominantly involved in US independent power production. 8

9 CMS Energy (CMS-NYSE) Income Statement 2011Y 2012Y 2013Y 2014Q1 2014Q1 2014Q1 2014Q4 2014Y 2015Q1 2015Q2 2015Q2 2015Q4 2015Y 2015Y 2015Y ($ mil) Q14 2Q14 3Q14 4Q Q15 2Q15 3Q15 4Q15E 2015E 2016E 2017E Operating Revenue Electric Utility 3,913 4,031 4,173 1,224 1,051 1,153 1,008 4,436 1,033 1,007 1, , Gas Utility 2,340 1,982 2,148 1, , ,245 2,290 2,336 Enterprises Corp/Other Total CMS Revenue 6,503 6,253 6,566 2,523 1,468 1,430 1,758 7,179 2,111 1,350 1,486 1,883 6,830 7,189 7,505 Fuel for Electric Generation Purchased Power 1,364 1, , ,540 1,617 1,698 Cost of Gas Sold Gross Margin 2,991 3,054 3, , ,424 3,607 3,737 Operation & Maintenance 1,237 1,166 1, , , Depreciation General Taxes Total Operating Expenses 5,500 5,192 5,425 2,115 1,233 1,194 1,485 6,027 1,714 1,146 1,169 1,619 5,648 5,868 6,093 EBITDA 1,549 1,659 1, , ,923 2,125 2,275 EBITDA Margin 23.8% 26.5% 26.9% 24.1% 26.3% 27.2% 25.9% 25.6% 29.3% 27.6% 33.0% 23.4% 28.2% 29.6% 30.3% EBIT 1,003 1,061 1, , ,182 1,321 1,412 EBIT Margin (%) 15.4% 17.0% 17.4% 16.0% 17.3% 18.4% 18.8% Growth (%) Other Income/Expense (25) (7) 15 (17) (7) (1) Interest Expense Interest on LT Debt Other Interest Expense AFUDC-Debt (4) (4) (3) (1) (1) (1) 0 (3) (1) (1) (1) EBT EBT Margin (%) 8.7% 10.9% 11.5% 12.2% 8.7% 10.5% 8.7% 10.3% 14.3% 7.7% 15.0% 8.6% 11.6% 12.0% 12.4% Growth (%) Income Tax Expense Effective Rate (%) 32% 38% 40% 34% 34% 31% 37% 34% 33% 35% 34% 35% 35% 35% 35% Preferred Dividends 0 Net Income Shares Outstanding, Basic Shares Outstanding, Diluted Continuing Ops EPS $1.45 $1.55 $1.66 $0.75 $0.30 $0.37 $0.35 $1.77 $0.73 $0.25 $0.53 $0.38 $1.89 $2.00 $2.15 GAAP EPS $1.58 $1.42 $1.66 $0.75 $0.30 $0.34 $0.35 $1.77 $0.73 $0.25 $0.53 $0.38 $1.89 $2.00 $2.15 Dividend $0.84 $0.96 $1.02 $0.27 $0.27 $0.27 $0.27 $1.08 $0.29 $0.29 $0.29 $0.29 $1.16 $1.24 $1.28 Payout Ratio (%) 53% 67% 61% 36% 89% 79% 78% 61% 40% 115% 54% 61% 62% 60% Source: Company Reports and Baird estimates 10/29/15 Please refer to Appendix - Important Disclosures and Analyst Certification. Dave Parker Jackie Parlin Mike Bates

