© STIHL INCORPORATED

STIHL Inc.Virginia Manufacturing Development / Small Business Commissions

Carter Barrett

Manager of Financial Accounting

June 14th, 2013

Industry View on Machinery and Tools Taxes for Investment Decisions

© STIHL INCORPORATED

STIHL Group International Footprint

North America:

S

M

South America:

S

M

Europe:

SM

Asia:

S

M

Oceania:

S

Africa:S

Sales Subsidiaries =

Manufacturing Subsidiaries =

SM

6 Manufacturing Countries

© STIHL Inc. 3< >

STIHL Distribution Structure

Manufacturing Companies (DE, US, CH, BR, AT, CN)

Marketing Companies (32)Importers (120)

Retailers (40,000 servicing

dealers)

End User

© STIHL Inc. 4< >

SNW

PASIMS

BME

NES

CRA

SSE

BES

MWS

MVS

MAS

Oregon

Nevada

Idaho

Montana

Wyoming

Utah

ArizonaNew Mexico

Colorado

Texas

Oklahoma

Kansas

Nebraska

South Dakota

North Dakota

Minnesota

Wisconsin

Upper Michigan

Lower Michigan

Ohio

KentuckyVirginia

Tennessee

AlabamaGeorgia

Florida

South Carolina

North Carolina

Arkansas

Missouri

Delaware

Connecticut

New Jersey

Massachusetts

Maryland

New York

Pennsylvania

MaineNew Hampshire

Vermont

Rhode Island

Iowa

SSW

Louisiana

STIHL Inc., Virginia Beach

Map of STIHL Inc. Distribution

Company OwnedNES – Northeast STIHLSNW – STIHL NorthwestPAS – Pacific STIHLMAS – Mid-Atlantic STIHLIMS – Intermountain STIHLMVS – Mississippi Valley STIHL

Independently OwnedBES – Bryan EquipmentBME – Blue MountainCRA – Crader DistributingMWS – Midwest STIHLSSE – STIHL SoutheastSSW – STIHL Southwest

© STIHL Inc. 5< >

In Virginia Beach, what started like this…

Innovation is our Tradition

© STIHL Inc. 6< >

015 L

… and this

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…has become a World Class Manufacturing Facility…

© STIHL Inc. 8< >

…. like that

North

Main Campus

Finished Goods Warehouse2525 International

Guide Bar Plant

MilcomBuilding

Avenger Building

Raw Materials Warehouse

Plant 1

Plant 2

Lillian Vernon Building

AdminBuilding

HermesBuilding

Accessories Plant

Finished Goods Warehouse601 Central Size: 2.2 Mil sf

Land: 151 Acres

1,900 Employees

Health & Wellness Center

Virginia Beach Site

© STIHL Inc. 9< >

Buildings (incl. Branches) 2.4 Mil. sf

Land 179 acres

Employment 2,100

Annual Sales > $ 1 Billion

STIHL Inc. USA – 2012 Statistics

Number of Models 250+

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Core Manufacturing Areas

InjectionMoldingBlowMoldingExtrusion

Chain Saws

Power Tools

Accessories

PolymerProcessingAssembly Machining

Crankshaft

Piston

▪Laminated

▪Lightweight

Guide Bar

© STIHL Inc. 11< >

Assembly

© STIHL Inc. 12< >

Injection Molding

© STIHL Inc. 13< >

Piston Manufacturing

Pistons machined and assembled2/3 of all STIHL pistons are produced in USA.

© STIHL Inc. 14< >

Guide Bars: Built in America

Most Automated Guide Bar Facility in the World

Automated Stamping, Welding, Assembly, Painting and Packaging of Guide Bars

22 different types

© STIHL Inc. 15< >MFG Engineering 11.06.2013

12011297

55

89

1 3

1836

40

79

104

0102030405060708090

100110120

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Automation 2002 - 2013

Number of Robots at STIHL Inc.

© STIHL Inc. 16< >

1974

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1989

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1991

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1996

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2002

2003

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2005

2006

2007

2008

2009

2010

2011

2012

STIHL Inc., USA - Production 1974 - 2012

Production since inception50 Million Units

© STIHL Inc. 17< >

Built in America

© STIHL Inc. 18< >

Worldwide Units Production

Compete with STIHL affiliates and suppliers around the globe to produce at the best value while maintaining quality.

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STIHL Inc. Examples of Manufacturing and Cost Control

Labor Costs Material Costs Indirect Material Supplies Overhead Costs Investments

Tax Burden Federal and State Income Tax Sales and Use Tax

Manufacturing Exemption in Virginia Business Personal Property Real Estate Tax

Foreign Exchange

Controllable Costs Uncontrollable Costs

© STIHL INCORPORATED

U.S. Tax Environment

The overall U.S. tax environment U.S. one of the highest income tax rates

Taxes have a significant impact on the costs of production and directly impacts STIHL Inc.’s ability to compete for investment against our affiliates 3rd parties

Tax reform’s hot topic Can the United States compete in a global economy?

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© STIHL INCORPORATED

STIHL Inc. Manufacturing Automation has been a key component in making STIHL Inc.

competitive worldwide.

Helps level the playing field with countries with lower labor rates.

Ensures repetitive tasks are completed to specifications and improves ergonomics for employees.

Employment at STIHL Inc. has continually grown with automation.

No regular employee has lost a job due to automation.

Has enabled us to continue to grow and provide more higher skilled jobs.

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© STIHL INCORPORATED

Machinery and Tool Tax

Machinery and Tool Tax makes automation more costly City of Virginia Beach has always had a relatively low M&T tax

rate, which assisted with the ROI on automation over the years.

A Forever Tax

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Cost - 1980$250,000

Appraised Value @ 33%

$82,500

VA Beach Tax@ 1%

$825 annually

Other Localities@ 3%

$2,475 annually

23 Years of Tax$18,975

23 Years of Tax$56,925

© STIHL INCORPORATED

Virginia Beach doing something

In 2012, Virginia Beach repealed the M&T tax, further helping manufacturers compete internationally.

Tax dollar savings Reporting of assets still required

Every new investment competes against other STIHL manufacturers and suppliers worldwide

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Cost - 1980$250,000

Appraised Value @ 33%

$82,500

VA Beach Tax@ 0%

$0 annually

© STIHL INCORPORATED

Conclusion

When competing for production, cents per unit can make all the difference.

Virginia Beach is doing something about it.

Thank you for your time.

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*A majority of STIHL products are built in the United States from domestic and foreign parts and components. "Number one selling brand" is based on syndicated Irwin Broh Research as well as independent consumer research of 2009-2012 U.S. sales and market share data for the gasoline-powered handheld outdoor power equipment category combined sales to consumers and commercial landscapers.

*