10 Balance Sheet ($mln) 2011Y 2012Y 2013Y CMS Energy (CMS-NYSE) ASSETS Q15 CASH FLOW STATEMENT E 2016E 2017E Cash Net Income $417 $384 $454 $479 $523 $559 $604 Accounts Receivable , Depreciation and Amortization Inventories at average cost 1,187 1, Other Deferred taxes NWC Changes $94 ($156) ($2) ($32) ($175) $50 $50 Regulatory assets Cash Flow from Ops (CFO) 1,169 1,241 1,421 1,447 1,339 1,663 1,767 Prepaid & other Capital Expenditures ($882) ($1,227) ($1,325) ($1,577) ($1,600) ($1,600) ($1,400) Total Current Assets 2,565 2,422 2,526 2,597 2,123 Free Cash Flow (FCF) (130) (261) PP&E Net 9,850 10,471 11,097 12,306 12,850 Acquisitions (N/A) CWIP 783 1,080 1,149 1,106 1,310 Capex/Depreciation Investments Dividends ($211) ($252) ($273) ($295) ($321) ($346) ($360) Regulatory Assets 2,466 2,287 1,530 1,956 1,870 Net Cash Flow (NCF) 76 (238) (177) (425) (582) (283) 6 Notes Receivable FCF/Share (0.47) (0.94) Other Total Assets 16,452 17,131 17,416 19,185 19,452 Du Pont Formula LTM LIABILITIES AND CAPITALIZATION Net Margins (NI/S) 5.9% 6.7% 6.9% 6.8% 7.6% Current Portion LT Debt 1, Assets Turnover (S/A) Notes Payable Leverage (A/E) Accounts Payable Return on Equity 13.1% 13.4% 13.6% 13.6% 13.4% Deferred Taxes Return on Assets 2.3% 2.4% 2.6% 2.5% 2.6% Regulatory Liabilities 1,875 2,101 2,215 2, ROC (after-tax) 3.7% 4.0% 6.2% 6.7% 4.2% Postretirement Benefits 1,289 1, Asset retirement obligations Valuation Measures LTM Deferred income taxes 1,035 1,015 1,616 1, Historical P/E High 15.4x 16.1x 18.1x 20.9x 17.9x Other non-current liabiltiies Historical P/E Low 11.7x 13.6x 14.8x 14.7x 16.3x Common stockholders equity 3,028 3,194 3,454 3, Historical P/FCF High - curren 0.1x 1.8x 0.3x -0.3x -0.3x Preferred stock Historical P/FCF Low - current 0.1x 1.5x 0.3x -0.2x -0.2x Long-term Debt 6,040 6,710 7,101 8, Enterprise Value (EV) - Equi 5,816 6,548 7,277 9,542 9,168 Consumers LT Debt 4,350 4,360 4,579 5, ST+LT Debt 7,097 7,251 7,663 8,556 8,644 Non-controlling interests Cash & Equivalents Total Liabilities and Capital 16,452 17,131 17,416 19,185 19,452 Total EV 12,752 13,706 14,768 17,891 17,662 Balance Sheet Analysis Q15 EBITDA 1,549 1,659 1,769 1,837 1,937 Rate Base 10,519 11,060 11,445 12,336 12,925 EV / EBITDA 8.2x 8.3x 8.3x 9.7x 9.1x ROE (Rate Base) 10.8% 9.7% 11.3% 11.2% 9.5% EV / EBITDA with Op Leases 8.2x 8.3x 8.3x 9.7x 9.1x Current Ratio Days Sales Outstanding (DSO) EBIT/Interest Expense Debt/Total Cap 71% 70% 69% 70% 69% Debt/Total Cap (Incl Op Leases) 71% 70% 69% 70% 69% Book Value/Share Source: Company Reports and Baird estimates Please refer to Appendix - Important Disclosures and Analyst Certification. 10

11 Appendix - Important Disclosures and Analyst Certification Rating and Price Target History for: CMS Energy (CMS) as of /22/14 I:O:$35 01/29/15 O:$ Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q Created by BlueMatrix 1 Incorporated makes a market in the securities of CMS. Incorporated and/or its affiliates expect to receive or intend to seek investment banking related compensation from the company or companies mentioned in this report within the next three months. Incorporated may not be licensed to execute transactions in all foreign listed securities directly. Transactions in foreign listed securities may be prohibited for residents of the United States. Please contact a Baird representative for more information. Investment Ratings: Outperform (O) - Expected to outperform on a total return, risk-adjusted basis the broader U.S. equity market over 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 12 months. Risk Ratings: L - Lower Risk - Higher-quality companies for investors seeking capital appreciation or income with an emphasis on safety. Company characteristics may include: stable earnings, conservative balance sheets, and an established history of revenue and earnings. A - Average Risk - Growth situations for investors seeking capital appreciation with an emphasis on safety. Company characteristics 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. Company characteristics may include: higher balance-sheet leverage, dynamic business environments, and higher levels of earnings and price volatility. S - Speculative Risk - High-growth situations appropriate only for investors willing to accept a high degree of volatility and risk. Company characteristics may include: unpredictable earnings, small capitalization, aggressive growth strategies, rapidly changing market 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 12 months but there is no guarantee the objective will be achieved within the specified time horizon. Price targets are determined by a subjective review of fundamental and/or quantitative factors of the issuer, its industry, and the security type. A variety of methods may be used to determine the value of a security including, but not limited to, discounted cash flow, earnings multiples, peer group comparisons, and sum of the parts. Overall market risk, interest rate risk, and general economic risks impact all securities. Specific information regarding the price target and recommendation is provided in the text of our most recent research report. Distribution of Investment Ratings. As of September 30, 2015, Baird U.S. Equity Research covered 737 companies, with 51% rated Outperform/Buy, 48% rated Neutral/Hold and 1% rated Underperform/Sell. Within these rating categories, 13% of Outperform/Buy-rated, 6% of Neutral/Hold-rated and 1% rated Underperform/Sell companies have compensated Baird for investment banking services in the past 12 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 stock price performance; 2) ratings and direct feedback from our investing clients, our institutional and retail sales force (as applicable) and from independent rating services; 3) the analyst's productivity, including the quality of the analyst's research and the analyst's contribution to the growth and development of our overall research effort and 4) compliance with all of Robert W. Baird s internal policies and procedures. This compensation criteria and actual compensation is reviewed and approved on an annual 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 banking transactions. A complete listing of all companies covered by Baird U.S. Equity Research and applicable research disclosures can be accessed at 11

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